In Impact Funding Solutions Limited (Impact) v. Barrington Support Services Limited (Barrington) v. AIG Europe Limited (AIG) (third party) [2013] EWHC 4005 (QB), the Court had previously ordered that Barrington (a company providing legal services) pay Impact (a third party litigation funder) £581,353.80 in damages for Barrington’s breaches of a Funding Agreement between Barrington and Impact. Under the Funding Agreement, Impact would provide a loan to Barrington’s clients to fund personal injury claims. These claims would be pursued on a Conditional Fee Arrangement (CFA) basis and backed by after the event insurance. The Agreement provided that Barrington would comply with all applicable laws, rules and regulations. Further, under the Agreement Barrington warranted that it would comply with the agreement with the client set out in the CFA. The Court found that Barrington had breached the Funding Agreement because it had not conducted any assessment of the merits of its clients’ cases before agreeing to pursue their claims under a CFA. This was a breach of various regulations. It was also a breach of the agreement contained within the CFA itself which required Barrington to conduct an assessment of the merits of the claim. As a result of Barrington’s breaches, Impact had not been repaid any of the loans made under the Funding Agreement totalling £581,353.80. This was its loss which it was awarded together with interest.

Barrington had gone into liquidation. In subsequent proceedings Impact sought to claim the damages it had been awarded from Barrington’s professional indemnity insurer, AIG, under the Third Party (Rights against Insurers) Act 1930 (the 1930 Act). The policy issued by AIG to Barrington provided that AIG would pay all Loss resulting from any Claim for any civil liability of the Insured, ie Barrington, which arises from the performance or failure to perform Legal Services. AIG argued that Barrington’s liability did not arise from the performance of (or failure to perform) Legal Services but arose from a clause in the Funding Agreement obliging Barrington to indemnify Impact in respect of any outstanding loan liabilities. The Court disagreed, finding that Barrington’s liability arose from the breaches of the Funding Agreement referred to above which were part of its performance of (or failure to perform) Legal Services. However, the policy also provided that it would not cover any claim or loss arising out of the breach by any Insured of terms of any contract or arrangement for the supply to, or use by, any Insured of goods or services in the course of providing Legal Services. The Court found that the breaches of the Funding Agreement referred to above fell within the scope of this exclusion. Therefore, the loss was excluded and Impact’s claim against AIG failed.

This case illustrates the issues with the 1930 Act (due to be replaced by the Third Parties (Rights against Insurers) Act 2010 (the 2010 Act)). Under the 1930 Act, Impact had to first obtain judgment against Barrington (in liquidation) before it could pursue Barrington’s insurer, AIG. This required two sets of proceedings, the first against Barrington and the second against its insurers. Ultimately, Impact was not successful against AIG. Under the 2010 Act, Impact would have been able to claim against both Barrington and AIG in the same proceedings. The implementation of the 2010 Act has been delayed by 4 years now. It is not known when it will be brought into force.