NEGLIGENCE FUND SHORT FOR U.K. LAWYERS

LONDON-British attorneys soon will have to decide how to best address a serious shortfall of cash in their negligence insurance fund.

Since the hard market of 1987, British lawyers have been able to buy professional liability insurance only through a fund known as the Solicitors Indemnity Fund Ltd., set up by the Law Society. The fund offers up to 1 million pounds ($1.62 million) for every claim.

Late last month, the board of the tax-exempt SIF announced that as of fiscal year-end Aug. 31, the fund would need an additional 248 million pounds ($401.8 million) to finance paid and potential claims liabilities of 1.54 billion pounds ($2.49 billion) for the past seven years.

The fund stands at 1.29 billion pounds ($2.09 billion).

Claims relate mainly to legal advice given during the real estate market collapse in the United Kingdom from 1989 to 1992, according to Andrew Kennedy, chairman of the SIF. The claims in particular relate to lawsuits filed by lending institutions against lawyers involved in commercial and residential property sales. According to the SIF, there were 10,267 such claims against 4,650 law practices, amounting to 557 million pounds ($902.3 million) during that period.

There has been no increase in professional negligence claims against members of the fund in the past four years, Mr. Kennedy said.

There is enough money in the fund to pay existing claims. However, SIF is requesting that premiums over the coming years be increased to fund the "anticipated increased level of claims." Rates, for example, could be increased 30% for a five-year period to pay for the deficit, the board suggested.

An alternative could be to explore the traditional insurance market to see if professional liability coverage now is available to British lawyers.

However, the cost of insurance probably still would be more expensive than increased contributions to the Solicitors Indemnity Fund, Mr. Kennedy said.

After factoring in brokerage commissions and a margin for profit to the actual claims costs, the insurance market's fees for the cover would likely exceed the fund's by 40%, he said.

The fund has bought reinsurance in the past, particularly for the three worst years ending in 1990, 1991 and 1992, but "it's not available now," Mr. Kennedy said.