Solicitors’ PI: CofA rejects duty to obtain information on another party’s insurance

In Dowling v Bennett Griffin the Court of Appeal upheld the judge’s original findings that a solicitor was not negligent for failing to submit an application for disclosure of the other party’s insurance arrangements. In reaching this conclusion, the Court of Appeal considered the authorities including the recent case of XYZ v Various [2013] EWHC 3643 (QB).

Background

In 2001, Alan Phillips Associates Limited (APAL), a limited company controlled by Mr Phillips, agreed to perform architectural and design services for the Dowlings. Unfortunately the project did not go according to plan and, in April 2003, a County Court claim was brought against the Dowlings for unpaid fees.

At some point in August or September 2003, the Dowlings instructed Bennett Griffin to defend the claim and to make a counter claim in respect of losses caused by the architect’s alleged negligence.

The question of insurance was raised from time to time in correspondence between Bennett Griffin and Coole & Haddock, who were acting for APAL and Mr Phillips. However, no application to join the insurer or to require disclosure of the insurance arrangements was made as Bennett Griffin did not consider there was any ground on which to do so.

The Dowlings were successful on all counts at trial in 2005 and APAL was subsequently put into insolvent litigation. Despite this, Dowlings were only able to recover a portion of their outlay from Mr Philips pursuant to a third party costs order.

It transpired that APAL’s insurers were only notified of the claim in early 2006, following APAL’s defeat in trial. The insurers subsequently avoided the contract of insurance on the grounds of non disclosure, misrepresentation and late notification.

The Dowlings decided to sue Bennett Griffin for the difference between the award made in their favour and the recovery made from Mr Phillips for failing to ensure that APAL had insurance cover.

The trial judge, Mr Kevin Prosser QC, rejected all claims. However, Rimer LJ granted the Dowlings permission to appeal. An appeal was brought on the basis that Bennett Griffin ought to have applied to the court for a direction that evidence of insurance cover be provided to them and that that application ought to have been made on 9 July 2004 or earlier.

Decision

The Court of Appeal did not consider that Mr Kevin Prosser QC was wrong in holding that liability against Bennett Griffin had not been established. The appeal was dismissed.

At the time of the underlying proceedings (2003-2005), there was little authority on the Court’s powers to require disclosure of insurance cover. The case of Cox v Bankside Members Agency Ltd (1995) suggested that the Court would not order the disclosure of insurance arrangements because they did not relate to the matters in issue between the parties. The Court also took into account the subsequent authorities of Harcourt v FEF Griffin [2007] EWHC 1500 (QB), West London Pipeline and Storage Ltd v Total (UK) Ltd [2008] EWHC 1296 (Comm) and XYZ v Various [2013] EWHC 3643 (QB).

Since two High Court judges have taken the view, after argument, that the Court has no power to order disclosure of insurance arrangements under CPR Part 18, the Court of Appeal concluded that it can scarcely be said that a solicitor in Bennett Griffin’s position was negligent in taking the same view. It follows that the Dowlings were unsuccessful in showing that there was causation of loss.

The Dowlings also contended that there was an implied term to the effect that APAL would promptly notify its insurers of any claim made against it which could and should have been enforced by injunction. The Court of Appeal dismissed this on the basis that it was not pleaded at first instance. In any event, the Court of Appeal considered that production of the insurance policy itself would not have solved the problem. The reason for the lack of insurance cover in this case was not the lack of insurance policy but the fact that Mr Phillips had deliberately decided not to inform APAL's insurers of the claim when first notified of it. The Court of Appeal held that it would not have occurred to a reasonably competent solicitor that an insured professional being sued for negligence would deliberately decide not to notify his insurers of the claim.

Comment

This case follows previous case law and maintains the position that it is not for the Court to investigate a party’s insurance arrangements where that party is not, at that time, insolvent. It is also consistent with more recent case law in respect of the XYZ case discussed in our recent Law Now, where Thirwall J confirmed years of jurisprudence that a claimant must take its defendant as he finds him.

It also serves as useful guidance for solicitors as to the scope of their duty when considering another party’s ability to pay and/or that party’s insurance position.

Further reading: Dowling v Bennett Griffin [2014] EWCA Civ 1545