February 21, 2019

PII: What happened in 2018?

A number of interesting cases relating to professional indemnity insurance passed through the courts in 2018, and this article looks at four of them.

Euro Pools plc (in Administration) v RSA [2018] EWHC 46 (Comm)

Kicking the year off was the Euro Pools decision in January 2018.

The insured specialised in the design and installation of swimming pools. The products that were the source of this dispute were the movable swimming pool floors and the vertical booms that enabled division of the pool.

Problems were encountered with each feature, which led to two notifications under separate professional indemnity policy periods.

In summary, the Court found that an insured can only notify a circumstance of which it is aware. Whilst that may seem obvious, it does highlight the issue that policyholders may face with claims-made policies when investigations (and problems) are developing.

Whilst this case was very fact-specific (as most notification cases are), the lesson for policyholders is to give very careful consideration to the wording of notifications. The notification of the circumstance must be appropriately framed and there will ultimately need to be a causal link between the perceived circumstance and the claim.

An appeal was heard by the Court of Appeal last month and its outcome is awaited.

Cultural Foundation v Beazley Furlong [2018] EWHC 1083 (Comm)

Cultural Foundation was another decision involving notifications over multiple policy periods.

In this case the Defendants were the professional indemnity insurers of a firm of architects that had become insolvent before proceedings were issued. The Claimants had arbitration awards against the architects and sought indemnity from the primary insurer and the excess layer insurers.

The notification dispute arose because there had been two notifications within two separate policy years. Taken together the arbitration awards exceeded the primary policy limit but individually they were within it. The Court found that the Claimants could choose the policy year to which the claim could attach because, very unusually, there was no exclusion of claims arising from prior notified circumstances.

Dreamvar (UK) Ltd v Mary Monson Solicitors [2018] EWCA Civ 1082

Dreamvar is a significant case for conveyancing solicitors and their professional indemnity insurers.

The decision by the Court of Appeal involved two joined cases that both concerned the liability of solicitors for identity fraud in property transactions. In both cases the solicitors acting for the seller had carried out inadequate identity checks. Whilst the fraud was discovered before the registration of title, the funds for the purchase had been lost by then.

While not liable in negligence, the buyer’s solicitors were found liable in breach of trust for failing to identify that the seller was not in fact the owner of the property and thus releasing the completion money when their client would not be obtaining good title. The buyer’s solicitors sought relief under section 61 of the Trustee Act 1925 on the basis that they had acted honestly and reasonably. Whilst the Court did not dispute that, it nevertheless declined to grant relief on the basis that the solicitors were better able to absorb the loss, via insurance, than could the client.

This decision clearly extends the circumstances in which solicitors can be found liable in fraudulent transactions, even when the fraud may have principally occurred as a result of the failing of the other side’s solicitors. It remains to be seen whether this principle will extend to transactions other than conveyancing.

This decision may well have an impact on the PI market. Whilst the SRA Minimum Terms will cover claims of this type, some professional indemnity insurers may simply withdraw from this market altogether, forcing up premiums for solicitors doing conveyancing.

Dalamd Ltd v Butterworth Spengler [2018]

The Claimant was the assignee of the causes of action of three companies owned by the same family. One of those, Doumac, had a recycling business which it operated from premises owned by another company, Widnes. Buildings insurance was arranged with Aviva and included an external storage condition in which combustible material had to be kept at least 10m away from buildings. Doumac had been warned about their waste management previously and had a history of minor fire incidents.

Doumac then went into liquidation and its assets and goodwill were transferred to the third company, JLS. XL provided insurance for the plant and machinery that JLS now owned.

A catastrophic fire destroyed the premises. Claims were made against Aviva and XL. Aviva sought to avoid its policy for: (i) the non-disclosure of Doumac’s insolvency and its previous fire history; and (ii) breach of the external storage condition. XL sought to avoid its policy for non-disclosure of previous incidents and warnings as to fire risk.

