A CASE (Crowden v QBE) from the end of 2017 has raised concerns for those dealing with insolvency litigation, financial advice, and associated professional indemnity insurance products.
In this case a financial adviser had recommended, negligently, two financial products. One of these failed when its intermediary, a certain Lehman Brothers Inc, entered Chapter 11 protection in 2008. The other failed and entered administration in 2009, and the financial advisor (a limited company) itself entered administration in 2012.
The claimant sued QBE, the professional indemnity (PII) insurer, claiming an indemnity. QBE applied for judgement, with arguments that included a reliance on a clause that excluded losses arising from or indirectly related to the insolvency of investment institutions. The claimant argued that (i)the clause would remove such a large amount of risk from the insurers as to make the policy rather pointless, and (ii)the insurance would not have allowed the Financial Adviser to comply with it's minimum requirements of the (then) Financial Services Authority (FSA) in terms of PII.
Decision & Impact
The Commercial Court held that the clause was indeed clear; substantial coverage was still provided, even though parts of Target's business may have been excluded and that it was not a matter for QBE to decide whether the policy met the (then) regulatory requirements. It had been the failure to pay debts as they fell due which had given rise to a claim or loss, and under the policy wording QBE had no liability.
Bringing a claim against an insolvent opponent has always been risky, and you need to be sure of your ground before you do. Evidence and background research can help - if the claimant had been able to show that the policy was sold to the financial adviser as being compliant with (then) FSA requirements the outcome may have been different.
This case highlights the value of a properly drafted contract - whatever the sector or purpose. Exclusion clauses, dealt with properly by someone like Andrew Kerr's the Legal 500 recognised Company Commercial team at Wilson Browne Solicitors can provide substantial protection.
It is also a case that will surprise many solvent financial advisors, who may find losses from insolvent events (such as Lehman Brothers) that they thought they were covered for could be excluded. This raises issues with compliance, but also exposure when providing advice to their clients. I would recommend that financial advisors check their policies in light of this decision to see if that sort of exclusion is present and, if so, whether it would have that sort of outcome should the worst happen again.
Kevin Rogers is the Chairman of, and Partner in, Wilson Browne Solicitors, the current NLS Large Law Firm of the Year. Kevin is also a Vice President of the Northamptonshire Chamber of Commerce, a SEMLEP Enterprise Adviser and Commercial Litigation expert. Wilson Browne Solicitors has a large commercial team that provides the full range of business legal services, based on partner led local relationships, bespoke arrangements and a wide range of fee solutions. The first chat is always free. Kevin can be contacted on 01536 410014 or at firstname.lastname@example.org.