Solicitors vote on plan to plug fund gap
Members of the Law Society have been asked to vote on a proposal which would cost €200 per solicitor each year.
This measure is designed to find €16m, which, it is believed, will stop reinsurance companies from cutting the Solicitors Mutual Defence Fund adrift. If the fund cannot find additional capital, it will be declared insolvent with 551 firms currently facing claims against them.
For each claim paid out by the SMDF, 10% must come from its own resources and 90% is provided by the reinsurance companies with which it has contracts.
However, if it cannot pay its portion, the reinsurers can wash their hands of their commitments and leave individual members to cover the claims.
Opponents of the plan have argued it is an insolvent but independent fund and the new levy will not go far enough. They said, if the Law Society votes to pump in additional cash, it will have effectively taken responsibility for a fund which should remain independent.
The nominated advocate for the opposition, Vincent Crowley, said if the society agrees to prop up the scheme now it will have to keep funding the SMDF into the future, despite not knowing the extent of losses. He suggested a small number of firms may be responsible for the bulk of the outstanding €308m liability and he claimed the majority of outstanding claims have been lodged against solicitors by financial institutions.
Mr Crowley said due diligence had not been carried out and, if the estimates are wrong, the €200 levy will not be enough. He said SMDF members could be levied without any involvement of the Law Society.
However, Stuart Gilhooly said the levy was needed to support vulnerable lawyers and, if the €16m was not raised, reinsurance companies could walk away from the SMDF. This, he said, would expose some firms to financial ruin and potentially handicap all other lawyers because of knock-on claims and reputational damage.
Mr Gilhooly said a voluntary charge on solicitors who are members of the fund would be unlikely to succeed.
The SMDF has lost a significant amount of money and saw its €8.4m investment in the Dresdner Bank Bond collapse to less than 3% of its estimated value.
After this the Law Society backed a loan guarantee to allow the fund fill the hole created.
Throughout 2009 and 2010 the number of claims lodged against members of the fund grew at a rate its directors described as alarming and unacceptable.
