In Rathbone Brothers Plc v Novae Corporate Underwriting Ltd,1 the Court of Appeal addressed a difficult issue: can an insurer, having indemnified the insured pursuant to a liability insurance policy, be subrogated to the insured’s contractual right of indemnity against his employer? The court answered this question in the negative. This note outlines the facts in Rathbone and argues that, although the court reached the correct conclusion, the reasoning was flawed.

The facts can be briefly stated. Rathbone Brothers carried on a trust business and was the employer of a Mr Egerton-Vernon, who served as a trustee of the Walker Trust. Rathbone Brothers, who took out a professional indemnity policy (the “Insurance”) covering its employees with the defendant insurers, also provided an indemnity (the “Rathbone Indemnity”) in favour of Mr Egerton-Vernon. Mr Egerton-Vernon thus had two sources of funding to meet his potential liabilities. The beneficiaries of the Walker Trust then made various claims against Mr Egerton-Vernon, who sought cover under the Insurance. The defendant insurers however denied any cover, arguing that (1) on a proper construction of the Insurance, Mr Egerton-Vernon was not covered; (2) even if they were liable, they were liable only for the excess after the Rathbone Indemnity had been exhausted; and (3) in any