Dilip Desai & Anor v Paul David Wood & Anor

Absent a special contractual provision or statutory assignment, a third-party claimant has no proprietary right in liability insurance proceeds paid to the insured. An implied term ringfencing those proceeds will not be imposed merely because insurance benefits clients, the insured is insolvent, or the claimant most needs the money. Implication requires necessity to make the contract work, obviousness and/or business efficacy, and sufficient certainty. A trust also requires certainty of intention and subject matter. A term permitting the insured to use the proceeds to defend the claim is inconsistent with a trust. Equitable unconscionability cannot itself create an institutional constructive trust where no settled limitation on the insured’s use exists.

The appellants claimed damages from Boscolo Ltd for alleged negligent advice given under a design contract. Boscolo held professional indemnity insurance with RSA. Before Boscolo entered voluntary liquidation, RSA paid Boscolo the policy limit under a policy condition allowing it to relinquish control of the claim and end its further liability. The appellants sought a declaration that the remaining proceeds were held on trust for them.

The High Court declared that the proceeds belonged beneficially to Boscolo alone: [2024] EWHC 1893 (Ch). The appeal concerned whether terms should be implied into the design contract or policy to restrict use of the proceeds, whether those terms would create a trust, and whether a constructive trust arose from the circumstances of payment. The Third Party (Rights against Insurers) Act 2010 did not apply because the insurance rights had already been compromised by payment before liquidation.

The Court of Appeal unanimously dismissed the appeal. The High Court was right to declare that the insurance proceeds belonged beneficially to the Company alone.

1. General position. Under the general law, a third-party claimant has no right against the insurer or in insurance proceeds paid to the insured merely because the payment relates to the claimant’s liability claim. Re Harrington Motor Co Ltd, ex p Chaplin [1928] Ch 105 confirmed that such proceeds form part of the insured’s assets. The statutory assignment mechanism in the Third Party (Rights against Insurers) Act 1930, replaced by the Third Party (Rights against Insurers) Act 2010, did not assist because the Company’s rights had been compromised before liquidation.
2. Implied terms. A term may be implied only where necessary to make the contract work, applying the requirements of obviousness and/or business efficacy, and where the term can be formulated with sufficient certainty. Fairness or the practical desirability of protecting clients is insufficient. The formulation in Ali v Petroleum Company of Trinidad and Tobago [2017] UKPC 10 was applied.
3. The policy indirectly benefited clients by providing funds to meet claims and protecting the Company’s assets, but its direct purpose was to benefit the Company. The statutory context of solicitors’ insurance, discussed in Impact Funding Solutions Ltd v Barrington Services Ltd [2017] AC 73 and Swain v The Law Society [1983] 1 AC 598, did not justify a different conclusion. The proposed ringfencing terms were neither necessary nor sufficiently certain. The possible triggers, directors’ state of mind, permitted defence costs, and treatment of other claims could not be reduced to a single bargain that went without saying.
4. Trust. Even if a term had been implied, it would not create a trust. There was no sufficient certainty of intention or subject matter. The contracts did not require segregation, and the Company could use the proceeds to fund its defence. Cox v Bankside Members Agency Ltd [1995] 2 Lloyd’s Rep 437 supported that conclusion.
5. Constructive trust. The circumstances did not impose any limitation on the Company’s use of the proceeds. The analogy with Twinsectra v Yardley [2002] 2 AC 164 therefore did not assist. The approach in Neste Oy v Lloyds Bank plc [1983] 2 Lloyd’s Rep 658, based on fairness and conscience alone, had been rejected by the Supreme Court in Angove’s Pty Ltd v Bailey [2016] UKSC 47; [2016] 1 WLR 3179. Settled property principles, rather than a moral assessment of the parties, were required.

The judgment observed that parties remained free to provide express protection against insolvency by conferring a proprietary right or security interest.

• Court of Appeal (Civil Division): On 15 July 2025, dismissed the appeal and upheld the conclusion that the insurance proceeds belonged beneficially to the Company alone.
• High Court of Justice, Business and Property Courts in Bristol, Insolvency and Companies List (ChD): HHJ Paul Matthews declared by order dated 8 August 2024, following judgment dated 24 July 2024, that the insurance proceeds belonged beneficially to the Company alone: [2024] EWHC 1893 (Ch).