The trend is good

The Annual Master Policy Report for 2016 is available to solicitors on the Marsh website for Scottish solicitors – www.marsh.co.uk/login/lawscot. To access the report on the website, a username and password is required (each practice has been provided with its own username and password). If you need assistance with username/password or accessing the website, or if you would like a hard copy of the Annual Report, please contact nada.jardaneh@marsh.com

Number of intimations

From the perspective of risk management and the effectiveness of the profession’s risk controls, the number of intimations is one of the key measures. The standout feature of the claims experience in 2014-15 was the very substantial reduction in the number of intimations. This continues a welcome downward trend in the frequency of intimations since 2011-12, in particular (a) a significant reduction in lender claims, and (b) a steady reduction in intimations of other property or conveyancing-related claims. One key driver for these reductions is considered to be a reduction in underlying activity in prior years.

Lender claims

Since 2007-08, the most significant feature of the claims experience has been the high number and value of lender intimations, particularly intimations arising from allegations of breach of one or more of clauses 5.1.1, 5.9, 6.4.4, and 6.4.5 of the CML Handbook.

Both the number and value of CML Handbook-related intimations peaked in 2011-12 and (apart from a spike in 2013-14) have markedly reduced since then. That reduction is even more pronounced in the current year.

Litigation intimations

After a reduction in the number of litigation intimations in two successive years following a peak in 2010-11, there have been successive increases over the past two years.

As in other recent years, personal injury work gave rise to the highest number of intimations in the litigation claims experience in 2014-15. Commercial litigation has the second highest, having overtaken family law. The numbers of commercial litigation and family law intimations are, however, relatively low. There are no clear reasons for this trend.

In previous years, the litigation claims experience has been dominated by time-bar intimations, particularly arising out of failure to raise personal injuries actions within the relevant limitation period, although the number of such intimations has been gradually reducing in recent years. In 2014-15, the number was consistent with numbers in recent years. Given the large number of court actions raised in Scotland, the relatively small number of time bar intimations reflects very favourably on the profession’s management of critical dates.

Closely related to time bar (because compliance with critical dates is essential) are intimations arising from the court procedure laid down by the court rules. An example is failure to lodge a Court of Session summons to court within the appropriate time limit.

Wills, trusts and executries

In contrast to the litigation claims experience, the number of intimations arising from wills, trust and executry work, which had been increasing year on year until 2012-13, reduced slightly in 2013-14 and more significantly in 2014-15.

Recurring causes of claims include: executry administration – allegations of delay causing loss to the estate or beneficiaries, and errors in distributing the estate; will drafting – allegations of drafting errors where it is alleged that the estate did not devolve in the way intended by the testator.

Corporate/commercial

From the outset of, and throughout the recession, insurers were concerned that the failure of businesses and commercial deals could result in an increase in commercial and corporate claims against solicitors as clients sought to revisit advice and drafting.

In the event, corporate/commercial-related intimations continue to be very infrequent and the record of intimations does not appear to have been adversely affected by the recession.

As a general observation, corporate/commercial transactions tend to be of high value. As a consequence, if something goes wrong, there is scope for more costly claims. It is therefore not surprising that the average value tends to be relatively high compared with other categories of claim.

External fraud or dishonesty

Claims arising out of external fraud or dishonesty (i.e. on the part of third parties) are a feature of the claims experience over the three most recent years. The number of intimations is very low, but the sums involved can be significant.

Notwithstanding the very low number of intimations, external fraud involving either theft of funds from solicitors’ client accounts by accessing online banking or criminals giving fraudulent payment instructions by email purportedly from the client, is a current significant concern, as mentioned below.

It is clear that the profession is being increasingly targeted by cyber criminals because of the large sums held by practices in their client accounts. Recent experience of claims and “near misses” proves the determination of fraudsters and the alarming sophistication of the frauds and scams they commit.

Risk management in 2016

The incidence of external frauds, scams and cyber risks and the potential for significant losses and costly claims provide clear justification for the Society to continue to focus on the risk as its risk management target for 2016.

The emphasis of risk management activities during 2015 was therefore on raising awareness of the risks and advising on appropriate controls to manage and reduce the risks. With those objectives in mind, Marsh and the Society issued risk alerts and e-bulletins; Marsh wrote or commissioned Journal articles; Marsh added a frauds and scams e-module to its website for the profession; and, also in 2015, Marsh created a dedicated frauds, scams and cyber risks section with materials available for download.

During 2016, in addition to a range of other risk management activities, Marsh will be adding further materials, tools, and resources to the Marsh website for Scottish solicitors to assist practices in assessing and addressing risk issues, in particular:

• a fraud response plan;
• a frauds and scams self-assessment checklist;
• a cyber risks action plan; and
• an insurance gap analysis.

Russell Lang and Marsh

Russell Lang is a former solicitor in private practice, who works in the FINPRO (Financial and Professional Risks) Practice at Marsh, a global leader in insurance broking and risk management. To contact Russell, please email russell.x.lang@marsh.com

The information contained in this article provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisers regarding specific coverage issues.

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