Thornton Springer v NEM Insurance Company Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Colman J |
| Judgment Date | 06 March 2000 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 06 March 2000 |
Queen's Bench Division (Commercial Court).
Colman J.
Anthony Speaight QC (instructed by Stonehams) for the claimant.
Andrew Fletcher (instructed by Cameron McKenna) for the defendant.
The following cases were referred to in the judgment:
Aluminium Wire & Cable Co Ltd v Allstate Insurance Co LtdUNK [1985] 2 Ll Rep 280
Azov Shipping Co v Baltic Shipping Co (No. 2) [1999] CLC 1425
Baker v Black Sea & Baltic General Insurance Co Ltd [1998] CLC 820; [1998] 1 WLR 974
Bradley v Eagle Star Insurance Co LtdELR [1989] AC 957
Brice v J H Wackerbarth (Australasia) Pty LtdUNK [1974] 2 Ll Rep 274
Capel-Cure Myers Capital Management Ltd v McCarthy [1995] LRLR 498
Forney v Dominion Insurance Co LtdWLR [1969] 1 WLR 928
MDIS Ltd v Swinbank [1999] Ll Rep IR 98 [1999] CLC 1800; [1999] Ll Rep IR 516 (CA)
New Zealand Forest Products Ltd v New Zealand Insurance Co LtdWLR [1997] 1 WLR 1237
Norwegian American Cruises A/S (formerly Norwegian American Lines A/S) v Paul Mundy Ltd (“The Vistafjord”)UNK [1988] 2 Ll Rep 343
Pictorial Machinery Ltd v NicollsUNK (1940) 67 Ll L Rep 461 and 524
Post Office v Norwich Union Fire Insurance Society LtdELR [1967] 2 QB 363
Scottish Metropolitan Assurance Co v GroomUNK (1924) 19 Ll L Rep 133; (1924) 20 Ll L Rep 44 (CA)
West Wake Price & Co v ChingWLR [1957] 1 WLR 45
Wyvern Developments Ltd, ReWLR [1974] 1 WLR 1097
Insurance — Professional indemnity insurance — Costs — Claim against firm of accountants and against partner personally — Firm sought indemnity from insurers for defence costs — Claims dismissed — Whether professional indemnity policy covered costs of defending unsuccessful claim — Whether insurers agreed to indemnify firm against costs of defending claim against firm.
This was a claim by a firm of accountants against their insurers under a professional indemnity policy.
In 1992 “R” took proceedings against the accountants and one of the partners, “K”, in relation to advice which R said he had been given between 1983 and 1989. R's case was that he had retained the firm to act for him and that K, in advising him in relation to his financial affairs, had made statements which were untrue. R alleged that that was a breach of contract or negligence for which the firm was liable. R also alleged that K had a conflict of interest giving rise to a breach of fiduciary duty. Further K's statements gave rise to a collateral contract and his conduct amounted to a conspiracy to injure R. The accountants informed their professional indemnity insurers of R's claim. The insurance, by section I of the insuring clauses, contained an indemnity against claims made against the assured during the period of insurance in respect of any civil liability arising (including liability for claimants' costs) incurred in connection with the conduct of any professional business carried on by the assured. Special condition I provided that in addition the underwriters would indemnify the assured in respect of all costs and expenses incurred with their written consent in the defence or settlement of any claim made against the assured which fell to be dealt with under the policy. The insurers reserved their position. The firm defended the claim on the basis that K's conduct did not involve rendering professional advice in his capacity as a partner of the firm. The insurers by letter of 5 June 1997 said that there would be no indemnity for damages arising from private business dealings between R and K and that they would pay costs but not those attributable to the defence of allegations against K acting in his personal capacity. The insurers paid defence costs of £125,000 without prejudice to their position as to policy coverage and apportionment of costs. In 1998 R's claim was tried and dismissed. The judge held that K never gave advice as an accountant in respect of the material transactions. On the agreed basis that the relationship between K and R was not that of professional adviser and client, that R did not retain the firm to advise and that the firm owed no duty to R, and that K was acting personally in the relevant transactions, the insurers sought to recover the £125,000 in defence costs and the firm claimed a further £193,589 spent defending the claim. The firm's case was that in the circumstances the costs were within the policy coverage, including a legal defence clause, alternatively that the insurers' letter of 5 June 1997 was an acknowledgement of liability for the firm's costs or gave rise to an estoppel.
