Professional negligence claims - the role of insurers in settlement

When acting for any person or business in a claim against their professional advisors, be they solicitors, accountants, or architects for example, it is often the advisor's insurer that runs the defence. It is the insurer who will instruct solicitors and, ultimately, it is the insurer who will pay any award or settlement and determine the settlement offered.

The coverage under the professional's insurance policy is therefore crucial to the success of the claim. As a claimant, you will want to know that there is a sufficient limit of indemnity and, ideally, the terms which can impact payment. Unfortunately for claimants, it is established that, in the absence of particular circumstances such as insolvency, a defendant's insurance policy is not normally disclosable in legal proceedings (West London Pipeline and Storage Ltd v Total UK Ltd [2008] EWHC 1296 (Comm)).Freeths recently acted on a claim against a professional, who had the benefit of an A-rated insurer to defend the claim. During mediation, the insurer sought to rely on a provision in its policy, which entitled it to discharge its liability by making a payment to the professional equal to the value that the insurer determined was a “reasonable settlement sum”. The insurer's position was that having made that payment it would no longer fund the defence of the claim and it would be for the professional to determine how it used that money. There were reasons to consider in our recent claim that the funds would not be spent on either defending or settling the claim.Such a provision is standard in some (but not all) insurers' policy wordings. Our previous experience is that the type of clause involved would be used sparingly, and only when an insured professional was unreasonably preventing a settlement being reached.However, if enforced in the way suggested by these insurers, the Claimant would be in an unenviable position - wholly reliant on the professional using the payment to settle the claim. If the professional did not, the Claimant risks pursuing a “straw man” without the means to pay any award. In those circumstances, a Claimant will struggle to find ATE insurance and/or funding to pursue the claim.This approach also poses a problem for the insured professional because it could leave them exposed to the claim without the support of their insurer.Fortunately, this approach appears to be rare, but is on the increase. If you are facing an insurer seeking to adopt a similar approach, there are several points to be aware of:

1. Insist on seeing the full policy of insurance. If the insurer intends to rely on it, there is no real basis to refuse its disclosure. 0
2. Many professional indemnity policies contain a “duty to defend” clause. The approach adopted may contravene that duty that the insurer owes to the professional. 0
3. The approach could also breach the principles of the FCA, which regulates many insurers, because it may be contrary to “Treating Customers Fairly” if the professional does not agree with the approach.

If you have a dispute with professional advisors, Freeths is available at all stages to assist in resolving it. We also have a wealth of experience and expertise in insurance disputes. Please contact Louise Wilson or Michael Hoskins for a confidential discussion.