This recent decision is another example of the High Court giving a simple and robust interpretation to the ‘dishonesty’ exclusion in a solicitor’s professional indemnity policy, so as to uphold insurers’ decision to decline cover. The case concerned a clause in a 2002/3 policy which excluded cover for:
“Any claim ... arising from dishonesty or a fraudulent act or omission committed or condoned by such insured, except that … no such dishonesty, act or omission will be imputed to a body corporate unless it was committed or condoned by, in the case of a company, all directors …”
The insured practice had operated as a limited company. One director, Mr Atikpakpa, had committed the dishonest acts giving rise to the two claims. The issue for the court was whether the other director, Ms Usman, had also committed relevant dishonest or fraudulent acts or condoned those of her fellow director, so that they were to be imputed to the company.
The Claimant stood in the shoes of two mortgage lenders. In the first transaction, Mr Atikpakpa had submitted a fraudulent mortgage application and then stolen the advance. Ms Usman assisted him with the mortgage application by witnessing his signature. In the second matter, Mr Atikpakpa stole monies from client account representing a mortgage advance to a client. Ms Usman did not participate in that transaction – in fact, the client was her own sister.
The court found that Ms Usman committed mortgage frauds herself and was aware of Mr Atikpakpa’s mortgage fraud activities. However, there was no evidence that she knew Mr Atikpakpa would steal the money in either transaction.
The Claimant argued that the claims arose from Mr Atikpakpa’s thefts and that, because Ms Usman had no knowledge of them, the exclusion did not apply.
The court held that the Claimant’s argument relied on too narrow a view of both the facts and the exclusion clause.
In the first transaction, Ms Usman committed a dishonest act and condoned Mr Atikpakpa’s actions by assisting with the mortgage application, without which he would not have been able to steal the advance. By the time of the second theft, Ms Usman had known of and condoned several mortgage frauds by Mr Atikpakpa. Had she not condoned his actions, he would not have been in a position to steal again. Accordingly, the court was satisfied that these were claims ‘arising from’ dishonesty or condoning by Ms Usman, so that they fell within the exclusion clause.
Following the case of Zurich Professional Ltd v Karim & others , which reached a similar result, this decision gives further pause for thought to anyone seeking to challenge insurers’ reliance on the ‘dishonesty’ exclusion in the solicitors wording. The court will give the clause a broad interpretation and consider a very wide range of evidence when considering both the insured’s dishonesty and ‘condoning’. This is to be welcomed. Ms Usman had, after all, committed fraudulent acts of her own, been aware of other frauds committed by Mr Atikpakpa and had signed the mortgage application for one of the two frauds in question. It would have been an unreasonably harsh result for the court to have upheld such a narrow constructional point.