Greene Wood McLean Llp v Templeton Insurance Ltd

An insurer’s agreement with a solicitor to provide after-the-event insurance for the solicitor’s clients does not ordinarily contain an implied term requiring the insurer to honour the clients’ policies for the solicitor’s benefit. Neither the business-efficacy test nor the officious-bystander test is satisfied where the insurance policy gives the insured direct rights and preserves the insurer’s remedies.

However, where the solicitor has separately guaranteed that clients will incur no costs, and the insurer is primarily liable for the same costs, payment by the solicitor may give rise to recovery by operation of law or contribution. A direct duty of care from the solicitor or instructed counsel to the insurer will not ordinarily arise where it would conflict with duties owed to the insured.

Greene Wood McLean LLP, a solicitors’ firm in administration, arranged after-the-event insurance with Templeton Insurance Ltd for miners pursuing proposed group litigation. The firm separately gave the miners a broad guarantee that they would incur no fees, risk or costs. The proposed group litigation order was dismissed, and the firm’s insurers paid substantial adverse costs and related sums. Templeton later paid counsel’s fees under an arbitration award but disputed further liability.

The issues included whether Templeton owed GWM an implied contractual obligation to honour the policies, whether GWM could recover under restitution or the Civil Liability (Contribution) Act 1978, whether GWM and counsel owed Templeton direct duties of care, and whether they had been negligent.

1. Contractual implication. There was a contract between GWM and Templeton under which Templeton agreed to provide insurance for future clients. But no term requiring Templeton to honour valid claims by those clients for GWM’s benefit was necessary for business efficacy or so obvious that it would have gone without saying. The arrangements were capable of operating through the miners’ rights under the policies and GWM’s separate guarantee. The policy’s provision that it was for the exclusive benefit of the insured reinforced that conclusion: paras [33]-[50].
2. GWM guarantee and primary liability. The GWM guarantee was an operative promise that the miners would pay nothing, whether or not Templeton paid under the policy. It covered adverse costs and own disbursements without being confined to the policy limit. As between GWM and Templeton, Templeton’s liability under the policy was primary and GWM’s guarantee was secondary: paras [39]-[43], [60]-[62].
3. Recovery and contribution. GWM’s payment of the adverse costs discharged liabilities for which Templeton was primarily responsible. Applying Brook’s Wharf and Bull Wharf Ltd v Goodman Brothers [1937] 1 KB 534 and the principles in Moule v Garrett (1872) LR 7 Ex 101, GWM could recover by operation of law. The same damage was involved for the purposes of the Civil Liability (Contribution) Act 1978. The Court of Appeal’s analysis, including the three-question approach in Royal Brompton NHS Trust v Hammond [2002] 1 WLR 1397, was binding and correct: paras [63]-[84].
4. Duties and negligence. Templeton had contractual remedies against the insured and subrogation rights against GWM. A direct duty from GWM or counsel to Templeton was unnecessary and could create conflicts with duties owed to the miners. The professional negligence test required reasonable skill and care judged in the circumstances existing at the time. Neither GWM nor counsel was negligent in pursuing the group litigation application: paras [98]-[128], [173]-[201].
5. Disposition. Templeton was liable to GWM for £1 million, less the principal sum paid for own disbursements, with interest. Templeton’s claims against GWM and counsel failed. The treatment of counsel’s fees received under the arbitration award was left for further submissions after the Administrator of GWM and CMS had been heard: paras [202]-[230].

The judgment records earlier decisions by Teare J and the Court of Appeal on the arguability of the contractual and contribution claims. Those decisions are not otherwise identified by citation in the supplied judgment. This was the substantive first-instance determination of the claims and additional claims.