This is a hypothetical case study. Firm A, the individuals described, and the figures are illustrative only. No real firm or claim is referred to. The purpose is to explain how the professional indemnity architecture built into the SRA Minimum Terms and Conditions (MTC) responds when a partner diverts client money during conveyancing transactions.
Firm A is a three-partner high-street solicitors' practice in the south-west of England. It runs a modest residential conveyancing department alongside private client and small commercial work. During 2022, one of the partners – the partner responsible for supervising the conveyancing team – begins to divert funds from client account. The mechanism, in this hypothetical, is straightforward: completion monies are received into client account in the normal way, but a proportion is routed to a controlled third-party account under cover of forged authorities. Individual diversions range from £15,000 to £60,000. The total across the year reaches approximately £420,000 across nine files.
The discrepancies come to light through a routine accountant's report under the SRA Accounts Rules in early 2023. The reporting accountant notices that ledger balances on completed files do not reconcile against corresponding payments to third parties. The compliance officer for finance and administration escalates to the two innocent partners, who instruct external forensic accountants and, within seven working days, self-report to the SRA.
The SRA moves quickly. Given the evidence of dishonesty and the risk of further diversion, an intervention is authorised. The dishonest partner is suspended, later struck off. A practice manager is appointed to take custody of client files, and the client account is frozen while forensic reconciliation is completed. Around 40 client matters are affected in some way – nine directly, the remainder because file transfers are disrupted.
The innocent partners notify Firm A's PI insurer within 48 hours of discovery, in line with the notification wording built into every MTC policy. The MTC is a mandatory cover architecture set by the SRA: every insurer offering PI to solicitors in England and Wales must incorporate the minimum wording verbatim. Because the MTC treats a firm's PI policy as directly enforceable by third parties, the insurer cannot simply avoid cover for dishonesty on the part of one partner. The MTC's dishonesty and fraud exclusion is deliberately narrow, and clause 2.7 – the innocent partner defence – keeps cover in place for the partners who were not involved.
Clause 2.7 of the SRA MTC provides that the dishonesty or fraud of one insured person does not defeat cover for other insured persons who neither committed nor condoned the dishonest act. Firm A's two innocent partners are able to rely on this provision. The insurer accepts the notification, appoints panel solicitors, and begins to reconstruct the affected files. Settlements are agreed with the affected clients over roughly nine months. The insurer pays approximately £385,000 in claim settlements and around £70,000 in defence and investigation costs.
The Insurance Act 2015 is relevant in two directions. First, it governs the innocent partners' duty of fair presentation at inception and renewal – a duty they discharged, having no knowledge of the diversion. Second, the Act's proportionate remedies regime means that even if a technical non-disclosure had occurred, the insurer's response would need to be proportionate to what a prudent underwriter would have done. In this hypothetical, no non-disclosure is alleged.
Having indemnified Firm A, the insurer takes an assignment of the firm's rights and pursues the dishonest partner personally under subrogated recovery. Assets identified include property equity and a modest pension pot. Recoveries of around £180,000 are eventually secured through a combination of civil judgment enforcement and a proceeds-of-crime confiscation order that runs in parallel to the criminal prosecution. See also the wider treatment of the PI fraud and dishonesty exclusion.
A residual shortfall of around £35,000 sits outside the specific heads of loss the MTC responds to – principally in respect of one client whose transaction cannot be completed and who has consequential losses outside the MTC's scope. That client is directed to the SRA Compensation Fund, which under the Compensation Fund Rules exists to relieve hardship arising from the dishonesty or failure to account of a solicitor. The Fund makes a discretionary grant covering the greater part of the shortfall.
Three practical themes emerge, and Apex sees them repeatedly in supervisory conversations. First, dual authorisation on every client account payment above a defined threshold is the single most effective control against internal diversion. Second, independent reconciliation – someone other than the fee-earner checking the ledger against the bank – is essential. Third, unexplained changes in a partner's working patterns or reluctance to take leave are recognised red flags and should trigger a supervisory conversation rather than embarrassed silence.
The broader framework – how the MTC interacts with the Compensation Fund, and how professions clients can strengthen their position at renewal – is set out in the Apex solicitors' PI insurance guide 2026.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy. The case study is hypothetical and does not describe any real firm or claim.