New report published: IBA International Principles on Professional Indemnity Insurance for the Legal Profession

Tuesday 14 March 2023

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The International Bar Association (IBA) Bar Issues Commission Policy Committee and the IBA Legal Policy & Research Unit (LPRU) formed a working group to raise awareness of the concept of professional indemnity insurance in the legal profession and has now published a report to assist bar associations and regulatory bodies in addressing three principal issues relating to professional indemnity insurance:

1. Should such insurance be mandatory and if so, under what conditions?
2. Should whether or not the attorney maintains professional indemnity insurance be mandatorily disclosed?
3. If so, to whom should it be disclosed: the client, the public or a regulatory body?

Professional indemnity insurance is intended to provide coverage for lawyers, and those acting under their direction, for errors and omissions relating to their provision of legal advice and other engagements in the practice of law. However, during research for the new report, IBA International Principles on Professional Indemnity Insurance for the Legal Profession, the Working Group found there to be little global uniformity as to the requirement of a lawyer to hold professional indemnity insurance, and where a requirement does exist, there is no consistency in terms of the extent or scope of the coverage.

Ken Murphy, BIC Chair, remarked: ‘Professional indemnity insurance is highly consequential for everyone involved with the legal profession, but there is comparatively little awareness of the framework or concept at a global level. It is my hope that following the extensive work carried out by the Working Group the principles laid out in this new report will provide bar associations and regulatory bodies with some guidance around the issues involved in professional indemnity insurance.’

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Steven M Richman, Co-Chair of the Working Group and BIC Vice Chair, commented: ‘We acknowledge that individual bar associations and regulatory bodies are best placed to assess the needs of their jurisdictions, taking into account their capacity and available resources. However, the core principles of the legal profession are shared across the world, and this report seeks to provide a framework for evaluating the issues surrounding professional indemnity insurance to assist bar associations and regulatory bodies in determining the answers to the questions posed by the report. Special thanks to Anurag Bana of the LPRU for his work on this.'

A 2014 survey undertaken by The Council of Bars and Law Societies of Europe (CCBE) found that most European countries have mandatory professional indemnity insurance, but within the United States, which is one of the largest legal markets in the world, only two states (Idaho and Oregon) require lawyers to hold professional indemnity insurance. Malpractice insurance is mandatory in Canadian and Australian provinces/states, but far less common across Africa, Asia and South America.

The IBA report outlines a set of eight principles on which bar associations and regulatory bodies should focus when assessing the needs of their jurisdictions on these issues. They are:

1. Independence – Professional independence is integral to legal practice, and it is important that bar associations and regulatory bodies protect lawyers against external pressures that could affect this principle. Requiring lawyers to have insurance can provide clients with assurance that their lawyer will act independently.
2. Competence – Lawyers must be competent to perform legal services, providing the required level of care, skill, and diligence to their clients’ cases. Malpractice insurance can protect lawyers against professional liability claims, but it may not be necessary for such insurance to be mandatory, for example, in fields where the risk of mistakes and exposure for negligent results is low.
3. Integrity – Lawyers should maintain the highest standard of honesty, integrity and fairness towards clients, the court and colleagues. Acting in accordance with these standards mitigates the risk of fraud allegations, which are excluded in many professional indemnity policies.
4. Risk – Requiring lawyers to purchase and maintain professional indemnity insurance can mitigate the financial risks they face in cases of cyber-attacks and investigations into the handling of client funds. In jurisdictions where insurance is not mandatory, expensive litigation claims could cause firms to become insolvent.
5. Responsibility – Lawyers have a responsibility to familiarise themselves with local requirements for professional indemnity insurance and any obligations to disclose this information. It is also legal practitioners’ duty to understand insurance-specific terminology to ensure they are purchasing the correct cover for their needs.
6. Communication – Lawyers should treat client interests as paramount. It is therefore considered good practice in many jurisdictions for lawyers to ensure that they secure adequate insurance cover against claims based on professional negligence or malpractice.
7. Confidentiality – Attorney-client confidentiality is a core value of the legal profession; lawyers must comply with all legal and ethical requirements related to confidentiality, and this applies to both present and former clients.
8. Maintaining public confidence – Regardless of professional indemnity insurance status, legal practitioners have a role to play in upholding public confidence in the judiciary. Bar associations and regulatory bodies should emphasise to lawyers the duties owed to their clients to ensure that the public maintains confidence and trust in the legal profession.

The principles are designed to raise awareness of the issues surrounding professional indemnity insurance across global jurisdictions and offer guidance to bar associations considering such issues. The report seeks to provide an analysis of the issues at stake; it therefore does not offer a conclusion in favour of or against mandatory insurance or disclosure.

ENDS