article
Pitfalls for the unwary
20 August 2009
In recent years it has become more difficult for legal expenses
insurers to avoid making payments under policies but as high
profile actions involving schemes such as TAG have shown, LEI
Insurers are now looking to recoup losses paid out by bringing
claims against solicitors. As more and more claimants in personal
injury and also commercial disputes are now looking to LEI as a way
of funding litigation it is worth looking again at the potential
pitfalls for solicitors.
Last year, AXA, as alleged assignee of NIG, issued proceedings
against 89 solicitors firms alleging that they acted in breach of
duty when they conducted thousands of claims funded by LEI
insurance. AXA claim that NIG, as LEI insurer was owed 2 duties of
care by the defendant’s solicitors as follows:
- The duty to risk-assess the potential claims at the outset, in
line with a prescribed policy laid down by NIG.
- The duty to conduct the case with reasonable care and skill and
to continue to assess cases to ensure that they continued to have
reasonable prospects of success.
It is alleged that the panel solicitors concerned breached those
duties by taking on claims worth less than £1,000 with a less than
a 51% chance of success and that they failed to notify insurers on
other cases when prospects deteriorated below 51%.
The claim (AXA Insurance Ltd v Akther & Darby Solicitors and
others) came before the commercial court in March this year when
Flaux J made a preliminary finding on limitation and commented that
the insurer was “not getting what it was the panel solicitors duty
to ensure that it got”. He held that the damage from the breach of
duty to vet the claims occurred when the risk was initially
assessed and insurance policies were issued, a decision which means
that many of the claims commenced by AXA will now be statute
barred.
Although this was only a first instance decision, it will be
welcomed by professional indemnity insurers and personal injury
practitioners involved in TAG type schemes, as they have been under
particular scrutiny in recent years with detailed questions being
incorporated into proposal forms. Although the decision means that
many potential claims against personal injury practitioners who
were vetting claims at the start of the Millennium should now be
statute barred, there remains a danger in relation to the other
alleged duty where practitioners have pursued litigation on behalf
of clients knowing that the chances of success have dropped below
51%.
It is important in every case where a solicitor acts in a claim
funded by LEI insurance to consider the nature of the relationship
between the solicitor, the LEI insurer and in some cases claims
management companies, as the duties owed will vary from case to
case. However, there are some broad lessons to be learnt from
recent decisions, and although the list below is by no means
exhaustive, solicitors acting for clients whose claims are funded
by LEI would be wise to pay particular attention to the
following:
- They should consider whether there is a need to inform their
client if they have an interest in recommending an LEI insurance
policy, for example, if they are on a claims management company’s
panel (each case will turn on it’s facts but see Solicitors Journal
- “Update : costs 153/10, 17 March 2009” and scheme cases such as
Garrett v Halton BC (2006) to the more pro-solicitor Tankard v John
Frederick Plastics (2008) and this year’s decisions Findley v MIB
(2009) and Ibbertson v MFI & Ors (2009)).
- Take caution when investigating the claim at the outset
particularly, as with many commercial disputes, when they are
taking their clients’ word on the prospects of success and have not
yet seen all relevant documentation.
- Be careful when assessing Part 36 offers which are within the
brackets of what might reasonably be awarded at trial.
- Keep the prospects of success under constant review taking into
account experts’ reports, disclosure and witness statements;
obtaining updated opinions from counsel if necessary.
- Check the terms, conditions and exclusions of the LEI policy
carefully to see if you are being asked to procure that the claim
has a better than evens chance of success. In most cases, there is
now a condition precedent to this effect in the terms and
conditions. You should also check to see what your notification
obligations are as many insurers like to be kept informed of all
material developments.
- Keep a close eye on the limit of indemnity under the policy and
ensure that this is kept under continual review particularly as
defence costs can climb dramatically once proceedings are
issued.
By taking the above measures, litigation practitioners should be
able to balance the competing demands of providing a good service
to clients with reducing the risk of a claim by either the client
or, in some circumstances, the LEI insurers. As claims funded by
LEI are likely to increase with the economic downturn and the
abolition of Legal Aid these are risk management issues that no
practice can afford to take lightly.
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