Whether solicitors were entitled to bring a direct action against their clients’ ATE insurers

http://www.bailii.org/ew/cases/EWHC/QB/2014/2194.html

The claimant in this case is a firm of solicitors. It seeks to recover disbursements which it incurred on behalf of its clients from its clients’ after the event (“ATE”) legal insurers (the clients’ claims for personal injury having failed). The insurers contended that, since the firm was not a party to the insurance policies, it had no direct right of action against them. They therefore applied to strike out the claim. Behrens J held as follows:

  1. There was no doubt that the insurance policies in question gave a right of indemnity to the clients and not the firm of solicitors.
  2. However, the solicitors had entered into a direct contract with the insurers, by way of a Procedure Manual. This in effect made the solicitors loss payees in certain circumstances. Since the solicitors in turn owed a number of significant obligations to the insurers, it was “well arguable” that the obligation to pay the solicitors was enforceable directly by the solicitors.
  3. Furthermore, it was “seriously arguable” that the term requiring the insurers to pay the solicitors for disbursements incurred by them on behalf of their clients was a term which was intended to confer a benefit on the solicitors, pursuant to the Contracts (Rights of Third Parties) Act 1999.

The judge therefore refused to grant summary judgment. However, he went on to also hold that the doctrine of subrogation did not assist the solicitors. By paying the disbursements, the solicitors had acquired the right to be subrogated to their clients’ claim against the insurers, but any claim had to be brought in the name of the clients and not the solicitors.