When a solicitors' firm closes, its past liabilities do not disappear. The Solicitors Regulation Authority's Minimum Terms and Conditions deal with this through the concept of the successor practice. Where one firm succeeds another, the successor's insurer generally picks up the predecessor's prior liabilities, unless run-off cover has been taken out for the closing firm. The definition is technical, and getting it wrong on a merger or acquisition can produce an unexpected shift of liability.
The Rules define a successor practice by reference to connections between the old firm and the new one - for example continuing to hold out as carrying on the same practice, taking over the client base or files, or sharing principals or a name. The test looks at substance, not just at whether a formal transfer document exists. A firm that absorbs another firm's work and people can find it has become that firm's successor practice even if the parties intended a clean break.
If the new firm is the successor practice, its policy is the one that responds to claims arising from the predecessor's work, subject to the ordinary claims-made mechanics. This is why a firm considering a merger or taking on another firm's book must understand what liabilities it may be inheriting. The successor practice rule protects clients by ensuring there is always an insurer standing behind past work, but it can transfer a substantial exposure to a firm that did not do the underlying work.
A closing firm can avoid passing its liabilities to a successor by putting its own run-off cover in place. Run-off insures the closed firm's past work for the mandatory period, so there is no need for a successor's policy to respond. Whether run-off is triggered, and who pays for it, is often a central negotiating point when firms merge or when a practice is wound down. A firm buying another's client base should confirm the position on run-off before completion, not after.
Firms contemplating a combination should map the successor practice analysis early, take advice on whether run-off is the cleaner route, and make sure the insurance position is documented alongside the commercial deal. Because the definition turns on substance, informal arrangements can create successor status without anyone intending it, so the safest course is to address it expressly. Solicitors who also act as expert witnesses should note that the successor analysis follows the practice, not the individual retainer - our expert witnesses' PI guide touches on continuity of cover. The solicitors' PI insurance guide sets the successor rule in its wider context.
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.