Is the Defendant insured?

18 December, 2014
by: Cripps Pemberton Greenish
It is often taken for granted that a Defendant professional will have appropriate indemnity insurance.  Many professionals are of course obliged to have such cover, which gives potential claimants some comfort that there are resources available from which damages can be paid in the event of a successful claim.
What if the Defendant is not covered?  What enquiries should be made? 
In Dowling v Bennett Griffin [2014] EWCA Civ 1545, the Court of Appeal held that a firm of solicitors which failed to pursue enquiries into the insurance position of a defendant to commercial litigation was not negligent. 
The claimants instructed Alan Phillips Associates Limited to provide architectural and design services for them in connection with a development project.  A dispute arose and the company sought to recover unpaid fees and the claimants counterclaimed for losses caused by negligence.
The claimants were successful at trial.  However, the company had deliberately failed to notify their professional indemnity insurers, who subsequently avoided paying out under the policy on the grounds of non-disclosure, misrepresentation and late notification.  The company then went into liquidation and the claimants were only able to recover some of the damages and costs they had been awarded at trial.
The claimants then sought to recover the shortfall from their solicitors, Bennett Griffin, alleging that they were negligent in failing to ensure that the company’s insurance cover was in place and in failing to warn them of the risk that the company would not be able to satisfy a judgment against it.

Upholding the decision of the lower court, the Court of Appeal held that the solicitors were not negligent.  Some enquiries had been made but these had been met with resistance and the company’s solicitors had indicated that any formal disclosure application would be contested.  In any event, this was unlikely to have changed the position insofar as the company’s lack of cover was concerned, and a causal link with the loss suffered by the claimants could not be established.

Lewison LJ commented: “I do not think it would 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”.

Although the facts in this case were unusual, it is a reminder of the potential importance of a defendant’s insurance cover to the potential claimant, and the wider issue of a defendant’s ability to satisfy a judgment generally. Whist the outcome of this case will be reassuring to claimant solicitors, this remains an issue which is worth exploring, particularly where there is any cause for concern.

The full judgment can be found here.