A number of recent High Court decisions have confirmed that
third party rights against insurers in Ireland are restricted. The
recent High Court decision in Kennedy & Ors v Casey &
Ors [2015] IEHC 690 provides further comfort for insurers in
this regard in the context of the solicitors professional indemnity
insurance.
Background
The plaintiffs instructed a firm of solicitors to pursue a claim
against the Irish State ("the State
proceedings"). The defendants to the State
proceedings, which have been set down for hearing but not
determined, have pleaded the Statute of Limitations by way of
defence together with laches and delay. Consequently, the
plaintiffs brought proceedings against their former solicitors
("the negligence proceedings") claiming
that they were negligent in failing to institute the State
proceedings in a timely manner.
The Solicitors Mutual Defence Fund
("SMDF") initially instructed solicitors
to come on record for the defendants in the negligence proceedings
but those solicitors successfully applied to come off record
following the SMDF's decision not to provide an indemnity to
the defendants. The negligence proceedings were not progressed
following this application. Instead, the plaintiffs issued a motion
seeking to join the SMDF as a co-defendant to the proceedings. The
plaintiffs contended that the SMDF was a party whose presence
before the court was necessary in order to enable the court
effectually and completely to adjudicate upon the questions
involved in the negligence proceedings. The plaintiffs further
contended that having regard to the present unsatisfactory state of
the law with regard to third party rights in the context of
insurance contracts, the court ought to interpret the provisions of
section 26 of the Solicitors (Amendment) Act 1994 (provision of
professional indemnity cover) and the regulations made thereunder
in a manner similar to section 62 of the Civil Liability Act
1961.
Decision
The Court accepted the SMDF's submission that the plaintiffs
clearly had no contractual nexus with the SMDF. They were never
insurers of the plaintiffs, had no dealings with them, and, perhaps
more significantly, had not been the subject matter of any
application by the defendants (who did have such a connection) to
be joined in the present proceedings. The Court also noted that the
defendants had accepted the repudiation or withdrawal of cover by
the SMDF.
The plaintiffs argued that the defendant solicitor and SMDF were
"joined at the hip" by legislation and applicable
regulations, to such an extent as to overcome any objections based
on locus standi or lack of privity. The plaintiffs
submitted that the minimum terms and conditions applicable to
solicitors professional indemnity insurance under the Solicitors
Acts, 1954 – 2002, (Professional Indemnity Insurance)
Regulations, 2007 (the
"Regulations"),gave the plaintiffs
locus standi to bring the application, in particular
relying upon clause 5.3 of the minimum terms which prohibits
avoidance or repudiation of cover (while accepting that a separate
provision preserved to the SMDF a discretion whether to indemnify).
The Court considered that while it may be true that the Law
Societyperforms a public duty designed to benefit solicitors'
clients, the nature of the duty performed by the Law Society did
not confer a direct cause of action on the client of a solicitor as
against the solicitor's insurers. The Court rejected the
argument that the Regulations should be interpreted in a manner
similar to section 62 of the Civil Liability Act 1961 and found
that this had simply no bearing on the application at hand. The
Court also found that any issue of estoppel was an issue between
the defendants and the SMDF, and not the plaintiffs and the
SMDF.
The Court held that in any event, the application was premature as
any potential liability of SMDF in this case could only be
considered when the State proceedings and negligence proceedings
have been determined. If the plaintiffs' claim against the
State defendants was successful, or failed on its merits (as
distinct from failing because of the Statute of Limitations) there
could be no arguable case against either the existing defendants or
their insurers. While the suggestion had been made that the
defendants were not a mark for damages, there was no suggestion
that they were incapable of defending the proceedings. The Court
noted that if it were to apply the plaintiffs' logic there
would be no need to ever bring proceedings against an allegedly
negligent solicitor or to seek to have some determination made in
such proceedings, as the short cut of simply suing the SMDF would
leapfrog those legal imperatives.
Comments
This decision is consistent with recent authorities confirming that
third parties do not have a direct right of action against insurers
in Ireland and to the extent that a specific statutory provision
permits a restricted right of action, liability of the defendant
insured must be established in the first instance.
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.