Held, giving judgment for the accountants:
1. Insuring clause 1 of the policy covered civil liability “incurred” in connection with the conduct of the professional business of the assured, and that meant actual liability of the insured as distinct from alleged liability. That construction was supported by numerous authorities. On the basis that R's claim was dismissed because neither K nor the firm was under any liability to R there was no liability of the insured and insuring clause 1 was not engaged. (West Wake Price & Co v ChingWLR[1957] 1 WLR 45andMDIS Ltd v Swinbank[1999] CLC 1800applied.)
2. Special condition I covered the costs incurred with insurers' consent of defending a claim which fell to be dealt with under the policy. That wording did not require that the costs must have been incurred in defence of a successful as distinct from an unsuccessful claim against the assured. The claim had only to be capable of coming within the scope of indemnity under the insuring clauses. A claim against the firm and against a partner in his personal capacity relying on the same allegations of fact would be a claim within special condition I unless the claim against the firm was manifestly untenable. (Capel-Cure Myers Capital Management Ltd v McCarthy[1995] LRLR 498considered.)
3. The legal defence clause in the policy did not relate to proceedings between the claimant and the insured in which the liability of the insured was to be determined, but was confined to costs, charges and expenses not otherwise covered, such as proceedings before professional tribunals or in criminal courts.
4. The insurers' letter of 5 June contained an unqualified acceptance by the insurers that their indemnity covered defence costs incurred in relation to R's claim except in relation to K's conduct in his personal capacity. That was a consent within special condition I, subject to quantification by means of apportionment, and was effective to make the insurers liable to indemnify the firm under special condition I. If the letter of 5 June was not such a consent the insurers did not waive the requirement for consent under that special condition nor was a term to be implied that insurers' consent would not be unreasonably withheld.
5. The letter of 5 June was also a binding agreement by insurers to extend the scope of the indemnity to the defence costs. The firm would also be entitled to succeed on the basis that the insurers were estopped from denying that the letter of 5 June accurately reflected their indemnity obligations under the policy.
6. The firm was entitled to an indemnity in respect of the costs of all work except that which related to the defence of K in his personal capacity. The indemnity extended to dual purpose work and was not confined to work exclusively referable to the defence of the firm. Therefore the firm would be entitled to a complete indemnity if it was impossible to identify any work which related to the claims only sustainable against K in his personal capacity, such as conspiracy and breach of collateral contract. (New Zealand Forest Products Ltd v New Zealand Insurance Co LtdWLR[1997] 1 WLR 1237applied.)
Colman J:
This is a claim by a firm of accountants against insurers under a professional indemnity policy. It raises issues of general importance on the effect of professional indemnity policies issued to accountants in this country. It arises out of a claim against the firm and its partners (“the practice”) brought by Mr Roscoe who alleged that he was entitled to recover damages against the firm for breach of contract, negligence, fraudulent or negligent misrepresentation, conspiracy and breach of fiduciary duty. Two actions were started in 1992 (consolidated in 1994) and in the statements of claim Mr Roscoe asserted that between 1983 and 1989 he had retained the practice as accountants to advise him as to his financial affairs and that during that period the conduct of Mr Stephen Kaye, a partner in the practice, then under a different name, gave rise to liability on the part of the partnership.
The basis for these allegations can be outlined as follows:
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(1) In 1984 Kaye in his professional capacity as an accountant had advised Roscoe in respect of a proposed sale by Roscoe and Mr Mayers of their shares in Die Formes (Cutter Manufacturers) Ltd (“DFL”) to Janecroft Ltd, a company owned by Roscoe and Mayers.
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(2) Roscoe ought to have been advised to obtain independent advice in view of Kaye's interest in Janecroft.
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(3) Roscoe was to receive convertible loan notes in Janecroft in consideration for his shares in DFL and Kaye represented that those loan notes would be worth £1.6m within two or three years, allegedly the basis for a collateral contract.
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(4) Kaye and the practice were said to be in breach of fiduciary duty and/or guilty of fraudulent or negligent misstatement.
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(5) Kaye gave further advice in 1986 as to conversion of the loan notes into shares in Janecroft and subsequently of those shares into other shares and that advice was negligent, in breach of contract and/or in breach of fiduciary duty and/or involved fraudulent or negligent misstatements.
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(6) Further negligent advice was said to have been given by Kaye during 1986–89.
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(7) Kaye conspired with Janecroft and other companies controlled by him to injure Roscoe.
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(8) The practice was said to be indebted...
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