The Lawcover PII policy covers the former principals and employees of any prior practice that has been succeeded by a new law practice applying for insurance.
If your law practice acquires or takes on the majority of principals, legal staff, client files, assets or liabilities of a law practice, or holds itself out as a successor to another law practice, then Lawcover will likely consider that the other law practice is a prior practice of your law practice.
Factors Lawcover will consider in determining what constitutes a prior practice are contained in the PII policy. If a new law practice has a prior practice, it:
- Can affect the premium payable.
- Will result in the PII policy responding to claims arising from legal services undertaken by the prior practice.
- Will affect its future premium calculations by taking into account the prior practice’s premium and claims history.
The effects of this are:
- If the prior practice has been operating for more than five years, you may be entitled to a no claims discount, subject to claims history.
- If the prior practice has claims, a claims loading may be applied to the new practice’s premium.
- Continuity of cover under the PII policy will be maintained for all the former principals and employees of the prior practice.
Please see “Considerations when acquiring an existing law practice” below.
You may not have to pay an additional premium if your new practice succeeds a prior practice which has already paid its premium for that insurance year.
New law practices require a new insurance policy and need to pay a premium. Lawcover defines a ‘new law practice’ as:
- A new sole practice that is not a reconstitution of an existing practice
- A new partnership that is not a reconstitution of an existing practice
- A new incorporated legal practice that is not a reconstitution of an existing practice or
- A new unincorporated legal practice that is not a reconstitution of an existing practice.
If the new law practice is not a continuation of an existing practice that has paid its premium (see “Law Practices with a Prior Practice”), then it is a new law practice. The insurance year is effective from 1 July to 30 June in each year. New law practices commencing after 1 July are charged a premium based on their estimated gross fee income (GFI) for the period from commencement to 30 June.
Once the law practice has paid its premium, Lawcover will inform the relevant Law Society, which will then issue practising certificates to the principals and solicitors.
Even if you do not have a prior practice you may, on a discretionary basis, be granted a no claims discount. Lawcover may grant you a no claims discount if:
- You have continuously been in practice as a principal for five full financial years; and
- You and all other principals within the law practice(s) in which you were or are still a principal did not have any claims or notify any circumstances that, due to the potential for a claim, required a claims provision to be made by Lawcover or any previous PII provider.
If you are considering whether to acquire the majority of client files, legal staff or principals of an existing law practice, the claims experience of that law practice will very likely become the claims history of your law practice upon acquisition. So before acquiring a law practice, or before bringing a new lawyer into your law practice, enquire into the professional standing and performance of that law practice or lawyer.
Lawcover provides a helpful guide to assist principals in conducting due diligence when considering whether to merge with or acquire a law practice. The “Due Diligence Guide for Principals” is accessible here.