Kerry Underwood

SOLICITORS’ DISBURSEMENT LOANS NOT COVERED BY PROFESSIONAL INDEMNITY INSURANCE

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In Impact Funding Solutions Ltd v AIG Europe Insurance Ltd [2016] UKSC 57

 

the Supreme Court held, by a 4:1 majority that the professional indemnity insurers for solicitors were not liable for loans provided by a funder to finance disbursements incurred by the clients of the solicitors firm.

 

In doing so the Supreme Court overturned the decision of the Court of Appeal which had held that the insurers were liable on the basis that the claim by the funder related to the solicitors’ obligations to their clients and not to obligations personal to the solicitors.

 

The Supreme Court reinstated the decision of the Trial Judge, which had been overturned by the Court of Appeal.

 

The claimant, the funder, relied on the Third Parties (Rights against Insurers) Act 1930, and sought to enforce against the insurers a judgment that they had obtained against the firm of solicitors for being in breach of a funding agreement that the funder had entered into with the solicitors and their clients.

 

The solicitors had become insolvent.

 

The solicitors’ professional indemnity insurance excluded, as is normal, any liability on the insurer’s part for claims or losses arising out of breach by the solicitors of the terms of any contract for the supply to, or use by, the solicitors of goods or services in the course of the solicitor’s practice.

 

The Supreme Court held that that exclusion applied here and that the funding arrangement was in reality a contract for the provisions of services to the solicitors within the meaning of the exclusion clause and this finding accorded with the purpose of the exclusion considered in the context of the relevant regulatory background.

 

The true position was that the loans provided by the funder were made for the benefit of the solicitors as they enabled the solicitors to offer additional services to clients and enabled them to act for those clients.

 

As the Supreme Court said about the case:-

 

“It raises a legal question of general public importance both because it concerns a term of an insurance policy, which is, or is similar to, terms in all professional indemnity insurance policies for solicitors in England and Wales and also because it is important to the business model by which many solicitors have funded litigation since state-funded legal aid for civil cases was significantly reduced.” (Paragraph 1).

 

Comment


 

This decision must be right.
Professional indemnity insurers are just that.

 

They are not there to cover bad business decisions made by solicitors or to reimburse them for running their businesses badly.

 

One wonders what the Court of Appeal were thinking of.

 

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Written by kerryunderwood

December 1, 2016 at 11:02 am

Posted in Uncategorized

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