Are Indian law firms warming to the idea of paying for professional indemnity insurance? Rebecca Abraham reports
The writing on the wall is clear and there appears to be little doubt that international law firms may soon be allowed to do more than fly in and fly out of India. This is expected to trigger a great deal of change, not least in the way law firms market themselves.
One area where change is already happening is with regards to Indian law firms covering themselves against the possibility of being sued. While India’s larger law firms, including (the former) Amarchand Mangaldas, AZB & Partners, Khaitan & Co, Luthra & Luthra, Trilegal, and Anand and Anand, have had professional indemnity (PI) insurance for several years, the mid-size and smaller firms are increasingly seeing value in it, even if they are yet to obtain cover.
Evolving standards
“Professional indemnity insurance is important … [it] adds value and credibility to a firm,” says Vikrant Rana, a partner at SS Rana & Co, a New Delhi-based intellectual property firm. Rana says that the firm is in talks with an insurance provider and expects to have cover in place soon.
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“Having professional indemnity insurance in the present times of public activism is relevant,” says Aseem Chawla, a partner at MPC Legal, a New Delhi-based tax, business and corporate advisory law firm. Chawla says that the firm is “actively working” towards procuring PI cover.
“It is in the interest of the firm and it adds to the comfort of the client,” says Rajesh Narain Gupta, managing partner of SNG & Partners, which traces its roots back to 1962. The firm has had PI insurance since 2013 and currently enjoys worldwide cover for over ₹110 million (US$1.76 million). SNG & Partners set up an office in Singapore in March 2014.
“This is a global requirement for multinational corporates and companies who want to instruct firms in India and this is the first question they ask firms before instructing them,” says Sameer Tapia, founder and senior partner at ALMT Legal, who adds that the firm, which was set up in 2000, has always had PI cover.
“Most firms that have international clients have large coverages and those that don’t have low coverages,” says Mohit Saraf, senior partner at Luthra & Luthra, who adds that the firm has been increasing its coverage over the years.
Little accountability
The Indian legal profession has traditionally seen little value in obtaining PI insurance, and there is no legal requirement for a lawyer to have such cover. Neither the Advocates Act, 1961, nor the Bar Council of India Rules requires lawyers to have PI insurance.
The Advocates Act gives the Bar Council of India and the state bar councils the power to suspend or disbar a lawyer if a complaint against the lawyer is proven. But data on the number of lawyers suspended and disbarred each year are hard to come by as the bar councils do not make such information publicly available.
In a 2013 article in The Hindu, Nick Robinson, a fellow at Harvard Law School’s Program on the Legal Profession, said that the Bar Council of India “has done far too little to rein in errant advocates”. According to him, in 2010-11 the council’s disciplinary committee “reportedly suspended” 14 members of the bar in the entire country. Robinson said that in the US, by comparison, “about 800 lawyers are disbarred and 3,000 suspended each year”.
The courts in India have similarly been reluctant to hold lawyers liable. In Central Bureau of Investigation, Hyderabad v K Narayana Rao – in which a lawyer was charged with being a conspirator in an attempt to defraud a bank – the Supreme Court famously held that “mere negligence unaccompanied by any moral delinquency on the part of a legal practitioner does not amount to professional misconduct”.
As a result, many of India’s smaller firms are unconvinced of the need for PI cover.
“Where is there case law to show that professionals can be held liable? To sit here and extrapolate to something happening in America is pretty immature in my view,” says Ranjeev Dubey, managing partner of Gurgaon-based N South, a firm of around 15 lawyers. “In 35 years of law practice, of which 25 years has been spent mainly with foreigners, not one client has asked me [if I have cover]”.
“As we have the highest professional standards and give our best to every client, we are happy to take our chances unprotected,” remarks Nitin Sen, who heads Lexcellence, a Noida-based sole proprietorship. “We also have faith in our bar council and judges who … are fully aware of the narrow grounds that are applicable to lawyers.”
Change in the air
But changes that are being ushered in through the Companies Act, 2013, are likely to make all of India’s lawyers consider obtaining PI insurance.
Section 245 of the Companies Act allows class action suits to be brought against a company, any of its directors, its auditor, and any expert, adviser or consultant for any wrongful act. This section is yet to be notified, but when it comes into play it could lead to lawyers being sued and a change in the general perception of professional accountability.
The enactment of section 245 was largely a result of a scandal at Satyam Computer Services in 2009 and the fact that while investors in the US could file a class action suit to demand settlement to the tune of US$125 million, Indian investors had no such recourse.
“We see our laws are being amended to keep pace with international requirements and a lot of focus is shifted on professional accountability,” remarks Gupta at SNG & Partners.
