In Oldham v QBE, the court construed the ICAEW minimum terms as providing that, if it is determined that the claim is not covered by the policy, an insured must reimburse defence costs which have been advanced by insurers. This decision provides some helpful clarification about the operation of ICAEW when coverage disputes are at issue, although matters may not be over yet as Mr Oldham has been granted permission to appeal.
We have summarised the background and key points below.
Mr Oldham was an insolvency practitioner, and subject to a judgment arising out of his involvement in the administration of an insolvent company in 2008 and 2009. His Professional Indemnity Policy for the relevant period was subject to ICAEW minimum terms. He made a claim under the policy in October 2014. Insurers declined cover on the basis that he had received notice of the claim in 2011 prior to inception of the policy, but agreed to fund defence costs pending a decision in respect of the coverage dispute.
QBE indicated that it would seek to recover the defence costs if its declinature of cover was upheld.
Mr Oldham was unsuccessful in the High Court proceedings, which are presently stayed and under appeal. Defence costs, funded by QBE, amounted to some £44,000. The arbitrator of the coverage dispute subsequently determined that Mr Oldham was not covered by the Policy, awarded Insurers costs of the arbitration, and also issued a second award holding that Insurers were entitled to reimbursement of the High Court defence costs from Mr Oldham.
The applications giving rise to this decision involved challenges under s.68 and/or s.69 of the Arbitration Act 1996 to several aspects of the awards.
Mr Oldham challenged the decision that QBE was entitled to reimbursement of the defence costs which it had funded, on the basis that as a matter of law QBE had no entitlement under the terms of the Policy to recover them, or alternatively that the arbitrator had not given Mr Oldham a fair opportunity to address the question.
ICAEW clause 10.2 provides that “In the event of any [coverage] dispute…..the Insured and the Insurers agree that Insurers will advance Defence Costs and indemnify the Insured in accordance with [the indemnification provisions of ICAEW] pending resolution of any such dispute."
Mr Oldham argued that the clause did not expressly provide for any “claw-back” and that the phrase “pending resolution of the dispute” should be interpreted only to mean “until” resolution. The court disagreed, for several reasons. All that was needed to trigger clause 10.2 was an assertion of a right to cover (no matter how ill-founded). Mr Oldham’s intepretation would mean that an insured could obtain non-refundable cover for defence costs simply by making that assertion, which was an “unbusinesslike consequence”. Indeed, on Mr Oldham’s reasoning, the interpretation would have to apply to the indemnity for liability itself, which the court considered to be “absurd”. The court found that “the natural conclusion…is that the payment [under clause 10.2] is to be provisional and subject to repayment in the event that the dispute is resolved in favour of there being no coverage”.
Costs of the arbitration
Mr Oldham also challenged the arbitrator’s award of the costs of the arbitration. He argued that he had not been given a reasonable opportunity to address costs arguments.
The court agreed with him on this point, and remitted the issue back to the arbitrator for further consideration. Although it did not have to conclude the issue, it is of interest that the court had some sympathy with Mr Oldham’s position that if he is successful in the underlying proceedings as to liability, the issue of cover would essentially be moot (as the claimant would pay the defence costs), such that the coverage arbitration was arguably held prematurely and costs may have been incurred unnecessarily. Insurers may wish to consider the timing of such disputes, and continue to reserve their position on coverage until the liability trial has been finally determined (including any appeals).