In circumstances where the Claimant blamed the broker for the non-disclosures, and may have recognised that claims against the insurers presented difficulties, it sued only the broker.

The Court was asked to consider two significant points in relation to causation. Firstly, in the context of a claim only against the broker and with no prior settlement at all with the insurer, whether it was enough for the Claimant just to prove that the claim under the insurance policy had been impaired and that it therefore lost the chance to claim under it. Secondly, in circumstances where Aviva had also declined cover for a reason unrelated to the broker’s negligence (the breach of the storage condition), whether determining if the claim would still have failed on that ground should be decided on a balance of probabilities or loss of a chance basis.

In relation to the first point, the Court held that, where the policyholder had elected to sue only the broker and not recovered anything at all from the insurer beforehand, it must establish on the balance of probabilities that the insurer’s denial of coverage was correct. That contrasts with the position where, before suing the broker, the policyholder had reached a reasonable settlement with the insurer. In that situation, the policyholder can sue for any shortfall in the settlement without having to prove that the insurer’s coverage defence was a good one.

On the second issue, the Court held that the insurer’s alternative ground for declining cover should be considered on a balance of probabilities basis. Consequently, the Claimant only succeeded in the claim in relation to the XL policy as it was held that, on the balance of probabilities, Aviva would have been entitled to decline indemnity pursuant to the breach of the storage condition irrespective of the non-disclosures.

Following this decision, policyholders should only pursue the broker in the clearest of cases, where there is no real doubt that the insurer’s stance is well founded. In any other situation, first challenge the insurer’s stance with a view to reaching a reasonable settlement and only then contemplate a claim against the broker for the shortfall.


The four cases considered here collectively represent mixed news for professionals. Solicitors dealing with property transactions will understandably be dismayed by the Court of Appeal’s decision in Dreamvar. By contrast, insurance brokers will take comfort from Butcher J’s disinclination in Dalamd to help clients to recover their losses from their broker in circumstances where the insurers’ declinature can ultimately be shown to have been unjustified. Finally, the two other cases (Euro Pools and Cultural Foundation) are reminders that the notification of a “circumstance” to a professional indemnity policy continues to represent a fertile source of disputes between professionals and their insurers.

James Breese is an associate at Fenchurch Law

October 23, 2018

Fenchurch Law awarded Investor In Customers “Gold” Award for client experience

Fenchurch Law, the UK’s leading firm of policyholder-focused insurance dispute lawyers, have achieved a ‘gold’ award from the independent Investor in Customers (IIC) assessment process for a second year running.

Comments from clients included:

“You receive a proactive, knowledgeable and professional service better than any competitor.”

“My dealings with the firm were extremely professional and the key contacts and partners were always approachable. These points are invaluable to me.”

“In all of my interaction with Fenchurch Law they make me believe that my concern / issue is right at the top of their pile. They listen and respond within a reasonable period of time (not too quick otherwise I’d fear they haven’t considered it properly!).”

“I feel this team is a true example of a modern law firm where client care and results are at the forefront of everything it does.”

“We brokers know how to deal with most claims, but we sometimes need expert help when the insurer is being difficult. We are comforted to know that Fenchurch Law are right behind us and our clients to provide the legal guidance and advice when required.”

IIC is an independent assessment organisation that conducts rigorous benchmarking exercises.  These exercises determine the quality of customer service and relationships across several dimensions, including how well a company understands its customers, how it meets their needs and how it engenders loyalty.  IIC also compares the views of staff and senior management to identify how embedded the customer is within the company’s thinking.

Sandy Bryson, Director at IIC, commented: “Fenchurch Law has recorded another exceptional assessment score of its client experience, resulting in our Gold award for the second consecutive year. Not only that, the individual results from all 4 audiences who completed the assessment questionnaires: their clients; their employees; senior managers and IIC, were also rated as a “Gold”. I am delighted for David and his team. These results are testimony to the absolute commitment from the whole Fenchurch Law team to put their clients first. Furthermore, they will be implementing the insights from this years’ assessment to continue improving their client experience.”

