Appeal court upholds strength of privilege in claim by insurer to see client files

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By Legal Futures

15 July 2010

Court of Appeal: comprehensively rejected Quinn's arguments

Solicitors’ insurers are not entitled to obtain confidential and privileged documents from the Law Society on files where no claim has been made against their insured, the Court of Appeal has ruled. 

Quinn Direct Insurance v Law Society of England and Wales [2010] EWCA Civ 805 concerned an intervention into two-partner firm South Bank Solicitors, following which a number of lenders’ claims were made and notified to Quinn as the firm’s insurer. 

Quinn refused to indemnify the conveyancing partner on the basis of dishonesty, but wanted to investigate whether it could also refuse to indemnify the remaining partner on the basis that he had condoned the fraud. Quinn sought access to the client files in 16 specific cases held by the Law Society, which declined to provide them because of client confidentiality. 

Quinn issued proceedings seeking an order allowing it to inspect and copy all documents within the Law Society’s power and control, but the society argued that it was entitled to withhold production and was bound to do so to protect client privilege and confidentiality. At first instance Mr Justice Peter Smith backed the Law Society, saying among other things that the obligation to provide information only arose once a claim had been made. Quinn appealed. 

There was no issue in respect of files for transactions where the client had made a claim against the firm. In such a case the Law Society takes the view that making a claim constitutes a waiver of client confidentiality and privilege. But in relation to the other files, it was common ground that they all contained information confidential to one or more former clients, whose privilege had not been waived. 

As neither the Law Society nor South Bank clients were parties to the insurance policy, no contractual claim was possible without client consent to waive privilege, meaning Quinn had to rely on public law grounds, the Chancellor Sir Andrew Morritt said in the ruling. The court then went on to reject Quinn’s arguments on various grounds, the first of which, he said, was that “I do not accept that an insured solicitor under any form of ‘claims made’ policy is either entitled or bound to disclose to his insurer, either on inception, renewal or notification, confidential and privileged documents or information of the client without the client’s consent”. 

Even if the insurer were “meshed in” with the regulatory system, as Quinn argued, here its purpose was a private, rather than regulatory, one, the court said. 

In a briefing sent out today, Barlow Lyde & Gilbert partner Andrew Horrocks wrote that the appeal causes practical problems for insurers to investigate such claims notified to them. 

“The appeal judgment does little to help with these practical problems. They have at their heart the traditional inviolability of legal professional privilege, which the appeal court has now again strongly upheld. It may take an erosion of that privilege itself before there is any major change of approach. The forthcoming appeal in the Prudential case [see story here] about privilege in tax advice may see some attritional reduction in its scope, but fundamental short-term change seems unlikely. Insurers will all need to consider their own practical claims-handling approach in light of the problems caused by the Quinn case.” 

Meanwhile, the Risk Update newsletter issued today by specialist law firm Legal Risk highlighted two paragraphs of the ruling that could cause a conflict between solicitor and client.

First, the court said: “If the client will not waive his privilege to enable a proper notification to be made by the solicitor either before inception or during the currency of the policy then the solicitor will no doubt so inform the qualifying insurer. The solicitor is not entitled to ignore the client’s privilege.’

The court continued: “Second, no doubt the solicitor/insured owes duties of good faith to the insurer. He cannot justify any concealment of a material matter on the ground that he, personally, is privileged from disclosing it… Nevertheless the privilege is that of his client and cannot be broken or waived without the client’s consent. It may be that, if the client will not waive his privilege to enable proper disclosure to be made, the consequence of the resulting conflict of interest will be that the insurance is vitiated or the notification inadequate but that is the problem of the solicitor not the client.”

Legal Risk said: “Great care will be needed in completing proposal forms, and notifications of circumstances to insurers. Terms of business will need to be reviewed, but this will not help with past matters and the SRA’s disapproval of solicitors seeking waiver of confidentiality and privilege through general terms of business is an added hurdle.”

To read the ruling, click here.
To read the Barlow Lyde & Gilbert briefing, click here.
To read the Legal Risk briefing, click here.


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