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The insurance market generally is familiar with this decision,
which arises out of a class action by 555 claimants in relation to
failed tax schemes.
Background
The defendants included law firm Collyer-Bristow "CB".
CB had acted for Innovator, the promoter of the schemes.
CB were alleged to have acted in breach of trust, contract and
fiduciary duty, to have been negligent and dishonestly assisted by
distributing monies paid into its client account by the claimants
without authority.
In his lengthy judgment, Mr Justice Hamblen found against the
claimants, holding that as they were never CB's clients, CB
owed them no such duties, nor did CB act dishonestly at any time.
This aspect of the decision (like Arrowhead) underlines
the importance of unequivocal engagement letters, and ensuring that
the parties are clear as to who an appointed firm actually
represents.
CB's claim against Lockton
Lockton were CB's appointed professional indemnity brokers
for the purposes of obtaining insurance.
CB claimed that Lockton had negligently placed its professional
indemnity insurance for the relevant insurance years into which
these claims fell. The policy contained aggregation provisions in
its different layers of cover, which CB argued meant that the cover
in place would potentially have been insufficient to pay the likely
damages and costs had CB lost at trial.
CB therefore sought an expedited hearing before the main trial,
on the basis that Lockton's liability should be established
first. They argued that if the claimants won, CB would in all
likelihood face immediate collapse. CB also claimed that without
knowing whether Lockton would be liable, it could not explore
settlement with the claimants, because it would not know how much
of that settlement it would have to fund itself.
Lockton argued against such a preliminary hearing, on the basis
that there was no purpose to be served in establishing the issue of
the extent of CB's insurance cover until such time as it was
clear whether CB would be liable at all to the claimants. Lockton
argued that following the trial in the main action, should CB
actually be found liable, the basic building blocks would be
established to then determine how the disputed aggregation clauses
should be applied.
Outcome
CB's application failed. Although the Innovator litigation
went in CB's favour, they are said to be considering their
options.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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