When a Law Firm Changes Its Legal Structure: Which Insurance Arrangements Need Reviewing?

A law firm’s insurance does not follow the people. It follows the legal entity named on the policy. When a partnership becomes an LLP, two firms combine or a new owner takes control, the entity that holds the SRA authorisation, employs the staff and owes duties to clients can change overnight. The policies that protected the old entity may not protect the new one in the way the partners expect.

This guide explains which arrangements need attention when a UK firm restructures, which changes create a regulatory or contractual requirement, and which simply justify a broader review. It covers solicitors’ professional indemnity insurance (PII), successor practices, run-off cover, cyber insurance, management liability and employers’ liability, then closes with a practical checklist. Good law firm restructuring insurance planning starts months before completion, not after it.

Why Does Changing a Law Firm’s Legal Structure Trigger an Insurance Review?

Short answer: Yes, in most cases a change of legal structure means the firm needs to review its insurance. Whether it needs new cover depends on the type of change, its regulator, its policy wording and how the transaction is structured.

Insurers underwrite a specific insured, with a specific ownership, work mix, fee income and risk profile. When any of those change, the information the insurer relied on changes too. The Insurance Act 2015 expects a policyholder to present its risk fairly, and a firm that changes structure without telling its insurer risks giving an outdated picture of the business.

Changes that create a requirement, and changes that prompt a review

Some changes trigger a regulatory or contractual obligation:

• A new legal entity, such as an LLP or limited company, needs its own SRA authorisation and its own qualifying insurance.
• A firm that closes or merges must deal with its past liabilities through a successor practice or run-off cover.
• Many policies require insurers to hear about material changes during the policy year.

Other changes do not trigger a requirement but still justify a review. These include a new managing partner, a move to new premises, a different mix of work, a new case management system or a change in headcount. The policy may continue unchanged, but the firm should confirm that rather than assume it.

Firms that plan their law firm restructuring insurance early can separate these two categories, which saves time and avoids gaps in cover.

Which Professional Indemnity Insurance Arrangements Need Reviewing During Law Firm Restructuring?

Short answer: Review the insured entity, the limit of indemnity, the policy period, notification obligations and the status of the insurer. Speak to your broker or insurer before the change takes effect.

SRA-regulated firms in England and Wales must hold PII that meets the SRA’s Minimum Terms and Conditions (MTC), which sit within the SRA Indemnity Insurance Rules. The policy must come from a participating (qualifying) insurer. Restructuring touches several parts of that arrangement.

The insured entity. The policy names the firm, often with its SRA number. A new entity needs its own cover, and the proposal must reflect the new name, registration details and ownership.

The limit of indemnity. The SRA sets different minimum limits by structure. As Legal Ex Plus explains on its professional indemnity page, firms operating as LLPs or limited companies must hold at least £3 million for any one claim, while sole practitioners and partnerships must hold at least £2 million. A partnership converting to an LLP therefore needs to confirm that its limit meets the higher figure.

Claims-made cover and notifications. Solicitors’ PII responds on a claims-made basis, so the policy in force when a claim arrives generally responds, not the one in force when the work took place. A firm that expects problems on past files should consider notifying circumstances to its current insurer before the policy ends. Restructuring often coincides with a change of insurer, which makes that timing important.

Proposal information. Underwriters rate firms on claims history, categories of work, headcount and fee income. A restructuring that changes any of these can change the premium and the terms offered.

Exclusions and policy conditions. Read the wording on notification of material changes and on any exclusions that affect the new structure. Legal Ex Plus’s solicitors’ professional indemnity insurance page also notes that a policy is a contract and that firms should read its exclusions carefully.

Regulators other than the SRA. Qualifying insurance and the MTC apply to SRA-regulated firms. Firms regulated by other bodies, or practising in Scotland or Northern Ireland, follow different arrangements, so confirm your own regime before relying on this guidance.

What Happens to Solicitors Insurance After a Merger or Acquisition?

Short answer: The old firm’s liabilities must go somewhere. Either a successor practice takes them on, or the old firm takes out run-off cover. Which route applies depends on how the deal is structured and what the parties elect.

Anyone searching for solicitors insurance after merger guidance needs to understand three terms first.

Successor practice: a practice that takes over all or part of another firm’s work, as defined in the MTC. A firm can become a successor practice through the structure of the deal or by presenting itself as continuing the old business.

Run-off cover: insurance for claims made after a firm has stopped practising. Under the MTC, run-off lasts six years.

Prior practice: the ceased firm whose liabilities the successor’s policy may have to cover.

The Law Society explains that where a successor practice exists, the ceasing firm may choose to start run-off cover under its current policy. If it does not start run-off, or does not meet the notification and premium requirements, the successor practice’s insurer must cover claims against the ceased firm. In practice, an acquiring firm that does not want that exposure needs to confirm early whether the target will pay for run-off.

Gaps and Overlaps to Check

• Cost allocation. Run-off premiums can be significant. The sale agreement should say who pays, and by when.
• Top-up layers. Excess layers above the MTC minimum may not follow the same successor rules, so read the wording of each layer.
• Claims history. The acquirer’s insurer will want to see the target’s claims record and the type of work it carried out.
• Overlapping policies. Two firms merging may hold two policies with different renewal dates, insurers and limits. Decide which policy continues and when the other ends.
• The six-year boundary. Run-off covers claims for six years. The firm and its members remain exposed to claims that arrive later, subject to the arrangements the profession has in place for post-six-year cover.

An illustrative example: a firm acquires the client files of a smaller practice that then stops trading. If nobody elects run-off for the smaller practice, the acquirer’s insurer may end up responsible for its historic claims. Settling this in the deal documents, and telling the acquirer’s insurer before completion, avoids an unwelcome surprise.

