The Solicitors' Professional Indemnity Insurance Regulations 2018 were published on 14 September 2018. Included in the Regulations are the Minimum Terms and Conditions applicable to the indemnity period 1 December 2018 to 30 November 2019 ("2018 MTC"). At first glance there are very few changes of significance and most of the changes are housekeeping. However, one area which could have a potential impact on insurers reserving their rights in relation to cover is the dispute resolution provision for arbitration.
First, it extends the arbitration clause (which previously just covered all disputes and differences arising under or in connection with the Policy) to specifically include any dispute or difference regarding the failure on the part of an Insurer to confirm cover. This means that an Insured who feels that an Insurer has been slow to confirm cover could refer the dispute to arbitration.
Second, the arbitrator – instead of the Law Society, which previously had this power – can direct, on an interim basis pending hearing or resolution of any arbitration, without prejudice to any issue in dispute between the Insured and the Insurer, that the Insurer shall conduct any claim against the Insured, and/or advance defence costs to the Insured and/or if appropriate compromise or pay any claim against the Insured and/or such further or other interim relief as the arbitrator deems apposite; such a direction by the arbitrator to be known as a Direction. This change makes sense because such a power sits better with an arbitrator to whom a dispute has been referred, rather than the Law Society.
However, the option to apply for a Direction appears to be limited to Insureds as the provision provides: Such a direction may be made following an application by the Insured, after allowing both the Insured and the Insurer an opportunity to make submissions as to whether such a Direction should be made, and where applicable, after receiving responses to any questions that the arbitrator may have regarding inter alia the degree of engagement between the Insurer and the Insured prior to the application for a Direction, and/or the degree to which the Insured has cooperated with the Insurer in relation to the provision of information and documentation in relation to the Claim, and/or the degree to which the Insurer has theretofore assisted the Insured with the Claim. While this limitation is not entirely clear, on a practical level, it is more likely that Insureds (rather than Insurers) would refer a dispute to arbitration.
Third, the parties to an arbitration must notify the PII Committee in writing of the arbitration within 28 days of the arbitrator's final award to include certain information including the subject matter of the dispute, the nature of the relief sought, whether a Direction has been sought or granted, and a summary of the final decision of the arbitrator.
The provision to allow an Insured to refer a delay in cover to an arbitrator may provide some comfort to an Insured who is concerned over the delay of an Insurer to confirm cover. However, in my experience, Insurers are keen to make a decision on cover but delays occur when Insureds fail – for whatever reason – to co-operate and/or the Insured's file is not available to the Insurer. It is in those, relatively rare, situations that Insurers will hold off on confirming cover until they have sufficient information to make a decision. Indeed, where Insurers reserve their rights, they tend to still appoint solicitors to come on record for the Insured, to protect both Insured and Insurer's positions.
If an Insured seeks to arbitrate a reservation of rights, an application for a Direction by an Insured might actually assist Insurers. This is because an Insurer could then seek to persuade the arbitrator to not to make a Direction until such time as the Insured has co-operated and provided all necessary documentation and assistance to the Insurer to make a decision on cover. Equally, if an Insured seeks to arbitrate a declinature but delays in progressing the arbitration, an application for a Direction might be helpful to Insurers to put pressure on an Insured to progress the arbitration.
Arbitrators should also watch this space!