Colette Ann McManus and Others v European Risk Insurance Company hf
| Jurisdiction | England & Wales |
| Judge | Ms Vivien Rose |
| Judgment Date | 17 January 2013 |
| Neutral Citation | [2013] EWHC 18 (Ch) |
| Docket Number | Case No: HC12D04129 |
| Court | Chancery Division |
| Date | 17 January 2013 |
[2013] EWHC 18 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
Royal Courts of Justice Strand, London, WC2A 2LL
Ms Vivien Rose
(sitting as a Deputy Judge of the Chancery Division)
Case No: HC12D04129
Brendan McGurk (instructed by McManus Seddon Runhams for the Claimants
Derek Holwill (instructed by Caytons Law) for the Defendant
Hearing dates: 3rd, 4th and 5th December 2012
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of thisJudgment and that copies of this version as handed down may be treated as authentic.
The Claimants, who are the members of a firm of solicitors, seek a declaration as to the validity of a notification they say they have made to the Defendant, their professional indemnity insurers, alerting the Defendant to circumstances that may give rise to future claims against their firm.
The Claimants are partners in the firm of McManus Seddon Runhams ('MSR'). They had previously been the partners in the firm McManus Seddon which had operated since August 1999 in Bradford as a busy high-street practice, covering many areas of law including family law work, conveyancing, crime and personal injury. McManus Seddon was primarily a legal aid practice with the largest proportion of its turnover derived from legally aided family work. On 17 June 2011, McManus Seddon took over the work in progress and goodwill of another firm Runhams LLP ('Runhams'). Runhams was also a well-established Bradford high-street firm, mainly carrying out commercial and residential conveyancing, civil litigation and probate.
MSR achieved Lexcel accreditation in April2012. Until the firm took over Runhams in 2011 it had an unblemished professional indemnity record with no successful negligence claim being made since its establishment. I should also say at the outset that there is no suggestion in these proceedings that any of the work done by the Claimants in their practice is likely to give rise to a claim against the firm.
Runhams had itself taken over another firm, Sekhon Firth, in October 2010. The work of Sekhon Firth mainly comprised residential conveyancing and some other civil work. None of the partners of Sekhon Firth or Runhams joined McManus Seddon though some of the fee earners and junior staff working at Sekhon Firth did join MSR. It is common ground between the parties that MSR is the successor practice so far as insuring against any claims against Sekhon Firth is concerned.
It is convenient to note here that in April and July 2011 (after Sekhon Firth had been taken over by Runhams) three former members of Sekhon Firth were subject to proceedings before the Solicitors Disciplinary Tribunal. It was alleged that one of them (Mr Shaqil Ahmed) had created false documents and misled his clients. It was also alleged that Mr Iqbal Singh Sekhon failed to make arrangements for the effective management of the firm and that all three members had failed to act in the best interests of their clients or provide a proper standard of work or ensure that the practice was effectively supervised and managed. In a judgment handed down 12 October 2011 ('the SDT Judgment') the Solicitors Disciplinary Tribunal recorded that Mr Ahmed admitted the allegations regarding creating false documents and misleading his clients but the Tribunal found that he had not acted dishonestly. The allegations against Mr Sekhon and the other partner were dismissed.
The Defendant ('European Risk') is a qualifying insurer for the purpose of providing professional indemnity insurance to solicitors. They were the insurer on risk so far as MSR is concerned for the year beginning 1 October 2011. MSR dealt with European Risk through the latter's designated agent Bar Professions and in particular with Mr Tony Patterson of that firm.
The insurance policy
The insurance policy in operation between MSR and European Risk was a 'claims made' policy. This means that the event that has to occur within the insured period in order to fix liability on the insurer is not the misconduct or negligence itself but rather the making of the claim. As is common in such policies, the contract provided for MSR to notify European Risk if it became aware of circumstances that might give rise to a future claim. The effect of a valid notification would be that if in later years a claim was made, European Risk would be liable to pay out on that claim if the claim was covered by that notification, as if the claim had been made while they were on risk.
