I’ve been blogging about the legal profession’s own private economic crisis since January 2010 but haven’t had time lately to write any updates. Luckily, Flor McCarthy has an excellent blog post on the recent developments. He accurately sums up the frustration felt by many solicitors on the issue:
So for as long as the music kept playing [the SMDF, “run by solicitors for solicitors“] was a great system for all participants. Those paying the premiums felt that they would be looked after by their own in the event of a claim and the lucrative negligence defence work that flowed from this activity was passed out to well connected firms.
But then the music stopped and it turns out the SMDF is the fat kid without a chair. It’s broke. And now it’s looking for the rest of the professional to bail it out.
Effectively, to draw an analogy with the problems affecting the Irish economy over the past few years, the crisis with the SMDF has moved from bank guarantee territory to recapitalisation territory. Solicitors are now faced with a levy of €200 per solicitor per year for at least 10 years in order to avoid a doomsday scenario whereby a large number of negligence claims would not be covered by insurance. This could result in a significant number of bankruptcies on the part of solicitors and unpaid damages on the part of clients.
The justification for the levy is that the reputation of the profession would be damaged if this were allowed to happen. There is also the internal justification of “standing by” fellow colleagues who might otherwise go to the wall. For many solicitors, it has come as quite a surprise to learn that the SMDF wasn’t really providing insurance at all, just a form of quasi-insurance by which cover might be available. Hard to swallow for solicitors who have paid tens of thousands annually for that cover.
The latest news is that an EGM was held last night. It was initially called for the purpose of voting on the levy proposal but a spot of solicitor activism meant that a postal vote of the entire profession must now be held. The proposal will probably be carried, despite grumbles.
Once the SMDF is out of the way, the profession faces a proposal from the Law Society to impose a weird “global policy” where all solicitors will be offered cover at set rates and will not be able to arrange their own cover (or get competing quotes). This system is, in general terms, good for firms who have difficulty getting insurance and bad for firms that don’t. Apparently there will be consultation but the timeframe is narrow. The Law Society’s track record on providing information on these issues has not been great (even where the Government is concerned).
Between the changes expected from the Government as part of the IMF/ECB deal and whatever insurance changes are made by the Law Society, the profession will remain in flux for the forseeable future.