David Pryce, Managing Director at Fenchurch Law added: “Providing an exceptional service is extremely important to us, but we know that we can always do better. That’s why we use the IIC process. To understand what we can improve, and to make sure that these improvements do happen”.

August 1, 2017

The 1930 Third Party (Rights Against Insurers) Act – still relevant for years to come

Shirley Anne Redman (suing as widow and administratix of the estate of Peter Redman) v (1) Zurich Insurance Plc (2) ESJS1 Limited

The recent decision of Mr Justice Turner in Redman v (1) Zurich Insurance (2) ESJS1 Limited confirms that the Third Party (Rights Against Insurers) Act 2010 (“the 2010 Act”) does not have retrospective effect.

As a result, a third party must still bring a claim under the 1930 Act where both the relevant insolvency and the relevant insured liability occurred before the commencement date of the 2010 Act (which is 1 August 2016).

Mrs Redman’s husband worked for a company latterly known as ESJS1 (“the Company”) between 1952 and 1982. On 5 November 2013 he died from lung cancer alleged to have been caused by exposure to asbestos during the course of his employment. On 30 January 2014 the Company was wound up and was eventually dissolved on 30 June 2016.

Mrs Redman sought to recover for her husband’s illness and death in a claim brought against the Company’s insurers, Zurich, under the Third Party Rights regime.

It is well understood that the 2010 Act has advantage over the 1930 Act in this regard. Whereas the 1930 Act requires the liability against the insured to be established (by agreement or judgment, with the latter sometimes requiring the insured first to be restored to the register followed by proceedings against it) prior to the covered claim being brought against the insurer, the 2010 Act allows a claim encompassing both liability and coverage to be made against the insurer alone.

Mrs Redman therefore sought to bring a claim under the 2010 Act. However, both the date of the Company’s insolvency and the date of the Company’s alleged liability had arisen prior to the commencement of the 2010 Act (the date of liability arising at least some thirty years prior) and the 2010 Act provides that the 1930 Act is to continue to apply in such circumstances.

As a result, the Judge struck out the claim, saying that to apply the interpretation of the Act favoured by Mrs Redman (ie, to read into the Act that the relevant date was the date that liability against the insured was established) would be tantamount to ”judicial legislation”.

Accordingly, the 1930 Act will continue to apply to those cases where the insolvency event (and the underlying liability) pre-dates 1 August 2016, with the 2010 Act applying where either event occurred thereafter. As a result, until about 2022 (when any third party liability will be time-barred) the old regime will remain relevant, and insureds, brokers and insurers will have to live with two potentially relevant regimes.

Tom Hunter is an associate at Fenchurch Law

July 21, 2017

The Good, the Bad & the Ugly: 100 cases every policyholder needs to know. #2 (The Ugly). Kosmar Villa Holidays plc

Welcome to the latest in the series of blogs from Fenchurch Law: 100 cases every policyholder needs to know. An opinionated and practical guide to the most important insurance decisions relating to the London / English insurance markets, all looked at from a pro-policyholder perspective.

Some cases are correctly decided and positive for policyholders. We celebrate those cases as The Good.

Some cases are, in our view, bad for policyholders, wrongly decided, and in need of being overturned. We highlight those decisions as The Bad.

Other cases are bad for policyholders but seem (even to our policyholder-tinted eyes) to be correctly decided. Those are cases that can trip up even the most honest policyholder with the most genuine claim. We put the hazard lights on those cases as The Ugly.

At Fenchurch Law we love the insurance market. But we love policyholders just a little bit more.

#2 (The Ugly)

Kosmar Villa Holidays plc -v- Trustees of Syndicate 1243 [2008] EWCA Civ 147

The issue in Kosmar Villa Holidays plc was whether an insurer’s conduct in investigating a claim prevented it from subsequently relying on a breach of a condition precedent to avoid liability.

