Claims threat to solicitors

Increased indemnity costs could cause high-street failures

Pressure from the high cost of claims, coupled with new attacks from the market to simplify conveyancing, could spell the end for thousands of small high- street solicitors' practices across the country.

The Solicitors Indemnity Fund, which covers lawyers against claims of negligence, has recently announced that members will need to stump up pounds 267m for the fund in the 1997-1998 year. In addition the fund has a shortfall of pounds 454m. Conveyancing is the one largest call on the fund, with up to 35 per cent of all claims coming from this one source.

The figures have caused consternation in the profession. Martin Mears, who was president of the Law Society two years ago, is standing again for the presidency, partly over the deficit.

He is demanding an independent investigation led by accountants and actuaries. He describes the deficit as "a bomb waiting to explode".

David James, a solicitor with Bradford & Bingley Building Society, predicts that much more pressure on high-street firms could well lead to a major shake- up. "My experience is that conveyancing standards were poor in the late Eighties among some firms, and my perception is that standards have improved visibly since then."

But, he goes on, many high-street solicitors are now so nervous of leaving any openings which could expose them in future claims that "they are not helping lenders or the general public".

"We could well see a complete shake-up over the next few years, with a lot of high-street firms closing, which would be a great loss on many counts."

Costs are the main factor. According to figures produced by the Law Society, in 1995-96 a firm with gross fee income of pounds 135,000, involved in low-risk work and with a good claims record, would have paid pounds 5,100. A firm with a turnover of pounds 3m in the same position, however, would have had to pay pounds 55,000. These rates, though, would rise by 50 per cent, to cover the pounds 267m. According to Mr Mears, the bill will work out at pounds 18,000 for every qualified solicitor in practice.

In the meantime, the SIF has yet to decide how to collect money to cover the deficit, which relates to claims in some cases from the late Eighties. Elizabeth Mullins, the managing director of the SIF, says that a meeting before the council of the Law Society next month will decide on how to tackle the problem.

One solution may come from the market. An American insurance company, First American Title Insurance, is attempting to launch title insurance in the UK. The policy it is working on would replace standard conveyancing routines with simple on-line checks about the property. In return, the lender and the buyer would be covered against any loss arising from the purchase, on areas where the solicitors usually provide an opinion. New technology, including the use of on-line searches, is also likely to cut back the manpower needed for traditional-style conveyancing.