Case alert -  EWHC 3004 (Ch)
Court holds insurers are not entitled to a lien for unpaid premium due from insolvent insured
An insolvent company obtained damages in a professional negligence claim against its solicitors. That claim had been pursued with the benefit of various insurance arrangements (including ATE insurance). The insurers sought recovery of unpaid premium but the bankruptcy trustee of the company argued that they were only unsecured creditors in respect of the proceeds.
The company had entered into a "Priorities Agreement" with (inter alia) the insurers. This had mistakenly provided that the premium would be recoverable from the solicitors (ie the losing the defendant) in the event of a judgment against the solicitors. However, ATE premium is no longer recoverable from the losing party. Accordingly, the insurers had no contractual (or statutory) right to a lien over the proceeds.
The insurers sought to argue that they were entitled to a lien because their position was analogous to that of a solicitor (who has a common law and equitable lien over the proceeds of a judgment which is obtained "by the solicitor's exertions"). That argument was rejected by the judge. He held that there is no general right to a lien merely because a party has done work or spent money which has preserved or benefitted the property of another. If a lien is to be imposed, that should be done by Parliament, and not the courts. Furthermore, the general rule is that where the parties have contracted for an unsecured right only, the court will not elevate it to a secured status by means of a lien. The terms of the Priorities Agreement had been such that insurers did not have a right of priority over the litigation proceeds.