Law Society and SRA join
forces in indemnity insurance intervention
The Law Society and the
Solicitors Regulation Authority (SRA) have been granted leave to
intervene by the High Court in their respective roles as
representative body and regulator in a case that could have a major
impact on professional indemnity insurance (PII) for law firms
solicitors.
The High Court granted a joint
application from both the Law Society and the SRA in Godiva
Mortgage Limited v Travelers Insurance Company Limited.
The case concerns the capping of
insurance cover by PII insurers by aggregating claims against a
firm. The Society says the insurer's interpretation of the
aggregation clause, if upheld, could raise major concerns for the
profession and would not be in the public interest.
The SRA is intervening on behalf
of the Compensation Fund (the Fund), the discretionary fund of last
resort for anyone affected by a solicitor's dishonesty or failure
to account. Where insurers do not pay, a client can apply to the
Fund for recompense grant. The total losses in this case could be
in excess of 50 million.
SRA Chief Executive Antony
Townsend said: “We have a duty to ensure that the
Compensation Fund is faced only with appropriate applications for
grants from its limited funds and therefore to be rigorous in
analysing and if necessary challenging decisions by insurers to
refuse to provide full cover. It is also important that
clients of law firms can properly recover their losses from
insurers.”
Law Society Chief Executive
Desmond Hudson said: “It was vital that we, as well as the
SRA, were able to intervene in this case. The insurer's
interpretation of the aggregation clause, which led them to cap
their insurance indemnity, could have widespread significance for
the public as it will affect many claimants' right of
redress.
“It is also of great
concern to the profession in terms of their PII coverage and hence
to the Society to ascertain how aggregation applies in a case such
as this. Our members need to have confidence in their PII cover,
and this could cast doubt on what they and their clients are
protected against.”
The case arose out of the
activities of a conveyancing partner at a reputable and
long-established Berkshire firm, Willmett Solicitors. Before
his abrupt resignation the partner had been, for some years,
involved in a number of allegedly fraudulent property transactions,
unbeknown to other partners. When losses came to light as a
result of the financial crisis numerous claims were brought against
Willmett Solicitors and its partners by various lenders, including
the claimant Godiva.
Willmett Solicitors has
subsequently gone into liquidation and has no funds to meet the
claims. Their insurers assert that all activities arising from the
individual partner's involvement in alleged frauds can be
aggregated as 'one claim' and therefore refuse to pay further
sums beyond the 2 million. In consequence, some of the
innocent partners at Willmett have already been made bankrupt and
the remainder are facing bankruptcy.
Ends
Notes to editors:
Counsel for the SRA and the Law
Society is Dominic Kendrick QC and Michael Holmes. Solicitors for
the SRA and the Law Society are Russell-Cooke LLP (John Gould and
Michael Colledge).