Impact Funding Solutions Ltd v Barrington Support Services Ltd (formerly Lawyers at Work Ltd) (AIG Europe Ltd, Third Party)
 UKSC 57;  WLR (D) 558
2016 June 30; Oct 26
Lord Mance , Lord Sumption , Lord Carnwath , Lord Toulson , Lord Hodge JJSC
Insurance — Liability insurance — Professional indemnity — Agreement between claimant and solicitors for provision of loans to solicitors’ clients to fund disbursements — Solicitors acting in breach of agreement and becoming liable to repay loans — Solicitors entering liquidation and claimant seeking to recover sums from professional indemnity insurers — Policy excluding “trading liabilities” arising from “contract or arrangement for … services in the course of the insured firm’s practice” — Whether liabilities incurred by solicitors to claimant within exclusion to professional indemnity cover
The solicitors, who conducted personal injury claims on behalf of clients pursuant to conditional fee agreements, entered into a written agreement with the claimant, a loan company, whereby the claimant operated a data management system which identified potential claims, the solicitors could access the system and decide whether to accept or reject those claims, the system would produce a loan agreement between the claimant and any person whose claim the solicitors had accepted and, once signed, the solicitors could draw down funds to meet the disbursement costs of the court action. The solicitors paid a fee to the claimant, undertook personal liability to pay back the loans in specified circumstances such as breach of contract, and warranted that they would provide a professional service to their client. Many of the claims were abandoned and the loans went unpaid by the clients. The claimant brought an action against the solicitors for breaches of the agreement. The judge awarded the claimant damages, holding that by failing adequately to assess the merits of the claims and using the loans for improper purposes the solicitors had breached the agreement. The solicitors went into liquidation and the claimant brought proceedings against their professional indemnity insurers, pursuant to the Third Parties (Rights against Insurers) Act 1930. The judge held that the insurers were entitled to rely on a clause of the professional indemnity insurance policy which excluded “debts and trading liabilities” consisting of “(b) any breach by any insured of the terms of any contract or arrangement for the supply to, or use by, any insured of goods or services in the course of the insured firm’s practice”, that clause being in similar terms to clause 6.6(b) of The Law Society’s Minimum Terms and Conditions of Professional Indemnity Insurance for Solicitors and Registered Lawyers in England and Wales 2009. On the claimant’s appeal the Court of Appeal held that the obtaining of loans for clients to cover disbursements in intended litigation was essentially part and parcel of the obligations assumed by a solicitor in respect of his professional duties to them rather than the incurring of a trading liability in the course of providing legal services and so the exclusion clause did not apply and the claimant was entitled to have judgment entered against the insurers for the sum for which the solicitors had been found liable. The insurers appealed.
Held, appeal allowed (Lord Carnwath JSC dissenting). The extent of an insurer’s liability under a professional liability policy was to be ascertained by reading the statement of cover together with any exclusion clauses. An exclusion clause was not to be approached with a pre-disposition to construe it narrowly but, rather, was to be read in the context of the contract of insurance as a whole and construed in a manner consistent with the purpose of that contract and, in a non-consumer contract of insurance, on the basis that business people should be free between themselves to apportion risks as they chose. Any question of implying additional words of restriction into an exclusion clause would only arise if, after the express terms of the contract had been interpreted, an objective assessment of the terms of the contract required words to be implied in order to give the contract business efficacy or because it was so obvious that it went without saying. Here, the policy in question required to be interpreted against the regulatory background of the compulsory professional indemnity insurance scheme which Parliament had authorised and the Law Society operated and which existed principally in order to ensure that the public who used legal services were compensated for a solicitor’s failure in duty. There were no grounds for construing the exclusion clause narrowly as if it were an exemption clause which excluded or limited a liability arising by operation of law, since it did no more than delineate the scope of the primary liability. The agreement between the solicitors and their insurers had been one of professional indemnity which sought to cover breaches of solicitors’ professional conduct in connection with legal services to their clients, but not breaches of obligations arising from contracts for the supply of services used by them in the course of their provision of those legal services. The contract between the claimant and the solicitors fell into that latter category, being a commercial bargain for a service for which the solicitors had contracted with the claimant as principal, not as agent for its clients, and for which they were personally responsible for payment. Accordingly, the exclusion clause was applicable to the disbursement funding agreement and, since it was not necessary to imply any restriction into the exclusion clause limiting its effect in order to make it consistent with the purpose of the policy, the claim against the insurers failed (post, paras 6–7, 11–12, 16–18, 29–32, 35, 38, 41–46).
Decision of the Court of Appeal  EWCA Civ 31;  Bus LR 91;  4 All ER 319 reversed.
Mark Cannon QC and Clare Dixon (instructed by Mayer Brown International LLP) for the insurers.
Timothy Dutton QC, Richard Chapman and Pia Dutton (instructed by Ozon Solicitors Ltd, Manchester) for the claimant.
Reported by: Colin Beresford, Barrister
© 2016. The Incorporated Council of Law Reporting for England and Wales.