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.