The policyholder, a tour operator, Kosmar, made a claim under its public liability insurance in respect of injuries suffered by an individual who was paralysed after diving into the shallow end of a swimming pool at apartments in Greece operated by Kosmar.

In breach of a condition precedent requiring it to notify the insurer immediately after the occurrence of any injury, Kosmar did not do so for a year.

Once notified, the insurer did not immediately deny liability for breach of condition precedent but sought further information about the accident.

The Court of Appeal had to consider whether in dealing with the claim in this way, without expressly reserving its position or denying liability, there had been a waiver, either by election or estoppel, that meant that the insurer was no longer able to decline indemnity because of the late notification.

The Court found that waiver by election had no application to a breach of a procedural condition precedent. However, where, through its handling of a claim, an insurer made an unequivocal representation that it accepted liability, or would not rely on a breach of a condition precedent, and where there had been detrimental reliance by the policyholder, the doctrine of estoppel would protect the policyholder.

On the facts, there had been no unequivocal communication by the insurer and insufficient reliance or detriment on the part of Kosmar. It was not therefore inequitable for the insurer to rely on Kosmar’s breach of the condition precedent to decline indemnity.

In its judgment, the Court explored the tension between an insurer’s need to have sufficient time to investigate claims and the insured’s need to know where it stands as regards policy coverage. On one hand, insurers were not to be encouraged to repudiate claims or to reserve their rights without asking questions about the claim simply to avoid being taken to have waived their rights in respect of a breach of a condition precedent. To do so would be to push insurers into an over-hasty reliance on their procedural rights. On the other hand, insurers were not entitled to give the impression that they were treating the claim as covered without running the risk of having waived their right to avoid the policy.

The message for policyholders is that, in the absence of an express communication to that effect, it is not safe to assume from conduct alone that an insurer has waived a breach of a procedural condition precedent.

June 27, 2017

Dalecroft Properties Limited – v – Underwriters

Dalecroft Properties Limited – v – Underwriters subscribing to Certificate Number 755/BA004/2008/OIS/00000282/2008/005

[2017] EWHC 1263 (Comm)

This recent decision by the Commercial Court provides a neat recap of the applicable law pre the Insurance Act 2015, which still applies to many claims brought by policyholders today.

The Claimant, Dalecroft Properties Limited (‘Dalecroft’), owned a property in Margate (‘the property’). The property was a mixture of commercial and residential parts, and was insured with the Defendants (‘the Underwriters’).

The property was a five-storey building, and included a restaurant, a charity shop and an amusement arcade, the upper floor of which had previously been used as a discotheque (‘the disco building’).

The brief insurance history is as follows:

  1. On 1 August 2007, Tristar (the Underwriters’ Agents) issued Dalecroft with a schedule for the period 1 August 2007 – 31 July 2008 (‘certificate 001’).
  2. Shortly after, Dalecroft requested an increase to the sums insured. Accordingly, on 16 August 2007, Tristar issued Dalecroft with a new schedule marked CANCEL & REPLACE (‘certificate 002’).
  3. At the August 2008 renewal, Tristar issued Dalecroft with a schedule for the period 1 August 2008 – 31 July 2009 (‘certificate 003’).
  4. On 19 November 2008, Dalecroft’s brokers requested that “the property should be registered in the name of Dalecroft Properties Ltd’. On 20 November 2008, Tristar issued Dalecroft with a new schedule marked CANCEL & REPLACE (‘certificate 004’). The period of insurance ran from 19 November 2008 to 31 July 2009, and the premium was stated to be £0.00.
  5. On the same day, Dalecroft’s broker noted that Tristar had failed to correct Dalecroft’s name on the policy and so, on 21 November 2008, Tristar issued a further schedule marked CANCEL & REPLACE (‘certificate 005’). Again, the insured period ran from 19 November 2008 – 31 July 2009, and the premium was stated to be “£0.00.”

A fire occurred on 16 May 2009, which required the property to be demolished and rebuilt. Dalecroft then made a claim on the policy, which the Underwriters sought to avoid.

