05 Nov 2020

As we begin a second national lockdown, the challenges facing law firms have not abated. The pandemic has been a real test of law firm's IT systems, business resilience and business continuity plans. Vulnerabilities in these areas will be the primary source of COVID-19 related professional indemnity claims against solicitors but rapid changes in some practice areas bring further risks and challenges. We examine the risks and assess how the pandemic has impacted claim trends against solicitors.

Business resilience

The pandemic has been a real test of law firms' business resilience, resulting in operational challenges common to all firms. Some of these challenges include a change in supervision regimes and collaboration amongst staff.

The pandemic has resulted in widespread homeworking across the legal industry, with the government's advice to work from home unlikely to change for the foreseeable future. Looking ahead, many firms are reported to be considering adopting a hybrid model of part-remote working and part-office working on a permanent basis. Regardless of whether the current homeworking model continues once/if an effective vaccine is found, the increased use of communications technology across the legal industry will certainly permanently affect the industry going forward.

It is self-evident that the risk of claims is increased if the quality of advice or service to clients suffers as a result of these challenges and anecdotally, there are reports of an increase in notifications to insurers of circumstances and claims arising out of supervision failures.

Business continuity

Law firms' focus and approach to their business continuity plans will likely have changed as a result of COVID-19, with insufficiently developed business continuity plans leaving some firms exposed to claims during the pandemic. The main risks stem from missed deadlines – and there is some anecotal evidence of an increase in circumstances and claims arising out of missed deadlines – physical documents going missing and staff absences.

Deadlines can be missed for any number of reasons but the pandemic has presented some unique circumstances which law firms have had to adapt to, particularly for those firms without appropriate back-up systems in place.

The approach to physical files has also changed in the legal industry, with most solicitors now working completely electronically where possible. Where used, the management of physical files is a vulnerability which should be mitigated for example by keeping a record of where these are being scanned, sent and stored.

The pandemic has also resulted in staff absences, with many firms using the government's furlough scheme and operating with skeleton staff, at least in the early parts of lockdown. This has resulted in law firms pooling resources and restructuring work flows and staff structures. Again unless there is a clear plan about how work is to be covered, the quality of advice to the client may suffer and the risk of claims increases.

Challenges for particular work streams

COVID-19 has had varying impacts on law firms' work streams as a result of rapid changes to legislation and innovation in a number of practice areas. We consider a few of these below.

Conveyancing

Conveyancers saw much of their work grind to a halt when the lockdown restrictions came into place. People could not move home and new instructions dried up. Many transactions stalled or fell through as buyer confidence diminished and we heard reports of solicitors failing to communicate and to progress matters amongst the uncertainty.

However, once the housing market re-opened, there were reports of pent-up demand which was further buoyed by the "stamp duty holiday". The stamp duty holiday means that nearly nine out of 10 transactions are no longer subject to stamp duty until 31 March 2021 and the average stamp duty bill has dropped by £4,500. It is likely that conveyancers will be under immense pressure in the months ahead to get transactions completed by 31 March 2021.

Wills

Private client solicitors dealing with wills have also had to respond rapidly to an evolving situation. At the start of the lockdown, there was a huge surge in demand for wills. We saw some creative solutions (such as "wills through the window") but not all firms were agile enough to adapt quickly to these practical challenges and some may have used untested solutions and increased their risk exposure as a result.

More recently, the government has pushed through a Statutory Instrument to allow video witnessed wills. These measures will help alleviate some of the practical difficulties that individuals have had making wills during the pandemic but sadly we anticipate that they may also add further fuel to the trend we have seen in recent years of a growth in claims by disappointed beneficiaries. For example, questions may be asked such as "who was behind the camera?", "did they exert undue influence?" and "did the testator have capacity?" etc.

Litigation

Litigators were among the first practitioners to see real practical change as a result of the lockdown with an almost wholesale move to remote hearings very quickly back in April as well as new rules and practice directions dealing with extensions of time and remote hearings.

Litigators may also have noticed an increase in parties' willingness to settle, with the commercial court recording a 15% increase in settlements of claims. Claimants may be more responsive to early settlements if cash flow is an issue. It is important for solicitors to ensure that clients make fully informed decisions around settlement in order to avoid under-settlement type claims in the future.

Government financial schemes

With this year bringing unprecedented government support for businesses, many firms will have found themselves advising clients on the various new coronavirus business support grant schemes.

In particular, the government's furlough leave scheme resulted in an increase in work for employment solicitors, with many clients seeking advice and clarification on the scheme and the impact on their business.

Commercial and corporate

These practice areas were some of the worst hit during COVID-19, largely due to future uncertainty. Many firms reported a drop in new work and the pausing of current matters. Looking further ahead, there is likely to be an increase in insolvency work and M&A work as some businesses falter and others pursue restructuring options.

It is important that solicitors are not tempted to dabble in an unfamiliar practice area. If things go wrong, they will be judged by the standard of the reasonably competent solicitor practising in the area in which they have held themselves out as having expertise.

Comment

Knowing the law and keeping abreast of developments in your practice areas is a given for solicitors. Managing risk is also about paying attention to business resilience, business continuity plans, efficient IT systems, resourcing, processes, communication with clients and ensuring that communication is recorded on the file. And, of course, engagement letters and good file notes are absolutely essential.