UK – Duty of care owed by partner in reporting
circumstances to insurer
A partner in a UK law firm, entrusted with the responsibility of
dealing with all aspects of the firm's professional indemnity
insurance, was found to have failed to fulfil his obligations to
notify a matter to the firm's professional indemnity insurer.
The insurer had refused indemnity. Bernard Livesey QC, sitting as a
Judge of the UK High Court (Chancery Division), determined that
liability for the matter was to be borne personally by Mr
Herrington. The reason for this being Mr Herrington was responsible
for notifying the insurers that a claim had been made and his delay
in doing so caused the refusal of indemnity.
The issue was determined in the context of a final partnership
account, following the dissolution of a partnership between Mr Tan
and Mr Herrrington.
The Court considered section 24 of the UK Partnership Act
1890 (the Act), which provides:
'The interests of partners in the partnership property and
their rights and duties in relation to the partnership shall be
determined, subject to any agreement express or implied between the
partners, by the following rules ...
(2) The firm must indemnify every partner in respect of payments
made and personal liabilities incurred by him
(a) in the ordinary and proper conduct of the business of the
or (b) in or about anything necessarily done for the
preservation of the business or property of the firm ...'
The Court accepted that in order to justify a departure from the
general rule set out in section 24 of the Act, 'some element of
culpability must be shown on the part of the partner
responsible'. The issue in dispute was the nature and extent of
'the element of culpability' which was required and what
exactly amounted to 'culpable negligence'.
The Court was faced with an absence of judicial authority
dealing with the issue where the loss involved a partner whose
default occurred in the management of the firm's administrative
affairs and where the default was by a partner entrusted with the
responsibility of protecting the firm by complying with the
insuring provisions of a professional indemnity insurance
In a scathing judgment, Mr Livesey QC rejected Mr
Herrington's argument that he did not notify the matter because
he was waiting for relevant documentation. He found that Mr
Herrington had not notified the matter because he believed the
claim was 'spurious' or a 'dinner party claim', and
that 'at the end of the day if he ignored it, it might well go
away and not be pursued'.
Mr Livesey QC held that if he was correct in finding that the
duty owed was a duty to exercise reasonable care and skill, and
that this was an objective standard, Mr Herrington had breached
this duty. Mr Livesey QC also held that if he was wrong about this,
and the duty was a lesser duty to 'do his best' or to
'act to the standard that he would apply in looking after his
affairs', then Mr Herrington would also have breached this
duty. His failure to report the claim to insurers was determined to
be 'culpable or gross negligence'.
It followed that the costs of the uninsured claim were not
entitled to be recovered from Mr Tann.
DLA Phillips Fox is one of the largest legal firms in
Australasia and a member of DLA Piper Group, an alliance of
independent legal practices. It is a separate and distinct legal
entity. For more information visit www.dlaphillipsfox.com
This publication is intended as a first point of reference and
should not be relied on as a substitute for professional advice.
Specialist legal advice should always be sought in relation to any
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