Professional Indemnity Insurance

Question 1

What is the primary purpose of Professional Indemnity Insurance (PII)?
A. Protect clients and the public against losses from negligent acts, errors or omissions in legal services
B. Cover a firm’s office property damage
C. Reimburse clients’ legal fees regardless of fault
D. Insure against employee dishonesty

Answer 1

A. Protect clients and the public against losses from negligent acts, errors or omissions in legal services
Explanation: PII reimburses third-party losses when a professional negligence claim is made, safeguarding client and public interests .

Question 2

Under the SRA’s risk-based regulation, firms must treat PII as:
A. A financial reporting obligation only
B. An optional extra for large firms
C. A core risk-control tailored to their size, practice mix and exposures
D. A substitute for client due diligence

Answer 2

C. A core risk-control tailored to their size, practice mix and exposures
Explanation: The SRA requires firms to assess risks and ensure PII reflects both minimum requirements and additional exposures .

Question 3

Which SRA Principle is most directly supported by having adequate PII in place?
A. Principle 5 – Act with integrity
B. Principle 2 – Uphold public trust and confidence in the profession
C. Principle 7 – Act in the best interests of each client
D. Principle 1 – Uphold the rule of law and proper administration of justice

Answer 3

B. Principle 2 – Uphold public trust and confidence in the profession
Explanation: Knowing losses are covered by insurance bolsters public confidence in legal services .

Question 4

Continuous renewal of PII without gaps most directly upholds which Principle?
A. Principle 3 – Act with independence
B. Principle 4 – Act with honesty
C. Principle 5 – Act with integrity
D. Principle 2 – Uphold public trust and confidence in the profession

Answer 4

D. Principle 2 – Uphold public trust and confidence in the profession
Explanation: Seamless cover reassures clients and the public of consistent protection, reinforcing trust .

Question 5

A firm fails to renew its PII in time and discovers a gap. Under the SRA’s risk-based rules, the firm must:
A. Cease practice by the end of the cessation period
B. Notify the Legal Ombudsman immediately
C. Increase its MTC limit to compensate
D. Delegate client matters to a non-regulated body

Answer 5

A. Cease practice by the end of the cessation period
Explanation: Rule 2 mandates continuous cover; inability to renew forces cessation of practice until fresh cover is obtained .

Question 6

A specialist wills firm with low turnover wants only the SRA minimum PII. Under which rule must it consider additional cover?
A. Rule 2 (qualifying insurance obligation)
B. Rule 3 (adequate & appropriate cover)
C. Rule 4 (run-off requirements)
D. Rule 5 (participating insurer list)

Answer 6

B. Rule 3 (adequate & appropriate cover)
Explanation: Firms must hold cover beyond the minimum if their risk profile (e.g. aggregate exposure) demands it .

Question 7

A firm drafts its policy to exclude run-off cover under the MTC. This breaches which requirement?
A. Rule 2.1 (mandatory cover)
B. Rule 4.1 (insurer participation)
C. Rule 3.2 (prohibition on limiting client benefit below the MTC)
D. Rule 5.2 (notification duties)

Answer 7

C. Rule 3.2 (prohibition on limiting client benefit below the MTC)
Explanation: Rule 3.2 forbids any exclusion or limitation of client benefit beneath the SRA’s minimum terms .

Question 8

A firm handling high-value conveyancing decides to increase its indemnity limit above the MTC. This action exemplifies the SRA’s:
A. Enforcement powers
B. Reserved Legal Activities
C. Accounts Rules compliance
D. Risk-based regulation in practice

Answer 8

D. Risk-based regulation in practice
Explanation: Tailoring PII limits to higher risk work is a core requirement of the SRA’s risk-based approach .

Question 9

Under which rule must firms “take out and maintain qualifying insurance” for each indemnity period?
A. Rule 2
B. Rule 1
C. Rule 3
D. Rule 4

Answer 9

A. Rule 2
Explanation: Rule 2.1–2.2 sets out the obligation to effect and renew qualifying insurance with a participating insurer

Question 10

Which rule defines the need for cover to be “adequate and appropriate” to a firm’s risk profile?
A. Rule 2.3
B. Rule 3.1
C. Rule 4.2
D. Rule 5.1

Answer 10

B. Rule 3.1
Explanation: Rule 3.1 mandates that firms consider size, turnover, practice mix and aggregate exposure when setting PII

Question 11

Which Principle fundamentally requires firms to act with integrity by maintaining PII?
A. Principle 2
B. Principle 4
C. Principle 5
D. Principle 7

Answer 11

C. Principle 5
Explanation: Acting with integrity includes ensuring liabilities from negligence can be met through insurance

Question 12

Treating PII as part of a firm’s wider systems and controls is a feature of:
A. The Accounts Rules
B. The Code of Conduct for Firms
C. Reserved Legal Activities oversight
D. The SRA’s risk-based regulatory framework

Answer 12

D. The SRA’s risk-based regulatory framework
Explanation: The SRA embeds PII into firms’ systems and controls as part of its risk-based regulation