Channon (t/a Channon & Co) v Ward (t/a Ward & Associates)

Damages for negligent failure to procure professional indemnity insurance are assessed by comparing the claimant’s actual position with the position that would have existed if the insurance had been obtained. The court must consider both what the putative insurers would have done and how the insured would have responded. An expectation or loss-of-chance approach may be required. Consent judgments or settlements with third parties do not themselves establish an indemnifiable loss where insurers would not have been bound by them. A clause requiring senior counsel’s advice before an insured is required to contest proceedings concerns the conduct of the defence after cover is accepted; it does not determine whether the claim falls within cover. Where there is no substantial, non-speculative chance of a different outcome, damages are nil.

The appellant, a chartered accountant, alleged that his insurance broker had negligently failed to procure professional indemnity insurance. Investors in a property company associated with him had brought claims alleging negligent investment advice, although the appellant maintained that any relevant conduct occurred in his capacity as a company director.

After default judgment against the broker, damages were assessed by the Queen’s Bench Division at nil, and the appellant was ordered to pay the broker’s costs. The judgment is reported at [2015] EWHC 4256 (QB). The appeal concerned whether the appellant had lost a compensable chance of indemnity or defence assistance had the policy been in place.

1. Disposition. The appeal was dismissed. The assessment of damages at nil and the costs order were upheld.
2. Measure of loss. The court accepted that the task was to assess, on an expectation or loss-of-a-chance basis where appropriate, the monetary difference between the appellant’s actual position and the position he would have occupied had the policy been obtained. The inquiry required separate consideration of what the putative insurers would have done on notification of the claims and how the insured would have responded.
3. Application of the hypothetical inquiry. The trial judge’s material findings were unchallenged. The insurers would have treated the claims with considerable caution, relied on the policy’s exceptions 3 and 6, and refused indemnity or further assistance. They would also probably have maintained that the claims did not arise from the insured accountancy business. The appellant, whose own case was that the claims were contrived and unrelated to his accountancy practice, would not have challenged that stance. There was therefore no substantial, non-speculative chance that insurance would have materially altered his position.
4. Underlying loss. The consent judgments entered in favour of the investors did not themselves establish an indemnifiable loss. The putative insurers would not have been bound by settlements or judgments to which they had not agreed, and the appellant had not proved that he was liable to the investors in a manner falling within the putative cover.
5. Legal advice and policy construction. The evidence did not establish a significant possibility that the insurers would have obtained independent legal advice. It was consequently unnecessary to decide what that advice would have been or to construe exceptions 3 and 6. The senior barrister and Queen’s Counsel clauses addressed whether proceedings should be contested once cover was acknowledged, not disputes about the scope of cover. The court also found that Bell v Lothiansure 1993 SLT 421 provided little assistance, but expressly avoided deciding the construction issue.

1. Court of Appeal (Civil Division) — [2017] EWCA Civ 13: appeal dismissed.
2. Queen’s Bench Division, Exeter District Registry — [2015] EWHC 4256 (QB): damages following default judgment were assessed at nil, with costs ordered against the claimant.
3. High Court — Default judgment for damages to be assessed was entered against the defendant on 16 April 2012 after failure to particularise his defence.