In the subsequent proceedings, Dalecroft claimed an indemnity from the Underwriters for its losses arising from the fire. The Underwriters counterclaimed for a declaration that they were entitled to avoid the policy on the grounds of misrepresentation/non-disclosure, and a breach of warranty.

In all but one of allegations of misrepresentation, Dalecroft denied that what it said was untrue. It also said the matters complained of by the Underwriters did not induce the making of the contract, as the relevant contract was not made until 2008, by which point the Underwriters had issued a revised certificate headed “Cancel and Replace.”

The issues to be decided were:

a) Which was the relevant policy?

b) Did Dalecroft misrepresent any matters to the Underwriters?

c) Were there any breaches of warranty?

d) Was the risk divisible into commercial and residential parts?

Which was the relevant policy?

Dalecroft submitted that the relevant policy was contained in certificate 005, this being the policy in force at the date of the fire.

The Underwriters, by contrast, submitted that correct policy was certificate 003 i.e. the policy issued at renewal in August 2008.

The Judge, Mr Richard Salter QC, agreed with the Underwriters. He accepted that certificates 004 and 005 were marked CANCEL & REPLACE; however, neither certificate was a new policy.


The Underwriters relied on the following misrepresentations/non-disclosures in the August 2008 Proposal/Statement of Fact:

a) That the residential units were vacant for refurbishment;

b) That the property was in a good state of repair;

c) That the property had no flat roof;

d) That the property had not been subject to malicious acts or vandalism;

e) The non-disclosure of the fact that the property had been the subject of an Emergency Prohibition Order (‘EPO’) dated 6 June 2008.

Apart from point (a), the Underwriters made out their case in respect of each alleged misrepresentation/non-disclosure.

There was compelling evidence that the property had suffered from broken windows, leaking and drainage issues (amongst other issues). Accordingly, Dalecroft had misrepresented that the property was in a good state of repair.

As regards the status of the roof, the Judge noted the experts’ views that the flat proportion of the roof comprised 50.43% of the entire roof area. As such, the representation that there was no flat roof was also incorrect.

As to the alleged malicious acts of vandalism, the Judge found that there was a history of “continual disturbances of vandalism and drug taking”, together with at least one further specific incident where a police officer was assaulted. Therefore, this too had been misrepresented.

Finally, the Judge accepted that the EPO had been misrepresented. There was a long list of defects to the property (which significantly increased the risk of fire), and nothing to suggest that the issues had been remedied. In the circumstances, the Judge found that this was a matter about which a prudent insurer would have wished to know.

The Judge found that each of points (b) – (e) were material, and that the Underwriters had made out their case on inducement. Accordingly, Dalecroft’s claim had to fail.

Although not strictly necessary, the Judge went on to consider the remaining issues.

Were there any breaches of warranty?

The Underwriters alleged that Dalecroft breached a Commercial Unoccupancy Condition in the policy (‘the Condition’) in that it had failed to ensure that:

a) The Basement and disco building were free of combustible materials;

b) The charity’s letterbox was sealed;

c) The Charity Shop and the Basement were properly secured;

On the evidence, the Judge was satisfied that Dalecroft was in breach of the Condition. In particular, it was clear from the available photographs that there were loose combustible materials in the disco building, and that neither the charity shop nor its letterbox were secured against unauthorised entry.

Was the risk divisible into commercial and residential parts?

Dalecroft argued that the risk was divisible, and that, because the alleged misrepresentations/non-disclosures related only to the residential parts, it was entitled to an indemnity for their losses in relation to the commercial part.

The Judge disagreed. The condition broken by Dalecroft was directed at risks which jeopardised the entire property. It followed that the Underwriters were discharged from all liability.


The Underwriters, on the facts of this case, were entitled to reject all claims made against them. The Judge was keen to emphasise, however, that even if the new law had applied, Dalecroft’s claim would still have failed. In this respect, he was satisfied that Dalecroft made “no real effort” to make a fair presentation, and that Underwriters would still have declined to take on the risk.

