Impact Funding Solutions Limited v AIG Europe Insurance Ltd (formerly known as Chartis Insurance (UK) Ltd)

A professional indemnity policy must be construed as a whole, in its documentary, factual, commercial and regulatory context. An exclusion which delineates the insured risk does not attract a general presumption of narrow construction.

An exclusion for liabilities arising from contracts supplying goods or services to a solicitor may cover litigation-funding facilities supplied for the solicitor’s commercial benefit, even where loans are made directly to clients. A funder’s independent contractual claim against the solicitor may therefore be excluded although the same conduct also breaches duties owed to clients.

No restriction may be implied into an unambiguous exclusion unless it is necessary for business efficacy or so obvious that it goes without saying.

Impact Funding Solutions Limited v AIG Europe Insurance Ltd (formerly known as Chartis Insurance (UK) Ltd) concerned a solicitor’s compulsory professional indemnity policy. Impact funded loans to Barrington Support Services Ltd’s clients for litigation disbursements. Barrington warranted to Impact that it would perform its professional obligations to those clients.

Barrington breached the warranties and became insolvent. Impact had obtained judgment against it for £581,353.80 and sought recovery from AIG under the Third Parties (Rights against Insurers) Act 1930. His Honour Judge Waksman QC held that the policy’s exclusion for contractual liabilities arising from goods or services supplied to the solicitor defeated the insurance claim.

The Court of Appeal allowed Impact’s appeal in [2015] EWCA Civ 31, reported at [2015] 4 All ER 319 and [2016] Bus LR 91. The central issue before the Supreme Court was whether the funding arrangements supplied services to Barrington within the exclusion and, if so, whether the exclusion required an implied restriction to preserve the policy’s purpose.

1. Disposition. By a majority of four to one, the Supreme Court allowed AIG’s appeal and restored the judgment of His Honour Judge Waksman QC. Lord Hodge gave the principal judgment, with which Lord Mance, Lord Sumption and Lord Toulson agreed. Lord Toulson gave additional reasons supported by the same judges. Lord Carnwath dissented.

2. Construction of the policy. The policy had to be construed by reading its broad insuring clause and broad exclusions together in their documentary, factual, commercial and regulatory context. An exclusion may sometimes receive a narrow construction to prevent inconsistency with the policy’s purpose. The clause here, however, delineated the insured risk rather than excluding a liability which otherwise arose by law. The general doctrine concerning narrow construction of exemption clauses therefore did not apply. Contra proferentem had no role because the policy wording created no real doubt.

3. Regulatory purpose. The minimum terms prescribed under section 37 of the Solicitors Act 1974 principally protected clients and those third parties to whom solicitors incurred professional responsibilities. They combined an unusually broad insuring clause with permitted exclusions identifying liabilities for which compulsory professional cover was not required. The exclusion for debts and trading liabilities was part of that definition of cover.

4. Services supplied to the solicitor. The disbursements funding master agreement supplied services to Barrington, although the individual loans were made to its clients. Barrington contracted as principal, benefited by being able to conduct otherwise unfunded cases and earn fees, paid an administration fee, assumed onerous repayment obligations and gave the warranties on which Impact recovered damages. Impact’s independent claim arose from Barrington’s breach of that commercial contract and therefore fell within the exclusion.

5. No implied restriction. Excluding Impact’s claim caused no commercial or practical incoherence. The funder’s cause of action was independent of each client’s claim, and defences available against a client might not answer the funder’s contractual claim. A restriction was neither necessary for business efficacy nor so obvious that it went without saying.

6. Dissent. Lord Carnwath would have dismissed the appeal. In his view, the composite expression “goods or services”, read with “supply” and “use”, referred to things supplied for use in the practice in a manner comparable to goods. Funding loans to clients conferred only an incidental benefit on Barrington and was not a service supplied to it within the exclusion.

1. United Kingdom Supreme Court: By a majority of four to one, allowed AIG’s appeal in [2016] UKSC 57 and restored the first-instance judgment.

2. Court of Appeal: Allowed Impact’s appeal in [2015] EWCA Civ 31, reported at [2015] 4 All ER 319 and [2016] Bus LR 91. It held that the funding liabilities were professionally incurred and covered by the policy.

3. First instance: His Honour Judge Waksman QC first awarded Impact £581,353.80 against Barrington for breach of warranty. In a subsequent judgment dated 13 December 2013, he held that the exclusion applied and that Impact’s indemnity claim against AIG failed.