The take-up of professional indemnity insurance by Indian law firms is gaining traction, yet the scope of coverage may be woefully inadequate. Vishrut Kansal explains
Professional indemnity (PI) insurance was rarely heard of for law firms and lawyers in India until recently. While no statute, executive order or policy requires such insurance for lawyers, increasingly India’s larger law firms are choosing to invest in PI insurance. This is mostly in an effort to meet client expectations, but some also feel a need to safeguard themselves against the risk of civil liability claims arising out of professional negligence.
Unfortunately, the scope of a standard PI insurance policy issued to law firms in India is not wide enough to offer protection against all forms of professional negligence. The Supreme Court has held in several cases, including Noratanmal Chaurasia v MR Murli (2004) and Jacob Mathew v State of Punjab (2005), that professional negligence for lawyers is wide enough to include wrongful commissions and omissions, whether intentional or unintentional. Yet PI insurance providers routinely exclude insurance coverage for illegal and/or intentional acts or omissions.
Following the trends
When clients expect or require that a law firm be covered – often for assurance that the firm is on par with international players – it may be commercially prudent for it to obtain PI cover. Where there is no client pressure to take on PI coverage, law firms may consider insuring themselves only when the cost of hedging the risk through PI insurance (the policy premium) is less than the probability of being sued (the risk). This has to be looked at in light of the likely cost of defending a suit.
Where acquiring insurance cover is seen as necessary or desirable, negotiating a discount in premiums by offering to pay a high voluntary excess (see Reading the fine print, page 52) may be the only way to reduce insurance costs. Where firms choose not to obtain coverage, other means are available to mitigate risks.
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