The Court of Appeal has held that a solicitors’ professional indemnity insurance policy responds to claims arising in relation to disbursement loans made by litigation funders, and such claims cannot be excluded under the “trading debts” exclusion in the minimum terms and conditions (Impact Funding Solutions Limited v Barrington Support Services Limited). This is a departure from previous first instance decisions.

Impact Funding Solutions (Impact)is a finance company which funded disbursements incurred by claimants for the purpose of advancing their claims. In the event of a successful claim, the cost of the loans would be recoverable from the defendant. If unsuccessful the costs would be recoverable from the claimant’s litigation insurance. In circumstances where insurance was not available or had been avoided, Impact would seek recovery from the claimants’ solicitors.

Impact successfully pursued Barrington Support Services Limited (Barrington) for recovery of the loans, but Barrington went into liquidation before the judgment could be satisfied. Impact therefore brought proceedings against the PI insurers. The PI insurers argued that they were entitled to rely on an exclusion in the minimum terms which provided that an insurer could exclude liability for any breach by an insured of the terms of any contract or arrangement for the supply of any insured goods or services. The court at first instance agreed that by failing to repay the loan, Barrington was in breach of contract for the service and allowed the PI insurers to rely on the exclusion.

On appeal by Impact, the Court of Appeal found that the main purpose of the clause was to prevent solicitors seeking an indemnity from insurers for personal liabilities (i.e. insurers would not be required to pay out if the solicitor fell behind with rent). The court held that the impact loans were “part and parcel of the obligations assumed by a solicitor in respect of his professional duties to his client rather than obligations personal to the solicitor”, and that the liability was incurred as part of Barrington’s professional advice and was not a debt or trading liability. The appeal therefore succeeded.