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The Association of Law Costs Draftsmen’s chairman Iain Stark was reported in Post Magazine (see link) as warning law firms against using uninsured legal costs advisors to draw up complex bills. This was on the basis that: “If a mistake or a delay in delivering the bill of costs is detrimental to the client, the client can – and will – sue the law firm for compensation and the firm will pass that claim on to the costs advisor. If the advisor does not have PI insurance the law firm’s own insurer will be picking up the compensation bill.” The ALCD therefore advised that only costs lawyers are instructed to undertake this work.
The importance of ensuring that the costs advisors that law firms instruct are properly insured should obviously not be underestimated.
As the chairman highlighted: “We have reports of several mistakes and delays in bills of costs resulting in compensation claims, some for hundreds of thousands of pounds”.
At this stage, ALCD members will be having a good chuckle to themselves. Costs lawyers, who are regulated by the ALCD, are indeed required to have professional indemnity insurance. However, they are required to have insurance with an indemnity of up to only £100,000. Not much good if a mistake has led to a loss of “hundreds of thousands of pounds”. You might have thought it appropriate for the ALCD chairman to mention this small detail.
Interestingly, I’m not sure the ALCD really understands exactly what it does require from its members in terms of insurance. Professional indemnity policies can have different definitions as to what is covered by the limit of the indemnity. For example: Costs lawyer has nervous breakdown. Thinks he’s Lady Gaga. Fails to attend five detailed assessment hearings. Client loses £50,000 as a result in each case. Client sues solicitors. Solicitors sue costs lawyer. Costs lawyer recovers from nervous breakdown and makes claim on insurance. Is the claim under the insurance policy going to be treated as five different claim, each well within the £100,000 limit, or a single claim (caused by the single event of a nervous breakdown) for £250,000 leaving a £150,000 shortfall? Different polices deal with this differently. The ALCD doesn’t specify which type of policy is required.
The ALCD also requires the insurance to include £100,000 cover for “loss of documents”. What does “loss of documents” mean? Is it meant to cover the cost of trying to recover or replace the physical papers themselves or the consequential losses of losing the papers (ie being unable to draft a bill)? The last time our firm renewed our insurance the ALCD was unable to give a clear answer as to what was required.
It goes without saying that £100,000 is entirely inadequate for costs lawyers doing anything but the most low value work, and my firm has always had cover that far exceeds this level, but I would not be surprised if many ALCD members carry no more than the minimum requirement.
It is understandable for the ALCD to promote the interests of its members (of which I am one) and to highlight the benefits of using one of its members. I’m not so sure that the majority of members would agree that the best way to promote members’ interests is to try to destroy the livelihoods of non-members by embarking on publicity campaigns to try to persuade solicitors that non-members are unsuitable to undertake costs work; but perhaps I missed that vote. However, if the ALCD is to go down that road, it needs to make very sure it is presenting its case on very strong ground. The issue of ALCD members’ professional indemnity insurance is not currently one of them. Indeed, it is one area the ALCD would have been better advised keeping rather quiet about.
The question I am left pondering is the following. Insurer follows Mr Stark’s advice and instructs costs lawyer to prepare “complex” bill of costs. Costs lawyer messes up. (Hey, it might happen). Client suffers £300,000 loss. Client sues solicitors. Solicitors sue costs lawyer. Costs lawyer makes claim on his insurance policy and insurer pays out £100,000 limit. Will the ALCD be pursued for the shortfall on the basis of statement made by ALCD chairman that instructing costs lawyers eliminates the risk of a claim being made on the solicitor’s insurance, when this is clearly not the case? I wonder what the ALCD’s own professional indemnity policy covers.