PII Excess: A Growing Risk for Consultant Solicitors

As more solicitors choose to work as consultants within SRA-regulated law firms, a concerning contractual trend has emerged — the passing of Professional Indemnity Insurance (PII) excess liabilities onto consultants. Many consultant solicitors are now bound by consultancy agreements that expose them to significant financial risk, particularly where no cap is placed on liability for excess, and few fully appreciate the long-term implications of these clauses.

This article explores the risks associated with PII excess for consultant solicitors, the legality of such contractual arrangements, and what consultants can do to protect themselves.

Can a Law Firm Transfer PII Excess Liability to a Consultant?

In short, yes — a law firm can, in principle, contractually transfer liability for the excess on its PII policy to a consultant solicitor. This is not unlawful provided certain conditions are met:

1. Clarity and Compliance: The consultancy contract must clearly state the consultant’s liability for the PII excess and must not attempt to exclude liability in a way that would breach the SRA Code of Conduct or the firm’s own PII policy.
2. Policy Terms: The firm’s PII policy should permit such an arrangement. Some insurers place restrictions on who may bear the excess or may require the firm itself to shoulder this responsibility.
3. Informed Consent: The consultant must fully understand and expressly accept the risk in writing, having had a reasonable opportunity to seek independent advice.

Importantly, this risk doesn’t end when the consultancy agreement does. Negligence claims may be brought up to six years (or longer in some cases) after the alleged event. This means that consultants could face liability – and personal financial exposure – long after their consultancy has ended.

Can a Consultant Insure Against the PII Excess?

While insurance is theoretically possible, in practice it is commercially rare and technically challenging. Insurers are often reluctant to underwrite such risks without detailed information and bespoke arrangements.

Potential Insurance Options:

• Directors and Officers (D&O) or personal liability cover, but only if it expressly covers contractual indemnities.
• A specific excess layer policy – highly bespoke and uncommon in the current market.
• A broader PII policy taken out by the consultant (e.g. where the consultant operates through their own regulated entity). Note, however, that this would not satisfy the SRA’s requirements unless the consultant is separately regulated and practising under their own entity.

Key Challenges:

• Exclusions: Most personal or business policies exclude cover for contractual assumptions of liability, particularly where the consultant has agreed to indemnify the firm for PII excesses.
• Cost vs Risk: These policies are often expensive, especially when the perceived risk is low but the potential liability is high.
• Disclosure Requirements: Insurers will likely require full disclosure of the law firm’s PII policy and the consultant’s contractual obligations – something not all firms are comfortable providing.

The Risk in Practice

The lack of a contractual cap on PII excess liability can expose consultants to uncapped personal liability. In a worst-case scenario, a high-value negligence claim could result in a substantial excess amount – potentially tens of thousands of pounds – which the consultant is expected to pay from their own funds.

Furthermore, the exposure can persist for years. Under the Limitation Act 1980, negligence claims can be brought up to six years from the date of the alleged breach, and up to 15 years in cases involving latent damage. A former consultant might therefore find themselves being pursued for an excess payment long after their contract has ended.

Protecting Yourself: Practical Advice for Consultants

If you’re working as a consultant solicitor, it is crucial to take proactive steps to limit your exposure:

1. Review Your Contract: Understand what liability you are assuming — especially regarding indemnity and excess clauses. If your contract is silent on the issue, ask for clarification.
2. Insist on a Cap: Seek to include a reasonable cap on liability for any excess. This is a common and reasonable commercial term in many consultancy contracts.
3. Negotiate Fair Terms: If asked to cover the excess, ensure the clause is express, specific, and proportionate, and avoid broad indemnity clauses that leave you exposed.
4. Obtain Independent Legal Advice: A short review by an independent solicitor with experience in PII and consultancy agreements can save you thousands later.
5. Explore Insurance: While it may not always be commercially viable, ask your broker about available options and disclose the full contractual terms to get an accurate risk assessment.

Our Thoughts

The shift toward consultancy has opened doors for solicitors seeking greater flexibility and independence. However, this freedom often comes with new risks – not least the silent danger posed by PII excess clauses. With some firms contractually shifting their excess liability onto consultants, often without caps or clear disclosures, it is more important than ever for consultant solicitors to understand the financial and legal implications of the contracts they sign.

Before taking on the burden of someone else’s excess, read the small print — and if in doubt, protect yourself before the claim arrives.