The Case For The Defence –Theory And Practice

Article by Andrew Horrocks and Jo Whyld

The stated purpose of the February 2003 Law Society Guidance on Claims Handling is to reinterpret the relevant solicitors’ conduct rules, particularly following the professional negligence pre-action protocol and the shift to open market insurance. That said, the guidance does not so much reinterpret the rules as draw together the existing and generally well established best practice from the conduct rules and Solicitors Indemnity Insurance Rules in the context of the new regime.

The new guidance distinguishes between the response to a claim and the response to a complaint (although it does not explain the difference between a claim and a complaint). Solicitors are, of course, required by Practice Rule 15 to have in place a complaints procedure. Although it is not usually necessary to notify a complaint as such to insurers, and it can often be resolved between firm and client, it may of course develop into a circumstance which may give rise to a claim and trigger notification obligations under the firm’s policy.

• The guidance reiterates the existing conduct rules that if a client makes a claim, or a solicitor discovers an act or omission which could give rise to one, the client should be advised to seek independent advice. The guidance, however, also says that if trivial loss is promptly remedied this is unnecessary. This is a new apparent exception to the rule and its limits are unclear, especially as "trivial" is undefined.
• The guidance reaffirms that if a claim is made a solicitor must also consider whether a conflict of interest has arisen. If so, the solicitor will not be able to continue to act, although sometimes it will be in the client’s best interests for the solicitor to take at least minimal further steps (for example to apply to set aside a default judgment). It is sensible in practice to involve insurers in such decisions if time permits.
• The guidance stipulates that a solicitor must notify its insurers of a claim, although this appears as much a commercial as a conduct issue. As between open market insurers policy notification obligations differ. Actual claims will always be notifiable, but the guidance also says that the solicitor should notify anything which could give rise to a claim relating to a former client (presumably, current clients too). This is good advice as most policies require circumstances which may lead to a claim, as well as actual claims, to be notified.
• The guidance reiterates the requirement in the Solicitors’ Indemnity Insurance Rules for a solicitor to provide to a claimant, on request, the name and address of its insurers and the relevant policy number. The guidance goes further (and this is a new development) in saying that it is good practice to provide these details to a potential claimant where a potential claim has been discovered.

There is very limited assistance in the guidance on practical claims handling. The guidance refers to the professional negligence pre-action protocol and sets out its main aims and the possible adverse costs consequences of non-compliance. It emphasises the importance of liaison between the defendant firm and its insurers (or their solicitors) and warns against making admissions of liability without insurers’ consent. All this is sensible, but other practical claims handling points can also be made from experience.

Insurers will often themselves conduct the defence and/or instruct solicitors to do so but the conduct and cooperation of the insured is always important in how the claim is dealt with and resolved. The identity of the person who deals with the claim within the insured can depend on its internal organisation and resources but in larger firms a designated PI partner is often appointed and will be the main point of contact. The solicitor whose work is involved will have to assist with information but it is often better (as the guidance might perhaps have said) if someone independent, ideally a senior person, manages the claim internally. They are less close to the problem and better able to deal with it objectively and commercially.

If a claim is made or likely, immediate steps should be taken to locate and preserve all relevant papers and evidence. A client is likely to request the files and will generally be entitled to the bulk of the papers. Where the claimant is not a client, care is needed because of privilege and confidentiality. Copies should be made of any original documents provided to the claimant (it is surprising how often in practice this is not done). Further, it can be sensible to obtain witness evidence at an early stage, particularly from employees, whose assistance it can be difficult to secure if they leave.

A proactive defence can be greatly assisted if a full report is prepared by the insured when the likelihood of a claim arises; and some firms do this as a matter of course. The insured will, in any event, be obliged to cooperate. The original solicitor may provide the initial information, but it is sensible for it to be reviewed by an independent person with access to the relevant documents. Such internal reviews will attract litigation privilege if, as is usual, litigation is reasonably in prospect.

The guidance rightly identifies this as a major practical development. Because of the protocol (in force since July 2001) it is now unusual for a claimant to sue without first explaining its claim, though this does still happen. Any protocol Letter of Claim should be forwarded promptly to insurers as delay can put the defence on the back foot from the outset. If either claimant or defendant fails to comply with the protocol they can be penalised in costs (although this has not happened much in our experience). If a Letter of Claim does not comply with the protocol further information may need to be sought before a full response can be made. If a claim is clearly ill-founded it can be better to postpone detailed work until the claimant issues proceedings as they can then be struck out and costs recovered, whereas they cannot if a protocol claim is made and then abandoned. Difficult tactical issues can arise and there is often a need to balance sufficient investigation of the claim to be able to fend it off at protocol stage against the prospect that the costs involved will not be recovered if the claimant does give up without suing.

The preferred strategy for handling a claim will partly depend on any continuing relationship with the claimant, the prospect of ongoing work, and the lost fee-earning time which will inevitably have to be spent on the claim. Such factors are usually of more concern to the insured than insurers and can cause a divergence of views on how to deal with the claim, but it is helpful if they are in the open from the outset so that everyone on the defence side can work together to agree the right approach. No Law Society guidance could be a substitute for experience in these situations, but the recent guidelines are a timely reminder at least of the relevant solicitors’ conduct issues.

A version of this article was previously published in Legal Week Magazine.