The nature of claims made policies and the importance of the notification process was described by Moore-Bick J in Friends Provident Life & Pensions Ltd v Sirius International Insurance Corp [2004] EWHC 1799 (Comm) in the following terms (at paragraph 13 of his judgment):
"It is now almost invariable for liability underwriters in general, and professional negligence underwriters in particular, to issue policies that provide cover on what is known as a "claims made" basis, that is, which provide the insured with an indemnity against losses arising from claims made against him, as opposed to events occurring, during the policy period. This has an advantage for underwriters in that they are less exposed to unforeseen losses arising long after the period of cover has expired, but it poses a serious problem for any insured who becomes aware during the policy period of circumstances that may give rise to a claim in the future. When seeking insurance for the following year he would be bound to disclose the existence of any circumstances, but might well find it impossible to obtain insurance in respect of that potential loss at a commercially acceptable premium, if indeed at all. As a result the practice has grown up of including in "claims made" policies a term extending cover to losses arising from circumstances that may give rise to a claim in the future provided that they have been notified to the underwriters during the period of cover. So significant are these factors that in J. Rothschild Assurance Plc v Collyear [1999] 1 Lloyd's Rep. I. R. 6, 22 Rix J. expressed the view that a "claims made" policy could hardly work on any other basis."
The terms of the insurance policy which are relevant for this case are as follows:
"1. Scope of Cover
1.1 Civil Liability
The Insurer will indemnify each Insured against civil liability to the extent that it arises from private legal practice in connection with the Insured Firm's practice, provided that a claim in respect of such liability:
(a) is first made against an Insured during the period of insurance; or
(b) is made against an Insured during or after the period of insurance and arising from circumstances first notified to the Insurer during the period of insurance.
1.4 Prior Practice
The Insurer will indemnify each Insured against civil liability to the extent that it arises from private legal practice in connection with a prior practice, provided that a claim in respect of such liability is first made against an Insured:
(a)during the period of insurance; or
(b) during or after the period of insurance and arising from circumstances first notified to the Insurer during the period of insurance.
7.2 Notice of claims and circumstances, etc
The insured will give notice in writing to the Insurer, as soon as reasonably practicable of any;
(a) claim first made against any Insured during the period of insurance; or
(b) circumstances of which any Insured first becomes aware during the period of insurance;
(c) investigation, inquiry or disciplinary proceeding during or after the period insurance arising from circumstances first notified to the Insurer during the period of insurance.
Circumstances means an incident, occurrence, fact, matter, act or omission which may give rise to a claim in respect of civil liability.
Prior Practice means each practice to which the Insured Firm's practice is ultimately a successor practice by way of one or more mergers, acquisitions, absorptions or other transitions but does not include any such practice which has elected to be insured under run-off cover in accordance with clause 5.3(a) of the [Minimum Terms and Conditions]"
Sekhon Firth and Runhams LLP are 'Prior Practices' of MSR for the purposes of this policy.
The events leading up to the notification
In November 2011 MSR received a claim from a former lender client of Sekhon Firth. The claim alleged breach of fiduciary duty and/or breach of contract and/or negligence arising out of advice given by Sekhon Firth in connection with a property mortgage. The claim concerned instructions to Sekhon Firth by the lender in May and June 2007. The letter of claim was notified to European Risk in December 2011.
Thereafter further claims arrived, all relating to files handled by Sekhon Firth. One was notified in January 2012 and then 12 lender claims were notified on the same day in February 2012. By mid May 2012 a total of 17 claims had been made, directed to MSR as successor practice of Sekhon Firth. Of these, about 12 were claims relating to files where the transaction involved the same borrower and three related to another particular individual.
Evidence on behalf of the Claimants was given by Mrs McManus. I found her an entirely straightforward and credible witness doing her best to assist the court. Her evidence was that she was not initially aware of the number of claims made against MSR arising from Sekhon Firth business. The claims were handled by her colleagues Mr Seddon and Mr Dowling. Ms McManus said she only became aware of the extent of the claims in about August 2012 when she was chivvying Mr Seddon about...
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