How Do LLP Conversions, Incorporation and Partnership Changes Affect Law Firm Insurance?

Short answer: A conversion to an LLP or company creates a new legal entity. That entity needs SRA approval, its own PII that meets the MTC, and updated insurance for every other policy the firm holds.

The SRA runs a change of legal entity process for firms moving, for example, from a sole practice or partnership to an LLP or limited company. The SRA states that the process suits changes where no other material change to management, ownership or structure takes place, and that the existing body must cease when the new one starts trading. If ownership or management also change, the application falls outside that route and the SRA treats it differently.

Three insurance points follow.

Continuity at the moment of switch. The old entity ceases and the new entity begins on a specific date. Cover must run without a gap across that date. Ask your insurer how it treats the old practice, because a new entity that continues the old business may raise the same successor and run-off questions described above.

Different exposures. Partners in a traditional partnership carry personal liability for the firm’s debts. Members of an LLP and directors of a company carry different obligations. Directors of a company owe statutory duties under the Companies Act 2006, and that shapes the case for management liability cover.

Updated policyholder details. Every policy should carry the new entity name, registration number, SRA number and address. Mismatched details can cause disputes at claim stage.

Changes in ownership raise a parallel point. New owners, members or controlling interests need regulatory approval and should be disclosed to insurers. A change in controlling ownership may alter the risk the insurer underwrote, so tell the insurer before it takes effect. Firms that treat law firm restructuring insurance as part of the transaction timetable, with the same standing as the SRA application and the Companies House filings, meet far fewer delays.

Which Additional Insurance Policies Should Law Firms Review After Restructuring?

Short answer: Review every policy that names the old entity or depends on its staff, systems or officers. Cyber, management liability and employers’ liability are the most common additions to the PII review.

PII covers claims from clients arising from professional services. It does not cover everything a restructured firm now faces.

Cyber insurance for solicitors. Mergers and conversions often involve moving data, merging case management systems and sharing client information between teams. That integration period creates exposure to data breaches, ransomware and misdirected funds. A new entity also generally becomes its own data controller, so it needs to meet its own data protection obligations. Legal Ex Plus lists cyber insurance among the services on its website. Check whether the policy insures the new entity, the merged IT environment and any acquired data.

Management liability and directors’ and officers’ cover. A new LLP or company has members or directors who face new duties and potential claims about how they run the business, including employment disputes and regulatory investigations. Legal Ex Plus lists management liability insurance on its website. Directors’ and officers’ exposures often sit within management liability policies, so check the wording to see what the policy includes.

Employers’ liability insurance. Most employers must hold employers’ liability insurance under the Employers’ Liability (Compulsory Insurance) Act 1969, with a minimum of £5 million. When staff transfer to a new entity, that entity becomes the employer and needs its own certificate. Confirm the arrangement with your adviser, because the products Legal Ex Plus lists on its website do not include this cover.

Other covers. Premises, contents, business interruption and crime policies may also name the old entity or the old address. Review each one.

What Insurance and Regulatory Checks Should Law Firms Complete Before Changing Their Structure?

Short answer: Start with your policy documents and your regulator’s requirements, then work through notification, continuity and renewal timing. Complete the review before the change takes effect.

A practical checklist:

• Collect current documents. Gather the PII policy, any top-up layers, run-off terms and every other policy schedule.
• Confirm the regulatory route. Check whether the SRA’s change of legal entity process or a fuller application applies, and the timetable for each.
• Notify insurers early. Tell the insurer about the planned change and ask in writing how the policy responds.
• Confirm the limit. Check the new structure against the SRA minimum limit and any contractual requirements from clients or lenders.
• Decide the successor practice position. Agree whether the old practice goes into run-off or the new entity takes on its liabilities, and record who pays.
• Review notification of circumstances. Consider whether known issues on past files should go to the current insurer before it ends.
• Update every policyholder name. Include trading names, registration numbers and SRA numbers.
• Align renewal dates. Many firms still renew PII on 1 October, although the market has allowed renewal at any time of year since 2014. Decide whether to align the new entity’s cover with an existing date.
• Document the decisions. Keep a record for the COLP, COFA and partners.

How Can Legal Ex Plus Help Law Firms Review Their Insurance Arrangements?

Legal Ex Plus is a trading style of Lex Insure Services Limited, which is authorised and regulated by the Financial Conduct Authority (firm reference number 776004). According to its website, the business has helped solicitor firms arrange professional indemnity insurance since 2005 and offers risk management advice and support. Its website lists professional indemnity, cyber and management liability insurance among its services.

A specialist adviser helps in three practical ways. They can explain how your current policy treats the planned change. They can approach insurers with a clear, accurate description of the new structure. And they can coordinate renewal timing so cover does not lapse during the transition. Legal Ex Plus states that it does not offer online quotations for law firms because of the complexity of the risk, so the starting point is a call to its solicitors PI team on 0800 180 4203 or an email to info@legalexplus.com.

Conclusion

Changing a law firm’s legal structure raises insurance questions that differ by transaction. A conversion to an LLP creates a new insured entity. A merger raises successor practice and run-off decisions. An ownership change may need insurer disclosure even when the entity stays the same. Treat law firm restructuring insurance as a core workstream, alongside the SRA application and the commercial negotiation.

If your firm is planning a restructure, merger or change of ownership, contact Legal Ex Plus to review your professional indemnity and related arrangements before the change takes effect.

The information provided is for general informational purposes only and does not constitute advice. While we strive to ensure the information is accurate and up-to-date, we make no representations or warranties of any kind, express or implied, regarding the accuracy, adequacy, validity, or completeness of any information on this site.