A solicitor appealed against an order dismissing his application to lift a stay on proceedings in the UK against his insolvent professional indemnity insurer2. The solicitor wished to start arbitration proceedings against the insolvent insurer as it would allow him to be compensated for his defence costs, not by the insurer, but by the UK Financial Services Compensation Scheme. In order to lift the stay, the solicitor needed to show he had an arguable case that the costs he had incurred were covered by his insurance.
Rodney Mark Gardener (the Solicitor) incurred costs in the defence of disciplinary hearings brought against him by the Solicitors Regulation Authority. He sought to claim for these under his insurance. However, his professional indemnity insurer, Lemma Europe Insurance Company Limited (the Insurer), had gone into liquidation and the UK High Court had stayed all UK proceedings against it. The solicitor therefore sought to lift that stay so he could bring a claim for his costs.
Lifting the stay meant demonstrating to the Court of Appeal that the solicitor had an arguable case against the Insurer. To succeed in establishing that the defence costs were arguably covered by the insurance, the solicitor was required to prove that there was a “claim” under the policy and that the proceedings arose from it. However, the definition of “claim” required an intention to seek compensation or damages, and the letter which the solicitor relied upon from a client did not articulate this intention. It was instead a mere request for files. Although the solicitor could have argued that the letter from the client was a “circumstance” giving rise to a claim (instead of a “claim”) which might be covered, he did not take the point. Even if the solicitor had succeeded in establishing that a claim had been made, the solicitor was still unable to demonstrate that it was a claim from which the disciplinary proceedings had arisen. The solicitor unsuccessfully argued that the aggregation wording in the policy meant that the costs incurred need not arise from the claim, but a similar one. This argument failed because the wording only applied to the limits of cover and not to any other part of the policy.
It was considered that even if the solicitor had succeeded in persuading the Appeal Court that his construction of the relevant policy terms was correct, the High Court Judge had been entitled to exercise his discretion when declining to lift the stay. In the absence of a challenge to the competence of the court (of which there was none by the solicitor), the need to preserve the estate for the benefit of the creditors outweighed the contractual right of the insured solicitor to have his case determined in England. The appeal was therefore dismissed.
As was demonstrated in this case, whether a claim is covered will depend upon a close analysis of the wording of the applicable policy, including the definition of “claim”. Insureds may consider it prudent to notify as a circumstance a communication that does not clearly demonstrate an intention to bring a claim for compensation or damages (such as a request for documents or information) because the facts of the case of which the policyholder is aware suggest that a claim could follow the request. While the request itself may not satisfy the definition of a “claim”, it may still be appropriate and sensible to notify the request as a “circumstance” giving rise to a claim which has not yet been articulated by the potential claimant.