Alexander Rosenfield is an associate at Fenchurch Law

October 13, 2016

The ordinary measure of indemnity: Great Lakes Reinsurance (UK) SE v Western Trading Limited

In the latest in a series of pro-policyholder decisions by the courts, the Court of Appeal yesterday handed down a judgment upholding the trial judge’s ruling that a policyholder was entitled to be reimbursed by its insurers as and when it reinstated its premises (the historic Boak Building in Walsall) which had been destroyed by fire.

The Insuring Clause in the policy merely stated that insurers agreed “to the extent and in the manner provided herein to indemnify the Assured against loss of or damage to the property specified in the Schedule.” However, there was a separate reinstatement clause (“the Memorandum”) which stated that, in the event of damage or destruction, the indemnity was to be calculated by reference to the reinstatement of the property destroyed or damaged but only if the reinstatement was carried out “with reasonable despatch”, failing which only the amount which would have been payable under the policy, absent the Memorandum, would be due.

No reinstatement had occurred by the time of the trial, for the simple reason that the insurers had denied all liability under the policy, relying on various defences in relation to misrepresentation, breach of warranty and insurable interest. These were all rejected by the Judge, and there was no appeal on that score, the Insurers’ appeal being confined to the correct measure of indemnity.

There was disagreement between the parties as to whether the Memorandum could be relied on, and thus the Court of Appeal considered what would be the correct measure of indemnity assuming it were indeed inapplicable.

Insurers argued that, on the facts of this case, the relevant measure of indemnity was the reduction in the building’s value. Its market value just before the fire had been a mere £75,000. That reflected the fact that it was virtually derelict but, since it was Grade II Listed, it was not capable of being economically converted into (say) a block of flats. Ironically, its value had increased after the fire, since it lost its listed status and thus could now be redeveloped. Insurers thus argued that there was no loss, and nothing for them to indemnify.

The Court of Appeal disagreed. It held that, where the policyholder was the owner of the property or, if not, where it was obliged to replace the property (here the policyholder was the lessee of the building and owed the owner an obligation to repair it), the indemnity under the policy was ordinarily to be assessed as the cost of reinstatement. The Court of Appeal recognised that the position would be different if, at the time of the loss, the policyholder was trying to sell the property or intended to demolish it anyway.

The Court of Appeal also recognised, as had the trial judge, that an insurer who paid out the cost of reinstatement would have no redress if the policyholder then decided simply to keep the insurance proceeds. It held that the insurers could be protected if, rather than their being ordered to pay an immediate sum of money, the court instead made a declaration requiring insurers to reimburse the policyholder for the actual reinstatement costs as and when incurred.

Finally, it should be noted that the Court of Appeal held that, where a reinstatement clause required the policyholder to undertake the works of reinstatement “with all reasonable despatch”, it would not be in breach of that requirement unless and until insurers had confirmed indemnity under the policy. That is an obvious victory for common sense, even if it might be thought depressing that the Insurers would really have wished to argue that a policyholder could legitimately be prejudiced by a combination of its own impecuniosity and insurers’ unlawful refusal to affirm cover.

See: Great Lakes Reinsurance (UK) SE v Western Trading Limited [2016] EWCA Civ 1003.

Jonathan Corman is a Partner at Fenchurch Law.

August 20, 2015

AIG Europe Limited –v- OC320301 LLP and Others

While some in the market may regard the recent decision of AIG Europe Limited -v- OC320301 LLP [2015] EWHC 2398 (Comm) (14/08/2015) as a fairly dry analysis of a particular aggregation clause, others will see it as yet another example of the courts’ instinctive inclination to side with policyholders/claimants whenever that feels consistent with the overall “justice” of the case.

The dispute in AIG -v- OC320301 LLP was in substance between a large group of 214 claimants and AIG, the PI insurers of the firm of solicitors whom those claimants had retained.

