Scope of coverage

Professional liability policies are limited in coverage by reference to the professional activities carried on by the assured. In Sutherland Professional Funding Ltd v Bakewells [2011] EWHC 2658 (QB) HHJ Hegarty QC was required to determine whether interim funding arrangements for the benefit of clients entered into by a firm of solicitors specialising in personal injury claims, under which the firm undertook personal liability in the event of client default in repayment, constituted a professional activity within the scope of a liability policy or whether the debt incurred by them was in the form of a business debt. A number of separate points of construction arose, but the court’s ultimate conclusion was that a guarantee of client debts, which was primarily for the benefit of the business rather than out of any duty to clients, was not insured.

Bakewells: the background

Bakewells, a firm of solicitors in Derby, was instructed by a number of clients to pursue personal injury and industrial disease claims against their employers. The usual arrangements for funding such proceedings were adopted. Bakewells entered into a conditional fee agreement with each client, whereby the client was liable for basic charges and disbursements whether the case was won or lost, but if the case was lost Bakewells was to be paid 100% of the basic charges by way of success fee. The client was himself funded by after the event insurance: in the event of the claim failing the policy would pay the client and also Bakewells’ charges and disbursements, and if the claim succeeded then the costs – including the ATE premium – would be paid by the losing defendant. The ATE insurers were Templeton, acting through underwriting agents CCL.