Gardner v Lemma Europe Insurance Company Ltd

This appeal concerns an application to lift the automatic stay imposed by recognition of a foreign liquidation under Article 20 of the UNCITRAL Model Law (Schedule 1 to the Cross-Border Insolvency Regulations 2006) and the analogous protection in s.130(2) Insolvency Act 1986. The Court of Appeal agreed with the High Court that no "claim" under the policy arose during the 2009 insurance year because the communications relied on did not communicate an intention to seek compensation or damages and therefore did not satisfy the policy definition of "claim".

The court also held that aggregation language in the policy (clause 2.4 addressing "one claim") related only to the limit of indemnity and did not assist in establishing coverage under clause 1.2(c) for defence costs. Finally, even if the construction advanced by the insured had been arguably tenable, the judge acted within his discretion in refusing to lift the stay: preserving the insolvent estate for the benefit of creditors and permitting the competent foreign forum to determine the dispute outweighed the insured's contractual preference for an English forum or arbitration.

The appellant, a solicitor, sought leave to continue proceedings in England against Lemma Europe Insurance Company Limited (in liquidation) for an indemnity under a professional indemnity policy for defence costs incurred in 2012 disciplinary proceedings. The liquidation of Lemma had been recognised in the United Kingdom, which imposed an automatic stay on proceedings under the Cross-Border Insolvency Regulations 2006. The High Court (HH Judge David Cooke QC) dismissed the application to lift the stay and the appellant appealed.

Nature of the claim: the appellant sought an indemnity for costs of defending disciplinary proceedings on the ground that a "claim" under the 2009 insurance year had been made (or should be aggregated) so as to bring defence costs within clause 1.2(c) of the policy.

Issues framed:

• Whether the communications from the Curwens in 2010 (a letter and a telephone call) amounted to a "claim" within the policy definition (clause 8.3).
• Whether, alternatively, those matters could be aggregated with other claims under the policy definition of "one claim" (clause 2.4) so as to trigger cover for defence costs.
• Whether, if a good arguable case existed, it was nevertheless proper to refuse to lift the stay and require the dispute to be determined in the liquidation or by the agreed arbitration/forum.

Reasoning and conclusions: the court accepted the High Court’s analysis that the communications did not express an intention to seek compensation or damages and were simply enquiries to inspect files to decide whether to bring proceedings; they therefore fell short of the policy definition of "claim". The appellant had not even notified the insurer of "circumstances" which might give rise to a claim. The aggregation provision in clause 2.4 was held to operate only for the purpose of establishing the policy limit and did not create coverage under clause 1.2(c). On the exercise of discretion, the appeal court held that protecting the insolvent estate and the competence of the foreign courts (Gibraltar) to determine questions of policy construction and liquidation matters justified refusing to lift the stay, notwithstanding the contractual choice of arbitration in England and the insured's status as an English solicitor.

The court therefore dismissed the appeal for the reasons given by the High Court; even were the appellant's construction arguable, the judge’s refusal to lift the stay was within his discretion.

Appeal dismissed. The Court of Appeal agreed with the High Court that there was no "claim" under the policy in the 2009 year because the correspondence and communications did not communicate an intention to seek compensation or damages, the aggregation provision did not extend cover under clause 1.2(c), and the judge was within his discretion to refuse to lift the automatic stay to protect the insolvent estate and allow the competent foreign forum or agreed arbitration to determine the dispute.

Liquidation of Lemma recognised in the United Kingdom by an order of Briggs J on 14 February 2013. Application to lift the stay dismissed by HH Judge David Cooke QC, Companies Court, High Court of Justice (see [2014] EWHC 3674 (Ch)). Appeal to the Court of Appeal: [2016] EWCA Civ 484, where the appeal was dismissed.