ATE: Was there a public policy failure?
The Solicitors Regulation Authority (SRA) is investigating why after-the-event (ATE) insurers have not paid out on policies arranged by the collapsed law firm SSB Group.
It is also looking at whether wider issues in relation to ATE insurance have been exposed.
The SRA is liaising with others, such as the Financial Conduct Authority and Ministry of Justice, “to understand collectively if there is a public policy failure and how it can be fixed”.
On the back of increasing concern expressed by MPs, and coverage in national media, the regulator took the unusual step of issuing a statement on the SSB Group, where nearly 200 staff were made redundant after it formally went into administration in January, owing six litigation funders £200m.
The focus is on the cavity wall insulation claims it ran where the ATE is being repudiated, leading to successful defendants and their insurers seeking to enforce substantial costs awards against clients.
The statement said the SRA was looking at whether SSB met its professional obligations when putting the ATE in place.
“As part of our investigation, we need to understand why ATE insurance providers haven’t paid the defendants’ costs in these cases.
“In terms of SSB Group, we will investigate a range of issues including whether the firm properly assessed the merits of claims, explained any potential liabilities to clients and what information it gave to its clients about the ATE insurance policies.”
It is also considering what assessment SSB made of the cover that was provided to clients and whether risks were properly managed on claims when they arose.
The SRA said it was reviewing a sample of client files and checking SSB’s systems and processes, and would interview directors and staff where necessary, as well as engage with the ATE providers.
It continued: “This case raises questions about the role of ATE insurance providers and surveyors – as well as whether there are broader issues in relation to legal services.
“We are therefore liaising with the Financial Conduct Authority (which regulates the ATE providers) and the Royal Institution of Chartered Surveyors (which regulates surveyors) to share information and insights and understand what action they may be taking, looking at the involvement of ATE providers and surveyors in these cases and to consider whether there are any wider issues or gaps in the current market…
“In addition to conducting our investigation, we are separately engaging with the FOS, FCA, RICS, the Ministry of Justice and other organisations to explore further the protections for consumers in respect of ATE insurance.
“We need to understand collectively if there is a public policy failure and how it can be fixed.”
In terms of redress, the SRA pointed to SSB’s professional indemnity insurance in the event that negligence could be proved, but added that, in the absence of dishonesty, its compensation fund would not step in to help clients.
Clients could also try complaining to the Legal Ombudsman – which will try to contact SSB’s directors, while awards can be enforced against the firm’s insurer – and the Financial Ombudsman Service
The SRA concluded: “Given the significant consumer detriment and serious questions this case raises, we are committed to progressing our investigation as swiftly as possible, while making sure it is thorough and fair.”
MPs have said that the SRA investigated SSB last year but took no action. A spokesman for the regulator refused to comment on whether it was concerned that it missed red flags.
Manchester firm JMR Solicitors has taken on SSB’s live cavity wall cases and says it is “confident” of pursuing professional negligence claims either against SSB or its professional indemnity insurer – several other firms have also been marketing for such cases.
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