A SPECIAL meeting of the council of the Law Society has been called for next week to discuss the future of the profession’s main provider of professional indemnity insurance, and the future of professional insurance generally.
It is understood the Solicitors’ Mutual Defence Fund (SMDF) is facing liabilities of €170 million, 90 per cent of which is covered by reinsurance, leaving a €17 million shortfall. It is understood the fund is seeking €25 million contingency from the society to cover its liabilities.
This follows a request to the society last year to guarantee an €8.4 million loan to the fund, to which the society agreed, when the fund lost 97 per cent of €8.4 million from its reserves which were invested in a bond.
The fund was set up by solicitors in 1987 in response to the high level of premiums from commercial insurers and its seven directors include two former presidents of the Law Society and a serving council member. Its executive chairman is leading Dublin solicitor Laurence Shields.
The fund sued its stockbrokers, Bloxhams, over the bond in the Commercial Court, and the case was settled on confidential terms. It is understood Bloxhams agreed to repay approximately the value of the bond over a period of years.
Among the proposals discussed before the meeting on Wednesday is a levy on society members to fund the €25 million contingency sought by the fund and proposals aimed at winding it down.
The fund provides insurance to about 60 per cent of law firms. It is unlikely that those not insured with the fund will welcome a levy to support it, which they would have to pay on top of their own personal indemnity insurance, which has escalated sharply in recent years, due primarily to a high number of claims arising out of malpractice in property transactions.
Last year, a special general meeting was called by 100 society members to discuss the €8.4 million loan guarantee to the fund. A number of motions critical of the decision were put to the meeting. However, they were defeated.
Explaining last year’s decision, the then president of the society Gerry Doherty, said: “It was done in order to ensure a competitive professional indemnity insurance renewal market at the end of last year and to avoid the chaos of a potential market failure.”
Despite this, many solicitors had difficulty obtaining professional indemnity insurance at the end of last year. Fifty-five solicitors’ firms were unable to renew their insurance, a requirement for a practising certificate and applied to join the society’s “safety net” insurance scheme, the assigned risks pool.
This scheme is operated by the society and provides insurance cover for those unable to obtain it in the market. Solicitors who join it pay much higher premiums, for more limited cover, than available in the marketplace, but they can leave the pool when they obtain insurance from an insurer.
Asked about the possible insolvency of the fund, the society's director general Ken Murphy told The Irish Times: "All questions about the fund should be addressed to the SMDF."
Asked if a council special meeting had been called to discuss it, he said he was unable to discuss the matter, adding that the fund was a separate organisation from the society.
Mr Shields did not return calls from The Irish Times, nor did three members of its board when contacted by the newspaper.