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Solicitors’ professional indemnity insurance regulations do not create third-party rights

AUTHOR(S): April McClements, Sharon Daly
PRACTICE AREA GROUP: Insurance and Reinsurance
DATE: 11.03.2016

A number of recent High Court decisions have confirmed that third-party rights against insurers in Ireland are restricted. In this regard, the decision in Kennedy v Casey ([2015] IEHC 690) provides further comfort for insurers in the context of solicitors' professional indemnity insurance.

Background

The plaintiffs instructed a firm of solicitors to pursue a claim against the Irish government. The defendants to the state proceedings (which have been set down for hearing but not determined) pleaded the statute of limitations by way of defence, together with laches and delay. Consequently, the plaintiffs brought proceedings against their former solicitors claiming that they were negligent in failing to institute the state proceedings in a timely manner.

The Solicitors Mutual Defence Fund initially instructed solicitors to come on record for the defendants in the negligence proceedings. However, the solicitors successfully applied to come off record following the fund's decision not to provide an indemnity to the defendants. The negligence proceedings were not progressed following this application. Instead, the plaintiffs issued a motion seeking to join the fund as a co-defendant to the proceedings. The plaintiffs contended that the fund was a party whose presence before the court was necessary to enable the court to effectually and completely adjudicate on the questions involved in the negligence proceedings. The plaintiffs further contended that having regard to the present unsatisfactory state of the law in respect of third-party rights in the context of insurance contracts, the court should interpret Section 26 of the Solicitors (Amendment) Act 1994 and the regulations thereunder in a manner similar to Section 62 of the Civil Liability Act 1961.

Decision

The court accepted the fund's submission that the plaintiffs clearly had no contractual nexus with it. The fund was never an insurer of the plaintiffs, had no dealings with them and, perhaps more significantly, had not been the subject of any application by the defendants (who had such a connection) to be joined in the present proceedings. The court also noted that the defendants had accepted the repudiation or withdrawal of cover by the fund.

The plaintiffs argued that the defendant solicitor and fund were "joined at the hip" by legislation and applicable regulations, to such an extent as to overcome any objections based on locus standi or lack of privity. The plaintiffs submitted that the minimum terms and conditions applicable to solicitors' professional indemnity insurance under the Solicitors Acts 1954 – 2002 (Professional Indemnity Insurance) Regulations 2007 gave the plaintiffs locus standi to bring the application, in particular relying on Clause 5.3 of the minimum terms, which prohibits avoidance or repudiation of cover (while accepting that a separate provision preserved to the fund a discretion whether to indemnify). The court considered that while it may be true that the Law Society performs a public duty designed to benefit solicitors' clients, the nature of the duty performed by the Law Society did not confer a direct cause of action on the client of a solicitor as against the solicitor's insurers. The court rejected the argument that the regulations should be interpreted in a manner similar to Section 62 of the Civil Liability Act 1961 and found that this simply had no bearing on the application at hand. The court also found that any issue of estoppel was an issue between the defendants and the fund, not the plaintiffs and the fund.

The court held that, in any event, the application was premature, as any potential liability of the fund in this case could be considered only when state proceedings and negligence proceedings had been determined. If the plaintiffs' claim against the state defendants succeeded, or failed on its merits (as distinct from failing because of the statute of limitations), there could be no arguable case against either the existing defendants or their insurers. While the suggestion had been made that the defendants were not a mark for damages, there was no suggestion that they were incapable of defending the proceedings. The court noted that if it were to apply the plaintiffs' logic, there would be no need to ever bring proceedings against an allegedly negligent solicitor or seek to have some determination made in such proceedings, as the shortcut of simply suing the fund would leapfrog those legal imperatives.

Comment

This decision is consistent with other recent decisions confirming that third parties have no direct right of action against insurers in Ireland. To the extent that a specific statutory provision permits a restricted right of action, the insured defendant's liability must be established in the first instance.

For further updates on legal developments in the Insurance industry, visit Matheson's Insurance page.

This article first appeared in the International Law Office Litigation Newsletter, 8 March 2016. 

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