LAW FIRMS and sole practitioner solicitors, many of them already under severe pressure due to the collapse in the housing market and the faltering economy, are facing a sharp rise in their premiums for professional indemnity insurance.
With annual premiums due for renewal in the new year, the Solicitors Mutual Defence Fund has written to members advising them in many cases that it is seeking to increase premiums by 130 per cent and by considerably more than that in certain instances.
While legal fees for clients could rise as a result of the increase in overheads, some members of the profession believe the development has potential to drive many sole practitioners out of business.
The fund, established 21 years ago to keep indemnity costs to a minimum, is understood to attribute the increase it is seeking to a "poor claims experience", the rising cost of reinsurance, the small size of the Irish market and turmoil in global financial markets.
In its 2007 annual report, the fund said "the level of claims and in particular their quantum are continuing to grow at an unacceptable level" and warned that the value of its investments had fallen in line with weakness in the financial markets.
The fund, which last year had a membership of 1,341 firms representing 3,653 solicitors, declined to make any representative available to answer queries about the increase.
Although most of the larger legal firms procure their insurance through brokers, smaller firms and sole practitioners are heavily dependent on the fund as some commercial insurers do not quote for such business.
Professional indemnity cover is compulsory for all solicitors, with a minimum level of indemnity of €2.5 million per solicitor required since 2005. Solicitors are also advised to carry top-up cover, to meet the risk that the possibility of exposure to "long-tail" claims could leave them without sufficient cover many years after a claim is lodged.
The fund accepts liability for 10 per cent of every claim up to a set threshold for the period in question - €2.5 million in 2006 and 2007, for example - and places the remaining 90 per cent in the London reinsurance market.
The fund's lead insurer and broker has traditionally been the British unit of US insurance giant AIG, which has been rescued by the federal authorities in the US after a series of disastrous investments in derivatives markets.