The claimants had all become involved with a UK property developer, Midas International Property Development Plc (“Midas”), which planned to develop holiday homes at two sites, one in Turkey and one in Morocco. The claimants had either invested in one or other of those developments or had made payments in order to purchase a holiday home once the developments were complete.

Midas retained the Solicitors in respect of both developments. The claimants were told that they would be protected by security interests in the underlying assets (land, in the case of the Turkish development; shares in the company which owned the land, in the case of the Moroccan development) and that their funds were only to be released once the promised level of security was in place (“the cover test”).

In fact, and for different reasons in relation to each of the two developments, there was never adequate security. In both cases the Solicitors failed to apply the cover test properly, with the result that the claimants’ funds were released without their positions being protected.

Midas subsequently went into liquidation, so that the claimants’ only possible recovery was by claiming against the Solicitors. Crucially, the claimants’ claims totalled over £10m (albeit the average claim was for only about £46,000), whereas the limit of cover in the Solicitors’ PI policy was £3m. .

The aggregation clause was Clause 2.5 of the Minimum Terms & Conditions (“the MTCs”), which aggregated all claims, whether arising against one or more insured, arising from:

“(i) one act or omission;
(ii) one series of related acts or omissions;
(iii) the same act or omission in a series of related matters or transactions;
(iv) similar acts or omissions in a series of related matters or transactions…”

AIG argued that sub-clause (iv) applied, ie that the 214 separate claims arose from “similar acts or omission in a series of related matters or transactions”.

The claimants sought to persuade the court (Mr Justice Teare) that, since solicitors are obliged to carry professional indemnity insurance so as to ensure that they are able to compensate their clients, the aggregation clause should be construed so as to give the public the greatest level of protection. The court held that this submission was “too simplistic”. It observed that the MTCs – including the aggregation clause – were the result of discussions between the SRA and the insurance industry: doubtless the aggregation clause could have been more narrowly expressed, but then the limit per claim might have been lower or the premium might have been greater. “Thus, when construing the MTCs, and in particular the aggregation clause, the court should do so in a neutral manner, neither predisposed to assist the public nor predisposed to assist the insurer.”

The court then went on to consider how the two limbs of sub-clause (iv) applied to the facts of this case.

“Similar acts or omissions”

The claims had to arise from “similar” acts or omissions, but what was meant by “similar” in this context? The court held that “the requisite degree of similarity must be a real or substantial degree of similarity as opposed to a fanciful or insubstantial degree of similarity”. It might be said that this is so obvious or trite as to deprive this supposed test of any utility.

Be that as it may, the court had little hesitation in concluding that, in relation to both the Turkish and Moroccan developments, all the claims arose from the Solicitors’ failure to ensure that there was effective security (albeit in the one case over land and in the other case over shares), so that the cover test was not properly applied and the claimants were exposed to loss in the event that, as occurred, the developments failed. The claims thus arose out of similar – if not identical – acts or omissions.

“In a series of related transactions”

The court concluded that this phrase has at least three possible meanings, which were variously supported by the claimants and AIG.

First, as submitted by AIG, the phrase could mean simply a number of transactions which, on the facts of the particular case, were sufficiently similar and/or connected. The court rejected that submission: “If it were correct, the scope of the unifying factor and hence of the aggregation clause would be very wide with no clear limit. Claims would be aggregated where they arose out of similar acts or omissions in … transactions which are sufficiently similar and/or connected… But such test is vague, uncertain and soft-edged. AIG offered no assistance as to how one judged whether transactions were “sufficiently” similar and/or connected…

Secondly, the phrase “a series of related matters or transactions” could mean, in the context of this particular case, a number of independent transactions which nevertheless were related because they were investments in one particular development. That was the claimants’ fall-back position. It would at least have meant that they could recover £3m for the claims in respect of the Turkish development and a further £3m for the claims in respect of the Moroccan development.

