Law firms have the benefit of insurance cover which is governed by the Minimum Terms and Conditions. This does not mean that they are covered for all claims they face and, while it is stating the obvious, they are only covered for civil liability arising from services provided in private practice as solicitors.

Guidance from case law

Historically, law relating to this issue has been found in cases relating to the provision of undertakings. However, the case of Zurich Professional Limited v Brown & Barnes considered the meaning of the phrase “private legal practice” in a professional indemnity policy and identified a two-stage approach.

Looking first at whether the solicitor was providing services as a solicitor in private practice, the court stated that “its task is to establish objectively by reference to all of the admissible documentary and other evidence, taking due account of the regulatory background, the capacity in which (the solicitor) acted”. Second, if the answer was positive, the court should consider whether the solicitor was doing so in connection with the legal practice carried on by the insured firm.

As regards the cases relating to undertakings, the case of Ruparel v Awan summarises the key issue as follows (our emphasis):

“The essential requirement is that the undertaking should have been given by the solicitor in his capacity as a solicitor ... since that is the element which attracts the supervisory jurisdiction of the court. The mere fact that the giver of the undertaking happens to be a solicitor is not enough. The undertaking must therefore be given as part of or in connection with a transaction or activity which is ‘solicitorial’.”

In addition, in this context it is worth also noting the decision in Antonelli v Allen where the court held that receiving and holding monies, without instructions, did not amount to acting within the ordinary course of business of a solicitor.

Halliwells LLP v NES Solicitors and Quinn Direct Insurance Ltd

This recent decision looks specifically at the question of what constitutes the provision of services in private practice, and is highly relevant because of it.

The facts of the case are quite complex and it is not proposed to set them out here. In summary, there were two partners in the firm and it was found that they both acted dishonestly/condoned the dishonesty in giving an undertaking which they knew contained a lie. The lie centred on whether or not the firm held substantial cleared funds (£1.5 million).

In addition to seeking to exclude cover on grounds of dishonesty, Quinn also sought to exclude cover on the basis that the firm’s actions did not amount to “the provision of services in private legal practice as a solicitor” under the policy. Against this argument, it was found that there was evidence of a retainer between the firm and the “client”, and the firm was to be paid a fee for providing the undertaking.

However, the court (rightly in our view) agreed with Quinn and found that the firm had only acted on the provision of the undertaking requested by the client and for no other purpose – it had no involvement in any underlying transaction whatsoever. As such, the court determined that the claim did not arise from the provision by the firm of services in private legal practice as solicitors, and therefore cover was successfully excluded on this second ground also. It was not given in a solicitorial capacity.

Summary

Insurers of law firms can take some considerable comfort from this recent decision. It can only be right that courts do not interpret “solicitorial” capacity, or activity, too widely. If that were not the case, it would be an affront to common sense, and would make insurers’ lives very difficult indeed given the scope of claims that would otherwise fall to be covered by a policy where this is inherently not its purpose.

Often in cases where this issue arises there is also underlying dishonesty on the part of the solicitor concerned, but that will not always be the case. Given the changing world within which we live, the speed of such change and the way business is conducted, it is absolutely vital that insurers are protected from any exposure to claims arising from situations which never formed any part of the bargain they entered into.