Roger Leggett & Ors v American International Group UK Limited

An insurer is generally not bound by findings made against its insured in proceedings to which it was not a party or privy. It may contest the insured’s liability and the basis on which liability was established.

Professional indemnity cover must be construed in its regulatory context, with the principal purpose of protecting clients. A successor-practice policy does not, however, make the successor practice legally liable for the prior practice’s work or automatically indemnify liabilities assumed by novation. Cover depends on the identity of the legally liable insured and whether its liability arose from its own performance or failure to perform legal services.

The claimants obtained default judgment on liability against Giambrone Law LLP and damages judgments following an assessment by Fordham J. Their claims against the former firm, Giambrone & Law, and Mr Giambrone had been struck out.

The claimants sought indemnity from AIG under the LLP’s professional indemnity policy pursuant to the Third Parties (Rights against Insurers) Act 1930. AIG contended that it could challenge the basis of the judgments and that the policy did not respond because the damages principally arose from liabilities of the former firm which had been novated to the LLP. The preliminary issues concerned the effect of the judgments, the novation, the scope of cover and the relevance of the LLP’s status as successor practice.

1. Effect of the judgments and insurer’s ability to challenge. The default judgment conclusively established the LLP’s liability for breach of contract, negligence, deceit and breach of fiduciary duty. The assessment judgment nevertheless left causation, quantification and recoverability of particular losses open. Applying Omega Proteins Ltd v Aspen Insurance UK Limited, AIG was not bound by findings made against the LLP. The claimants’ notification of the proceedings, AIG’s earlier involvement in related litigation and its decision not to intervene did not make AIG privy to the proceedings.
2. Novation. The former firm’s business and the claimants’ retainers were transferred through implied novation or novation by conduct. The relevant evidence included the 7 April 2008 letter, the LLP’s assumption of the remaining services and the claimants’ continued dealings with it. The novation could transfer contractual rights and obligations by replacing the original contract with a new contract. It was therefore unnecessary to treat “transfer” as a free-standing legal transfer of liabilities. The LLP assumed contractual liability for the former firm’s pre-novation breaches and undertook to indemnify losses arising from them.
3. Policy construction. The policy covered civil liability arising from the relevant insured’s own performance or failure to perform legal services. Its wording had to be construed neutrally, but in the regulatory context of compulsory solicitors’ insurance and its client-protective purpose, applying Impact Funding Solutions Ltd v Barrington Support Services Ltd. The LLP’s status as successor practice did not itself make it liable for the former firm’s breaches or make AIG liable for liabilities assumed by novation.
4. Application and disposition. AIG was bound to indemnify the six claimants whose deposits were paid to or received by the LLP after the former firm ceased to act, subject to the policy and the aggregation defence. No wider declaration was made. In respect of the remaining damages, AIG was not bound to indemnify losses assessed as consequences of the former firm’s pre-existing contractual breaches assumed by the LLP. The claim otherwise failed, and no further declaration was made for other claimants.

First-instance determination of a preliminary issue. The judgment records that the Court of Appeal had unanimously dismissed the appeal in Various Claimants v Giambrone & Law: [2017] EWCA Civ 1193. That was separate litigation and not an appeal in the present claim.