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Base Excess FAQs

What is Base Excess?

It is the amount which is borne by the firm in the event of a claim, and paid towards the defence costs and any judgement/settlement in any one claim. The Insurer shall provide coverage for those amounts which exceed the base excess (Clauses 7 of the 2020 Certificate of Insurance).

Is Base Excess a penalty statement?

No, it is a contractual obligation that must be paid under the terms of the Certificate of Insurance. It is only when defence costs and/or damages is incurred that the base excess is payable whether or not the matter has been concluded and/or successfully defended.

Why have a Base Excess?

There are two reasons for having a Base Excess.
  1. Looking at the PII Scheme as a whole, with base excess, the premiums payable are lower, since the Insured is taking on part of the risk.
Base excess is a tool to help maintain lower premiums.
  1. Risk management – base excess clauses are employed to ensure some form of good practice is implemented by law firms, without which it is believed that there is an overreliance on Insurers. 

How do I find out what the applicable Base Excess is for my firm? How is my firm’s Base Excess calculated?

The base excess applicable to each firm is dependent on the number of lawyers within the firm. It starts from RM10,000 for a one lawyer firm up to RM250,000 for a firm with more than 48 lawyers.

Your firm’s base excess is stated under item 9 of your firm’s Mandatory Policy Schedule. The policy schedule applicable is the policy year your claim is registered in.

When do I have to pay the Base Excess? Why do I have to pay my defence costs now?

Base excess becomes payable as soon as defence costs are incurred and the panel solicitor issues interim bills for the defence work.

Clause 9 of the 2020 Certificate of Insurance states:
“Where any sums are payable, you must pay the amount of the base excess or increased base excess and any uninsured sums within 45 days of the request to pay. This payment is a condition precedent to any liability to indemnify you under the Policy and your right to renew your insurance for subsequent policy periods.  In the event of your failure to make this payment, we shall also have the right to immediately recover form you any and all sums we may have previously paid in this claim."
 

The claim against me was successfully defended. Do I still have to pay Base Excess?

Yes. The application of the base excess is not dependent on the successful outcome of the claim made against the firm. It is contractual between the firm and the Insurer and correspondingly where the Insurer pays a claim/incurs cost, the firm will have to bear the base excess until it is exhausted before the Insurers bear their share.

Clause 7 of the 2020 Certificate of Insurance states:
"Our liability under this insurance shall only apply to that part of any one claim which exceeds the base excess on increased base excess and the proportion in Clause 6(a).  Provided however, that the base excess or increased base excessshall only be applied once in the event in a claim and/or defence costs are incurred."

When do I have to pay an Increased Base Excess?

There are three circumstances where the base excess is increased.
  1. Conflict of Interest – Acting for more than one party to a transaction in respect of conveyancing of land and/or buildings otherwise than in accordance with the Bar Council Rulings as amended from time to time.
  2. Conveyancing – Any conveyancing transaction involving land and/or buildings.
  3. Dishonesty of Partner – Fraud or Dishonesty committed by any Partner of the Firm.

The table below shows the relevant increased Base Excess for the 3 circumstances listed above.
Circumstance
Increased Base Excess
Exceptions
a. Conflict of Interest
  • RM100,000 or 2 times the Base Excess, whichever is higher
  • This is subject to a maximum of RM300,000
When a written waiver is obtained from Clients
b. Conveyancing
RM50,000 minimum
  • If you had in place an implemented risk management programme at the time the alleged act, error or omission giving rise to the claim. The conveyancing checklist as recommended by the Bar Council or an equivalent, shall suffice for the purpose of this clause; or
  • It is adjudged by the Court that there is no civil liability arising from the claim against the firm; or
  • The claimant unconditionally withdraws the claim against the firm.
c. Dishonesty of Partner(s)
  • RM20,000 multiplied by the number of partners in the firm
  • This is subject to a minimum of RM30,000 and a maximum of RM250,000 per firm.
None.
 

Why is there an Increased Base Excess for these three circumstances?

These circumstances have higher risks involved therefore the firm is expected to expected to exercise proper care and implement standard risk management practices and measures.

What is “risk management” and what is the standard risk management programme required in order to be exempted from an increased Conveyancing Base Excess?

“Risk management” refers various steps, methods, or processes that are put in place to monitor, detect and avoid errors/omissions and to ensure efficient management of any work in the firm. As an example, these measures include maintaining an up to date checklist of important dates/milestones/events for each file including a diary and review systems, conducting relevant searches, adequate identification measures, staff supervision as well confirming all instructions in writing. The conveyancing checklist as recommended by the Bar Council (download from https://www.praktis.com.my/practical-tools/checklists/practice-checklists) or an equivalent, shall suffice for this purpose.

How do I prove that my firm has a risk management system in place?

Provide:
  • a detailed write up of the steps and processes in your firm and attaching the relevant documents (sample files);
  • a brief description of the firm's staff involved in the process.
Send the documents to the PII Scheme's Claims Manager, Echelon Claims Consultant Sdn Bhd ("Echelon"). Echelon will then forward these to the Insurer for their review. When providing examples, such as a checklist, you should send in the actual checklist itself as proof that these checklists were actually used.

I have paid my Base Excess in full and costs was awarded to me. Am I entitled to the costs recovered?

In cases such as these, depending if the Insurers have paid any sums, Insurers will apply what is known as the Top Down Principle. Application of this principle means that any cost recovered will be paid towards Insurers first and any excess of such costs will then be paid to your firm.

What if Insurers have not incurred any costs?

In such cases, any costs recovered belongs to you and you are free to pursue it if the Claimant does not pay it.

Who decides on whether cost recovery proceedings should be initiated?

If Insurers have incurred costs in defending your claim, the Insurers will have the right to decide whether or not to initiate costs proceedings. However, should Insurers decide against initiating cost proceedings, you have the right to pursue costs recovery at your own expense.

What would happen if I failed to pay my Base Excess within the stipulated timeframe?

Payment of your base excess is a condition precedent for Insurers liability to indemnify you under the Policy and also to your right to renew your insurance for subsequent policy periods. Therefore non-payment would entitle Insurers to repudiate the claim and discharge the Panel Solicitor from acting any further in the claim. In addition your firm’s PII Policy can only be renewed after any amount that has become due as part of the Base Excess or increased Base Excess, has been paid. Therefore non-payment will also affect your application to renew your Sijil Annual and Practising Certificate.

Who should I pay my Base Excess to?

Depending on the policy year your claim is registered under, your Base Excess should be issued in favour of the Insurer for that particular policy year. The name of the Insurer will be stated in the letter from Echelon requesting for your base excess payment. Your cheque should be sent to Echelon, who is the appointed third party claims administrator under the PII Scheme. Your cheque will then be forwarded to the Insurer. After which, the Insurer will issue a receipt to you.

When your base excess becomes payable, Echelon will issue a letter containing information inter alia such as your base excess obligation for the particular notification and whom the cheque should be made out to. Echelon will also send you a copy of the panel solicitor’s bill. If you are unhappy with the bills, write to Echelon who will then review your concerns and liaise with the panel solicitor.
Last updated: 21/05/2014

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