Novitas Loans Limited v Amtrust Specialty Limited

Solicitors’ professional indemnity cover does not ordinarily extend to liabilities arising from separate commercial arrangements undertaken for the solicitor’s business benefit, even where those arrangements facilitate litigation for clients. Broad wording such as in connection with still requires a demonstrable causal link.

Contractual recitals cannot impose obligations inconsistent with detailed operative provisions. A general contractual duty of care ordinarily concerns express obligations undertaken elsewhere in the agreement; it does not create an uncircumscribed warranty as to litigation conduct. Subrogation requires payment made pursuant to the indemnity policy. Payment under a separate indemnity arrangement does not suffice, and equitable relief permitting proceedings in the insured’s name may be conditional on payment of insured losses, protection of uninsured losses and an indemnity against adverse costs.

The judgment determined 19 preliminary issues arising from two sets of proceedings connected with a failed litigation funding scheme involving approximately 20,000 consumer claims. AmTrust Specialty Limited provided after-the-event insurance. Novitas Loans Limited funded disbursements. Pure Legal Limited and High Street Solicitors Limited acted as scheme solicitors, and Sompo was their professional indemnity insurer.

Following settlement of Novitas’s claim against AmTrust, AmTrust pursued contribution, indemnity and subrogated claims against Sompo. The principal issues concerned attachment and scope of the solicitors’ professional indemnity policies, the number and aggregation of claims, the construction of the scheme solicitors’ contractual duties, and AmTrust’s entitlement to subrogation and relief against policyholders.

1. Coverage and claims. AmTrust’s Part 20 claims against each firm attached to the relevant 2020/21 policy. The claims against each firm constituted a single “Claim”. If multiple claims had existed, they would have been aggregated because they arose from the relevant TOBA as one matter or transaction.
2. The alleged liabilities to AmTrust did not arise out of or in connection with the conduct of professional business within the insuring clause. The TOBAs created separate commercial obligations undertaken for the firms’ business benefit. The firms were not providing solicitorial services to AmTrust, which was not their client. The phrase in connection with widened the required link but did not eliminate causation.
3. Alternatively, the liabilities fell within exclusion 2.6(b). “Assumed or accepted” liability included liability in damages for breach of a contract. The TOBAs were arrangements under which ATE insurance was supplied for the firms’ business benefit. Exclusion 2.6(c) did not apply because the TOBA obligations were not solicitors’ undertakings in the classic sense.
4. The recital stating that the scheme solicitor was solely responsible for detailed risk assessment was inconsistent with the contractual scheme, under which PCSS performed the decisive vetting function. It imposed no substantive obligation. Clause 1.10 required due care and skill in performing express TOBA obligations, not a general warranty concerning litigation conduct. Clauses 1.4, 1.7 and 1.11 imposed obligations to exercise reasonable skill and care, qualified by the solicitors’ professional duties.
5. There was no express or implied term requiring the solicitors to apply for ATE cover only for cases satisfying the Appendix 1 eligibility criteria. PCSS acted as the solicitors’ agent when formally applying for cover, but not when conducting risk assessments.
6. The solicitors owed tortious duties concurrent with contractual duties of care, but no wider non-contractual duty to AmTrust to consider and conduct every underlying claim with the skill and care expected of a reasonably competent solicitor.
7. Subrogation depended on whether payment was made pursuant to the ATE policy. Acceptance of liability, receipt of a formal claim and an obligation to indemnify were not essential. Good-faith intention to satisfy the insured’s loss was necessary but insufficient. Payment under the separate Deed of Indemnity did not create subrogation rights.
8. Before policyholders could be ordered to lend their names, the court had to be satisfied that insured losses had been paid. Any remaining uninsured losses required further safeguards, and the policyholders had to be indemnified against adverse costs. Without the required relief, AmTrust could not pursue the subrogated claims against Sompo.
9. The subrogated claims against HSS attached to the HSS 20/21 Policy and, like the Part 20 claims, constituted a single claim in respect of each firm.

First-instance determination of agreed preliminary issues in the High Court (Commercial Court). The judgment records that an earlier case-management disclosure decision had been successfully appealed, but no appellate history is stated for the present judgment.