Court of Appeal rules that causes of action against solicitors alleged to have negligently assessed the merits of claims under ATE policies arose when policy issued - Axa Insurance Ltd (formerly known as Winterthur Swiss Insurance Company) v Akther & Darby Solicitors & others [12.11.09]

Axa (as successor to NIG) brought a claim against 89 firms of solicitors alleging negligence and breach of contract in respect of their initial vetting and subsequent handling of some 26,500 claims supported by after-the-event (ATE) policies underwritten by NIG. The solicitors challenged Axa’s entitlement to bring a substantial number of the claims, on the basis they were time-barred - the ATE policies having been incepted over six years prior to the issue of Axa’s claim. Axa contended the limitation period commenced when a call was first made on the ATE policy, being the date damage accrued.

In March 2009, the Commercial Court found in favour of the defendant solicitors, holding that Axa suffered actual damage on the inception of the individual ATE policies.

On appeal, the case centred on what represented a purely contingent liability and whether the House of Lords’ decision in Law Society v Sephton [2006], which concerned the accrual of a cause of action when the breach of duty resulted in a party being subject to a contingent liability, could be distinguished. The Lords held that the cause of action in tort did not accrue until the contingency was met.

Decision

By a 2:1 majority, the Court of Appeal upheld the first instance decision that Axa’s cause of action in tort accrued when NIG wrote the ATE policy on the basis of the allegedly negligent vetting by the solicitor, that being the point at which damage occurred.

In the leading judgment, Lady Justice Arden concluded that the insurer incurred “additional loss” by entering into the ATE policies, as the liabilities under those policies were more burdensome, and the package of rights they acquired less valuable, than they should have been if the vetting breaches had not occurred. This was measurable loss, additional to the incurring of purely contingent liabilities under the policies of insurance.

Lord Justice Longmore agreed, concluding that the damage the insurer suffered occurred at the inception of the policies as a consequence of a vetting breach, meaning a loss arising from a future claim on the policies was, in the natural order of things, bound to occur.

However, in a dissenting judgment, Lord Justice Lloyd felt unable to hold that the inception of an ATE policy was other than a “pure contingent liability” within the meaning of Sephton and, accordingly, found in favour of Axa.

Comment

Permission to appeal this decision was given, all the Judges being of the view that clarification of Sephton would be helpful. However, following the subsequent settlement of the claim, Axa has agreed to withdraw its appeal and this complex area of law is likely to remain uncertain for some time further.