NORTH WEST: An introduction to Professional Negligence

Who’s Still Swimming Naked? Navigating Risk and Opportunity in 2025

"Only when the tide goes out do you discover who’s been swimming naked." – Warren Buffett

The economic tide is firmly out, and conditions look set to remain uncertain for some time. For the professional negligence market, that’s no bad thing. Often regarded as ‘recession-proof’ (although ‘recession-resilient’ may be more accurate), litigation generally—and professional negligence in particular—tends to perform well during broader economic downturns, as bad advice surfaces and pressured claimants become highly motivated.

The real boom sector within the professional negligence market is financial-based claims, often termed ‘mis-selling’. Driven by poor advice, regulatory crackdowns, and a growing appetite from litigation funders and group action firms, this is without doubt the fastest growth area in professional negligence litigation.

• • That growth is being fuelled by claims brought by high-net-worth individuals, trustees, SMEs, and corporates arising from:
  • Tax advice – Film finance schemes, EBTs (Employee Benefit Trusts), EFURBs, Loan Charge-related advice, and other high-risk bespoke tax planning arrangements.
  • Pension advice – Pension transfer claims, and SIPP-related negligence.
  • Investment advice from IFAs or banks – high-risk investments (eg, unregulated investments, overseas property, forestry), structured products, FX derivatives, and capital-guaranteed bonds that failed to deliver.
  • Exposure to cryptocurrencies—often involving negligent advice around unregulated or highly volatile products.

But it’s not just the financial services sector fuelling growth in the professional negligence market—claims against solicitors are also rising. The usual suspects are to blame: missed limitation periods or court deadlines, conveyancing errors, transactional mistakes, and flawed legal strategies.

New contributing factors include economy-driven cost-cutting, venturing into unfamiliar or specialist workstreams to boost revenue, remote working impacting the supervision or training of junior lawyers, and an over-reliance on emerging AI tools.

The latter, in particular, is “one to watch”, with some firms outright banning the use of Artificial Intelligence (AI). The SRA is actively monitoring AI usage, reminding solicitors that they remain accountable for all legal advice, regardless of whether AI assistance was used. Practitioners must ensure AI tools are reliable, accurate, and appropriately deployed. There can be no delegation of legal judgment—AI cannot replace a solicitor’s duty to their client.

Firms must also remain alert to so-called “hallucinations,” when AI generates factually incorrect yet plausible-sounding information. This includes inventing legal precedents, case law, or statute interpretations. In one notable example, a US lawyer submitted fake AI-generated citations in court (Mata v. Avianca), prompting the judge to dismiss the submission as "legal gibberish." AI may also cite non-existent statutory provisions, misrepresent legal authorities, or confuse jurisdictions. Closer to home, while the UK has not seen a directly analogous incident yet, the legal community is watching closely. Experts warn that it is only a matter of time before similar issues arise here—especially given the rapid adoption of generative AI tools without sufficient oversight or training.

While AI will undoubtedly become an invaluable and fully embedded tool in law firms over time, it must be used with care, ensuring client confidentiality and protection remain paramount.

Looking ahead, further regulatory developments are expected. The SRA has indicated it will update its guidance on AI usage in 2025, with a focus on professional accountability, data protection, and transparency in client communications. There are also discussions in policy circles around creating a cross-sector code of conduct for AI in professional services, signalling that clearer compliance expectations may soon follow.

Unsurprisingly, PI insurers are now re-evaluating coverage in light of AI use, with many inserting exclusions or requesting disclosures on AI dependencies.

The professional indemnity insurance (PII) market remains challenging for litigation practices. Many insurers are now capping their exposure or imposing stricter underwriting criteria based on firm size, scope of work, and turnover. A survey conducted in July 2024 by the International Underwriting Association found that nearly 70% of insurers planned to revise their underwriting strategies:

• • Over half anticipated premium increases.
  • A third intended to reduce primary layer business.
  • 40% were contemplating exiting the solicitors' PI market entirely.

The survey also found that solicitors pay significantly higher PII premiums compared to other professionals. Solicitors' premiums average around 5%-10% of annual turnover (with most litigation-focused or small firms paying over 10% and some in excess of 20%), compared with 2% for chartered accountants and 3% for licensed conveyancers.

This lack of appetite among insurers in recent years has driven premiums sharply higher, increasing pressure on firms and leading to more fiercely contested litigation—especially in high-value, multi-million-pound claims.

This increase in litigiousness has been evident in the courts, particularly the Business and Property Courts (BPC), where there has been a rise in both issued cases and matters proceeding to trial. The courts are now handling longer trials, more complex disputes, and a greater number of interim applications.

Court-published figures (to 2024) show that within the BPC overall, approximately 70% of cases settle before trial—meaning around 30% proceed to judgment.

In the Circuit Commercial Court—the most likely forum for substantial professional negligence claims—the settlement rate dropped to just 42% last year, down from historical norms in line with the broader BPC. This means a striking 57% of cases are reaching trial.

Whilst this trend puts strain on limited court resources and can lead to delays, it is nonetheless clearly welcome news for litigators and highlights an increasing demand for experienced professional negligence specialists.

The wider impact has been further growth in the litigation funding market. Professional negligence litigation is notoriously expensive, and claimants often face a “David and Goliath” struggle.

Litigation funding can level the playing field and is particularly valuable in group actions. However, it carries a significant cost and remains controversial—critics point to a lack of transparency, third-party interference, and concerns around unfair outcomes for claimants. Calls for tighter regulation and oversight are growing.

Firms (and Counsel) that are confident in their expertise and financially agile have a unique opportunity to offer claimants full and stand-alone conditional fee agreements (CFAs), enabling claimants to pursue meritorious claims without the burden of upfront costs. In a challenging and evolving litigation landscape, this approach not only enhances access to justice but also positions these firms as leaders in a market that continues to grow in complexity, value, and strategic importance.

As the tide stays out and the risks rise, professional negligence is no longer just about rectifying past mistakes—it’s about anticipating future exposures. Firms that combine deep legal insight with commercial agility won’t just weather the storm; they’ll lead through it. In a market defined by complexity, opportunity, and scrutiny, those willing to innovate and champion client-first solutions will find that the opportunity is not only significant—but accelerating.