The English Court of Appeal decided that the exception in an attorney’s professional indemnity policy against cover for trading or personal debts or breach of contract for goods or services supplied to the practice does not exclude the insurer’s liability for money owing to a legal expenses insurer for breaching their policy conditions.
An After the Event (legal expenses) insurer provided a credit facility to the clients of a firm of solicitors that could be drawn down to pay clients’ costs relating to claims certified by the solicitors as having a reasonable chance of success. They drew down money under the facility but breached their obligation to assess the prospects of success in a number of matters that were abandoned. The ATE insurers got judgment against the solicitors for their money back but the solicitors were insolvent. The ATE insurers therefore sought cover under the solicitor’s professional indemnity policy.
The PI policy excluded liability for ‘trading or personal debts … or breach of the terms of any contract or arrangement for the supply to, or use by any insured of goods or services in the course of the insured firm’s practice …’.
The court held that the essential purpose of this exclusion is to prevent insurers from covering the liabilities of a solicitor personally as opposed to liabilities arising from their professional obligation to clients. The policy does not cover personal obligations such as contracts for the supply of photocopiers, cleaning services, leases and the like. Loans made nominally to the solicitor’s clients but inherently part of the agreements intended to enable the solicitor to earn a professional livelihood are inherently part of the professional practice and relate to the duty to advise the client in regard to litigation. The losses resulting from negligent advice were liabilities professionally incurred and not excluded from cover.
From a South African point of view this is a rational decision albeit in unusual circumstances. Most courts here would find that an exception for personal obligations would not exclude cover for losses relating even indirectly to professional advice given.