European Risk Insurance Company HF v McManus & Ors (t/a McManus Seddon Runhams (A Firm)

In a claims-made insurance dispute, a court may withhold declaratory relief where proposed declarations are unclear, depend on disputed or untested facts, or would create further problems in determining future claims. It may instead restate its conclusions and leave the precise scope of notified circumstances to be decided if a claim arises. An appellate court should not interfere with that discretionary assessment where the reasons are detailed and rational. Costs may be apportioned to reflect mixed success: substantive success did not require a successful claim for declarations. Both the appeal and cross-appeal were dismissed.

A firm of solicitors notified its professional indemnity insurers of circumstances said potentially to give rise to claims concerning predecessor practices. The insurer accepted 32 identified matters but rejected the wider blanket notification. The High Court held that the rejection was wrong in important respects, but declined to grant declaratory relief and awarded the solicitors 60% of the hearing costs. The insurer appealed against the costs order. The solicitors cross-appealed against the refusal of declaratory relief. The High Court decision was reported at [2013] EWHC 18 (Ch) and [2013] LL Rep IR 534. The central issues were whether declaratory relief should be granted and whether the costs apportionment should be disturbed.

Lord Justice Davis gave the judgment of the court, with which Lady Justice Black and Lady Justice Arden agreed.

1. Cross-appeal. The refusal of declaratory relief was a discretionary decision supported by detailed and rational reasons. The proposed declarations were lengthy and difficult to understand. Their effect depended on disputed factual matters, including whether the material examined was representative and whether the circumstances notified were in fact known and accurate at the notification date. The precise scope of any valid notification, and whether a later claim arose from it, was better determined in the context of an actual claim. The approach was consistent with the illustration provided by Rolls Royce plc v Unite the Union [2009] EWCA Civ 387. There was no proper basis for appellate interference.
2. Costs appeal. The solicitors had achieved significant substantive success. The insurer’s position that liability could extend only to the 32 identified files, or that each transaction had to be separately notified, had been rejected. The solicitors had nevertheless failed entirely in obtaining declaratory relief. The trial judge was best placed to evaluate that mixed outcome and had expressly considered the late delivery of trial bundles. The award of 60% of the hearing costs was within her discretion and disclosed no basis for intervention.
3. Both the appeal and cross-appeal were dismissed.

• Court of Appeal (Civil Division): dismissed the insurer’s appeal against the costs order and the solicitors’ cross-appeal against the refusal of declaratory relief.
• High Court, Chancery Division: held that the rejection of the notification was wrong in important respects, declined declaratory relief, and awarded the solicitors 60% of the hearing costs: [2013] EWHC 18 (Ch), also reported at [2013] LL Rep IR 534.