18 January 2012

Law Society and SRA join forces to fight £50m indemnity insurance case

The Law Society and Solicitors Regulation Authority (SRA) have been granted leave to intervene in a High Court case on whether professional indemnity insurers should be able to effectively cap cover by aggregating claims against a firm.

In Godiva Mortgage Limited v Travelers Insurance Company Limited, the pair are bidding to make Travelers liable for around £50m in losses which will otherwise have to be borne by the profession through the Solicitors Compensation Fund.

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, while the SRA is intervening on behalf of the compensation fund.

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 – who has subsequently been struck off – had been, for some years, involved in a number of allegedly fraudulent property transactions, unbeknown to other partners. When losses came to light, numerous claims were brought against Willmett Solicitors and its partners by various lenders, including Godiva.

Willmett Solicitors has subsequently gone into liquidation and has no funds to meet the claims. Travelers argues that all activities arising from the individual partner’s involvement in alleged frauds can be aggregated as ‘one claim’ and therefore refuses to pay more than the £2m limit of the firm’s insurance. The total losses in this case could exceed £50m.

As a result, according to the Law Society, some of the innocent partners at Willmett have already been made bankrupt and the remainder are facing bankruptcy.

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 Des Hudson added: “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.”

Tags: Law Society, professional indemnity insurance, Solicitors Compensation Fund, Solicitors Regulation Authority