It is reported that Mr. Michael Lynnâs insurers are proposing to void his professional indemnity insurance âab initioâ?.
Solicitors must maintain professional indemnity insurance, pursuant to Section 26 of the Solicitors (Amendment) Act 1994. This is to provide indemnity to the solicitor for claims for compensation for loss âarising from his practice as a solicitorâ? in respect of any description of civil liability.
Normally, the policy of insurance does not cover claims based on fraud. (Gray v Barr, Prudential Assurance Co. Ltd., third party [1971] 2 QB 554.)
The requirement to maintain professional indemnity insurance arises from the danger of making a mistake in professional practice. A solicitor (no less than any other professional) is answerable to a client who suffers loss consequent on any such mistake. Mistakes caused through negligence fall into the description of âcivil liabilityâ? but do not constitute the category.
The beneficiary of a professional indemnity policy is the insured professional. His client, on whom the loss may have fallen, has no privity with the insurer and, in Ireland, has no entitlement to seek payment directly from the insurer.
The client must make the claim against the professional person. Even in the UK where, under the provisions of the Third Party Rights against Insurers Act 1930, a client (the third party) may claim directly, in some circumstances (insolvency of the insured usually), against the insurer, it is incumbent on the client to effectively obtain a judgment against the insured before being able to proceed against the insurer. (Post Office v Norwich Union Fire Insurance Ltd. [1967] 2 QB 363).
A policy of insurance is a contract. Being an insurance contract it is âuberrimae fideiâ? which has been defined as
All contracts of insurance are subject to ‘utmost good faith’ in that applicants for insurance are obliged to disclose any detail which may be of importance to the insurers whether or not it is requested.
The policy of insurance for Irish solicitors is an annual one. Such policies are âclaims basedâ?. This means the right to claim the indemnity depends on whether the claim made against the solicitor has been made during the period covered by the insurance. The date of the making of the âmistakeâ? is not relevant.
A solicitor (or any professional) could possibly be aware of the making of the error which would give rise to the claim. Frequently, in such circumstances, the client might not be aware of the error and not yet have suffered the potential loss. Indeed, it may the loss which alerts the client.
If a solicitor is aware of any such potential loss, and consequent claim, it will be incumbent on the solicitor, in seeking the annual cover, to reveal that circumstance to the insurer. A failure to do so is arguably a breach of contract by the solicitor and could entitle the insurer to void the policy for the breach of contract.
Given the state of Irish law the injured client has no recourse against the decision of the insurer to take such action. The prospect of real recovery against the professional will be dependent on the solvency of the professional.