Lawyers report that cases are already being brought against legal advisers. For as Ashok Ram Kumar, a Hyderabad-based intellectual property rights and information technology lawyer, notes: “Nothing precludes a client from filing a consumer protection case or a civil suit or seeking for damages.”
“Firms with an international client base will also need to consider the risks of being sued in a foreign jurisdiction,” says Saraf at Luthra & Luthra.
Why take cover?
In the absence of a widespread culture of suing your lawyer in India, the reasons for buying professional indemnity insurance vary
Most of India’s larger law firms have long seen the need for professional indemnity (PI) insurance. They say the benefits of having it are many.
“Professional indemnity insurance is an important tool of risk management,” says Rabindra Jhunjhunwala, a partner at Khaitan & Co. “It is also a kind of marketing tool that puts the firm in a strategically advantageous position to other firms who are either not insured or are under insured.”
“[PI insurance] acts as a confidence builder, sending a message to the client that we are taking care of your interests,” says Pravin Anand, managing partner of Anand and Anand. “It creates an edge amongst the Indian peer group … it acts as a safety net for the partners, keeping in view of the fact that most of the Indian firms are still unlimited liability professional firms.”
“Traditionally, professional indemnity insurance has not been a requirement in India, as suing lawyers has not been common. But as more and more overseas companies seek to do business in India, they seek comfort in familiar practices from back home,” remarks Shuva Mandal, managing partner at Bangalore-based Fox Mandal & Associates.
“It is one way to mitigate risk in a market where law firms are not LLPs [limited liability partnerships], and therefore, liability is unlimited,” says Feroz Dubash, a partner at Mumbai-based Talwar Thakore & Associates.
“[PI cover] is important. The deal sizes are larger, the complexity is not decreasing and investor education is on the rise,” says Abhijit Joshi, who heads Veritas Legal, one of India’s newest startups.
Yet Nishith Desai, founder and managing partner at Mumbai-based Nishith Desai Associates, suggests there is only so much that can be gained by obtaining PI cover. He says that given the speed with which laws are evolving and changing, PI insurance does not replace the need for regularly training lawyers.
Accordingly, lawyers at Nishith Desai Associates start each day with a continuing education programme that lasts from 9 to 10 am. “We believe it’s the best risk management tool,” says Desai.
“An unhappy client sues everyone,” remarks Neeraj Tuli, managing partner at insurance boutique Tuli & Co, who says that he has been involved as coverage counsel for insurers in cases where Indian law firms were sued. According to Tuli, little is known about such cases as neither the lawyer nor the insurer benefits from prolonging such disputes and sensible compromises are reached.
To guard against such a situation law firms that do not have PI cover limit their liability to the amount of fees paid by the client. This is stated upfront in the engagement letter.
Premiums to come down?
The reluctance to buy PI insurance cover is most often because of the high premiums that are typical of the Indian market. PI insurance, often with worldwide coverage, is available from several different companies including the New India Assurance Company, Oriental Insurance Company, Raheja QBE General Insurance Company and Tata AIG General Insurance Company.
“The current cost of indemnity cover offered in India is prohibitive and it makes little commercial sense to obtain cover,” says Ramanand Mundkur, managing partner at Bangalore-based Mundkur Law Partners, a seven-lawyer firm that specializes in mergers and acquisitions. “Law firms are better off self-insuring with liability caps in their engagement letters than paying the high premiums demanded for professional cover.”
Several other lawyers echo these sentiments.
Insurance providers say they are well aware of the challenges faced by professionals such as lawyers.
“The premiums for PI insurance products in India are somewhat similar to what you will find in more developed jurisdictions,” says Praveen Gupta, managing director and CEO at Raheja QBE General Insurance Company, who adds that the products available on the market have typically been imported from more developed jurisdictions.
Gupta explains that as the PI insurance market in India is still at an early stage, insurers have almost no data on the severity and frequency of risk involved. He says this is to be expected as the number of policies sold and buyers are few and far between and it may take several years before a claim arises. “When we have better data we can expect the pricing of the product to get better adapted to the Indian market.”
In the meantime, Gupta warns that as Indian society and businesses evolve, there will be an increasing need for professionals such as lawyers to seek liability cover against tort claims.
Who’s got cover?
The following Indian law firms are among those
that have professional indemnity insurance
Of these firms, only four disclosed their level of cover: Anand and Anand,₹50 million (US$800,000); LawQuest, ₹59 million; Little & Co, ₹200 million; SNG & Partners, ₹112 million.
This list is not exhaustive. Most of the law firms contacted in the course of compiling it declined to comment or did not reply. Only 22 firms reported not having professional indemnity insurance.
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