Doorway Capital Ltd v American International Group UK Ltd

Simmons & Simmons LLP and Clare Dixon QC have successfully defended a claim brought against professional indemnity insurers AIG under the Third Parties (Rights Against Insurers) Act 2010, after its Insured went into administration. AIG sought and obtained summary judgment of the claim. The judgment can be found here.

Background

Lender Doorway Capital Limited (DCL) and Insured solicitor firm Seth Lovis & Co Solicitors Limited (SL) had entered into a Receivables Funding Agreement (RFA), pursuant to which DCL purchased from SL Receivables (comprising debts owing to SL from third parties). DCL, in return, made funds available to SL. The amount of the available funds was determined, in part, by the amount of the Receivables notified to DCL. SL held on trust for DCL money received into its client account from third parties in payment for the Receivables.

DCL alleged that SL had failed to transfer about £1.7m to it, in breach of trust and other fiduciary duties SL owed to DCL. As SL had gone into administration, DCL made a claim against its professional indemnity insurers, AIG, pursuant to the Third Parties (Rights Against Insurers) Act 2010. Under the 2010 Act (in contrast to the previous 1930 Act) a third party can bring proceedings directly against the insurer without first having established the liability of the insured. AIG sought summary judgment and/or to strike out the claim on the basis that the RFA was an Agreement which SL entered into for its own commercial benefit and which provided SL with a service in the form of capital finance; it did not arise from SL providing professional services to DCL and was therefore not covered, or alternatively excluded, under the Policy. As such, DCL had no real prospect of succeeding in the claim. (Insurers assumed, for the purposes of the application only, that SL was liable to DCL as alleged.)

The decision

AIG were successful on all points and obtained summary judgment on the basis that:

1. SL’s liability did not fall within the insuring clause of the policy. The Judge found that, whilst the policy did refer to providing an indemnity where the insured was acting as a trustee, to fall within the scope of cover SL must have been providing such services in the course of private practice to DCL, which it was not. DCL was a funder of SL and not a client. If anything, SL was by reason of the RFA the client of DCL.
2. If (contrary to the finding at 1 above) SL’s liability did fall within the scope of cover, it would be excluded by the Debts and Trading Liabilities exclusion, which provided that the insurers would have no liability to indemnify SL in relation to any legal liability assumed or accepted by an Insured under any contract or agreement for the supply to, or use by, the Insured of goods or services in the course of the Insured Firm’s Practice.

The judgment is a welcome reminder that, whilst each policy is to be construed on its terms, the Courts will not lightly interpret professional indemnity policies as covering liabilities that do not arise from the provision of professional services and claims arising purely under contractual agreements cannot be ‘shoe-horned’ into PI policies requiring PI Insurers to indemnify that liability after the insured has become insolvent. This is particularly topical in the current market.