Finally (and this was the claimants’ primary case), the phrase could mean a series of transactions which were related by reason of being dependent on each other. By dint of what can only be described as some very abbreviated reasoning, this was the construction favoured by the court, which held that this was the most natural meaning of the phrase in the context of a solicitors’ insurance policy, since it was “difficult to talk of transactions being related unless their terms are in some way inter-connected”.

That construction constituted an unambiguous triumph for the claimants, since it was not suggested that any of the 214 transactions was dependent on any of the others. Thus there was no aggregation, and AIG was left potentially liable to pay the entire £10m sought by the claimants.

However, it is far from clear why the court felt compelled to hold that transactions should only be described as “related” if “their terms were in some way inter-connected” or if the transactions were “dependent on each other”. Many might say that transactions can be “related” simply by virtue of having a near identical subject matter (in this case, the investment in one or other of the two developments) or involving the same central participant (in this case, Midas).

The court plainly appreciated that a different opinion on this issue might prevail, since it is understood that it gave AIG permission to appeal.

August 5, 2014

Privy Council finds that a policyholder’s alteration of invoices submitted in support of an insurance claim did not constitute a “fraudulent device”

The case of Beacon Insurance Company Ltd v Maharaj Bookstore Ltd [2014] UKPC21 concerned an insurance claim arising from a fire and the insurance company’s rejection of that claim on the ground that part of it had involved fraudulent devices.

A fire at Marahaj’s premises had destroyed stock worth in the region of $750,000.00 Insurers refused indemnity on the basis that some of the invoices submitted in support of the insurance claim had been altered by the policyholder (the policy included an express condition that all benefit under the policy would be forfeit if any fraudulent means or device was used by the policyholder).

The trial judge accepted that the policyholder had altered certain invoices, but that the alterations had not been made for any fraudulent purpose or with any fraudulent intention. Rather that the stock in question had genuinely been purchased by the insured. The Court of Appeal allowed an appeal by the insurers, and the Privy Council has now overturned the Court of Appeal’s decision and reinstated the first instance decision in the policyholder’s favour.

In reaching its decision the Court emphasised that in the leading case on fraudulent devices (Agapitos v Agnew [2003] QB 556) it was made clear that a fraudulent device requires not only an intention that an action will improve the policyholder’s position in relation to the processing of a claim, but also that the policyholder’s intention is dishonest. As quoted by the Privy Council from the judgment of Mance LJ in Agapitos:

a fraudulent device is used if the insured believes that he has suffered the loss claimed but seeks to improve or embellish the facts surrounding the claim by some lie (the Board’s emphasis).”

The Privy Council found that the Judge at first instance had been entitled to decide that the policyholder’s alteration of invoices submitted to the insurer was free of any dishonest intent. In the words of the Privy Council:

“while foolish, such tampering was far from conclusive evidence of dishonesty on [the policyholder’s] part”.

David Pryce comments on the case:
‘Insurance law is technical and often counter intuitive. However, underpinning it is the basic principle that insurers should pay, promptly and in full, genuine claims made by honest policyholders. It is sometimes easy to forget that the technicalities and complexities of insurance law are all designed to meet that simple principle. This decision is another in an increasingly long line which show the Courts taking a pragmatic and flexible approach in order to keep that principle in the foreground where it belongs.’

February 21, 2013

Damages Based Agreements Regulations 2013

On 23.01.2013 the Ministry of Justice published the draft Damages-Based Agreements Regulations 2013 (“2013 Regulations”). These regulations will come into force on 1st April this year. The implementation of the regulations will allow for “contingency fee agreements” across all types of contentious litigation.


January 30, 2013

Contradictory High Court decisions on the doctrine of merger

Clark v In Focus Asset Management & Tax Solutions Limited [2012] EWHC 3669 (QB)

The claimants had invested the proceeds of sale of a family business in a geared traded endowment plan, after taking advice from the defendant Financial Services Company. It transpired that the advice was negligent and led to the claimants losing over £500,000.