A number of recent High Court decisions have confirmed that third party rights against insurers in Ireland are restricted. The recent High Court decision in Kennedy & Ors v Casey & Ors  IEHC 690 provides further comfort for insurers in this regard in the context of the solicitors professional indemnity insurance.
The plaintiffs instructed a firm of solicitors to pursue a claim against the Irish State (“the State proceedings”). The defendants to the State proceedings, which have been set down for hearing but not determined, have pleaded the Statute of Limitations by way of defence together with laches and delay. Consequently, the plaintiffs brought proceedings against their former solicitors (“the negligence proceedings”) claiming that they were negligent in failing to institute the State proceedings in a timely manner.
The Solicitors Mutual Defence Fund (“SMDF”) initially instructed solicitors to come on record for the defendants in the negligence proceedings but those solicitors successfully applied to come off record following the SMDF’s decision not to provide an indemnity to the defendants. The negligence proceedings were not progressed following this application. Instead, the plaintiffs issued a motion seeking to join the SMDF as a co-defendant to the proceedings. The plaintiffs contended that the SMDF was a party whose presence before the court was necessary in order to enable the court effectually and completely to adjudicate upon the questions involved in the negligence proceedings. The plaintiffs further contended that having regard to the present unsatisfactory state of the law with regard to third party rights in the context of insurance contracts, the court ought to interpret the provisions of section 26 of the Solicitors (Amendment) Act 1994 (provision of professional indemnity cover) and the regulations made thereunder in a manner similar to section 62 of the Civil Liability Act 1961.
The Court accepted the SMDF’s submission that the plaintiffs clearly had no contractual nexus with the SMDF. They were never insurers of the plaintiffs, had no dealings with them, and, perhaps more significantly, had not been the subject matter of any application by the defendants (who did have such a connection) to be joined in the present proceedings. The Court also noted that the defendants had accepted the repudiation or withdrawal of cover by the SMDF.
The plaintiffs argued that the defendant solicitor and SMDF were “joined at the hip” by legislation and applicable regulations, to such an extent as to overcome any objections based on locus standi or lack of privity. The plaintiffs submitted that the minimum terms and conditions applicable to solicitors professional indemnity insurance under the Solicitors Acts, 1954 – 2002, (Professional Indemnity Insurance) Regulations, 2007 (the "Regulations"), gave the plaintiffs locus standi to bring the application, in particular relying upon clause 5.3 of the minimum terms which prohibits avoidance or repudiation of cover (while accepting that a separate provision preserved to the SMDF a discretion whether to indemnify). The Court considered that while it may be true that the Law Society performs a public duty designed to benefit solicitors’ clients, the nature of the duty performed by the Law Society did not confer a direct cause of action on the client of a solicitor as against the solicitor’s insurers. The Court rejected the argument that the Regulations should be interpreted in a manner similar to section 62 of the Civil Liability Act 1961 and found that this had simply no bearing on the application at hand. The Court also found that any issue of estoppel was an issue between the defendants and the SMDF, and not the plaintiffs and the SMDF.
The Court held that in any event, the application was premature as any potential liability of SMDF in this case could only be considered when the State proceedings and negligence proceedings have been determined. If the plaintiffs’ claim against the State defendants was successful, or failed on its merits (as distinct from failing because of the Statute of Limitations) there could be no arguable case against either the existing defendants or their insurers. While the suggestion had been made that the defendants were not a mark for damages, there was no suggestion that they were incapable of defending the proceedings. The Court noted that if it were to apply the plaintiffs’ logic there would be no need to ever bring proceedings against an allegedly negligent solicitor or to seek to have some determination made in such proceedings, as the short cut of simply suing the SMDF would leapfrog those legal imperatives.
This decision is consistent with recent authorities confirming that third parties do not have a direct right of action against insurers in Ireland and to the extent that a specific statutory provision permits a restricted right of action, liability of the defendant insured must be established in the first instance.