This January 2024 judgment considered the application a fraud exclusion in the UK Attorneys Professional Indemnity Insurance Policy.
The relevant exclusion headed “Fraud or Dishonesty” provided that Axis was to have no liability for:
“Any claims directly or indirectly arising out of or in any way involving dishonest or fraudulent acts, errors or omissions committed or condoned by the insured , provided that:
- the policy shall nonetheless cover the civil liability of any innocent insured ;
- …; and
- no dishonest or fraudulent act, error or omission shall be imputed to a body corporate unless it was committed or condoned by, in the case of a company, all directors of that company or, in the case of a Limited Liability Partnership, all members of that Limited Liability Partnership.”
The question was whether the exclusion applied if there was condonation by one director of the attorneys’ firm of the fraudulent conduct of the other.
The appeal court held that the exclusion was aimed at the situation in which there was complicity by all of the members or directors of the insured entity in the fraud or dishonesty of one, or some, of their number, such that it was appropriate to treat the entity itself as having acted fraudulently or otherwise dishonestly.
The court said that as a matter of ordinary English, to “condone” means to treat as acceptable conduct which is unlawfully or morally blameworthy. It does not require an overt act and can, and often does, take place silently and by conduct.
The clause referred to claims “directly or indirectly arising out of, or any way involving” dishonest or fraudulent acts, errors or omissions committed or condoned by the insured. There had to be a causal nexus between the dishonest behaviour said to have been condoned and the claim against the insured for which indemnity was sought under the policy.
The court said that the individual concerned could not escape the consequences of his condonation of an established practice by another director or member of taking or using client monies for their own purposes, by arguing that he was unaware of the specific instances of such behaviour which gave rise to the claim or claims.
On the facts that court found that the relevant director had not condoned the relevant insured’s dishonest behaviour in respect of the relevant funds and loan.
The appeal court rejected the insurer’s attempted reliance on the fraud exclusion.