DOORWAY CAPITAL LIMITED v AMERICAN INTERNATIONAL GROUP UK LIMITED

A solicitor’s professional indemnity policy does not ordinarily cover liabilities arising from a commercial funding arrangement merely because the solicitor holds money as trustee or uses a client account. The relevant question is whether the liability arose from services provided in private practice as a solicitor. Holding and distributing remittances under a funding agreement, after the underlying litigation has concluded, is not conduct of litigation or an ancillary litigation function. Such liability may also fall within an exclusion for liabilities assumed or accepted under an agreement for the supply or use of services in the firm’s practice. Where the construction issue is suitable for determination and the claim has no realistic prospect of success, summary judgment should be granted.

Doorway Capital Limited provided working capital to Seth Lovis & Co Solicitors Ltd under a receivables funding agreement. The agreement required the solicitors’ firm to hold certain remittances on trust, transfer them to Doorway’s nominated account and refrain from diverting them to third parties. The firm entered administration, and Doorway pursued American International Group UK Limited under the Third Parties (Rights Against Insurers Act 2010) as statutory assignee of the firm’s rights under a professional indemnity policy.

AIG applied for summary judgment or strike out, arguing that the alleged liabilities did not arise from private legal practice and were alternatively excluded as trading liabilities. The central questions were whether the policy provided cover and, if so, whether exclusion 83(b) applied.

1. Summary judgment. The court had the evidence and submissions necessary to determine the construction issues. Doorway’s claim had no realistic prospect of success, and there was no other reason for a trial. AIG’s application for summary judgment was therefore granted.
2. Meaning of private legal practice. The policy’s references to acting as a trustee and performing other roles were subject to the opening concept of providing services in private practice as a solicitor. Acting in one of the listed capacities was not, by itself, sufficient to bring the liability within cover. The construction was consistent with Zurich Professional Ltd v Brown [2010] EWHC 3300 (Ch).
3. Trustee and quasi-client arguments. The firm’s obligation to hold and transfer remittances arose from the commercial mechanism of the receivables funding agreement. The firm was not providing trustee services to a client or in connection with services provided to a client. Doorway was not a client or quasi-client. The exceptional quasi-client category concerns a solicitor acting professionally who negligently performs work undertaken in that professional capacity, as explained by Lord Toulson in Impact Funding Solutions Ltd v Barrington Services Ltd [2016] UKSC 57. Doorway’s claim fell outside that category.
4. Conduct of litigation. Holding and distributing remittances after receipt was not part of the underlying litigation, which would generally have concluded by then. Nor was it ancillary to the proceedings. The use of a solicitor’s client account did not, without more, make the activity a professional legal service. The reasoning was supported by Cassells Brock & Blackwell LP v LawPro (2006) 80 OR (3d) 570 and 2007 ONCA 122.
5. Exclusion 83(b). Although unnecessary to the result, the court held that exclusion 83(b) would alternatively apply. The funding agreement was an agreement for the supply of a working-capital facility in the course of the firm’s practice. The liabilities were assumed or accepted under that agreement, even though framed as trust or fiduciary liabilities, and amounted in substance to trading liabilities. The approach in Impact Funding required the policy and exclusion to be construed together in their contractual context.