Decision upheld in Axa ‘Son of TAG’ case

AXA Insurance Ltd v Akther & Darby Solicitors

(Court of Appeal – 12 November 2009)

The Court of Appeal has handed down an important limitation decision in the “Son of TAG” case.  An insurance company (N) issued after-the-event (ATE) insurance policies to clients of various firms of solicitors pursuant to a scheme directed principally at personal injury, industrial disease and housing disrepair claims.  Under the terms of the scheme the solicitors were obliged to vet the claims so that policies would only be issued on those with prospects of success of over 50%.

 

N was indirectly owned by Winterthur Swiss Insurance Company, which was subsequently acquired by AXA Insurance Ltd (AXA). The scheme proved disastrous for N and its rights against the solicitors were assigned to the claimant, who subsequently brought professional negligence claims against 89 firms for failure to vet claims properly and/or negligent conduct and monitoring claims. AXA’s valuation of the professional negligence claims was around £64 million.

 

As some policies were incepted more than six years before the action was commenced, limitation (the amount of time that can legally pass before AXA can no longer pursue the claims) was an issue and a preliminary hearing was ordered. The value of the limitation-affected claims was around £19 million.

 

It was argued on behalf of the solicitors that in the vetting of claims, time ran from the inception of the policies.  AXA argued that at inception there was merely a contingent liability (and it had suffered no loss), which did not crystallise into ‘damage’ until a claim could have been made under the policy. At first instance, the judge held in favour of the defendant solicitors. Accordingly, certain claims were statute-barred and could no longer be pursued. AXA appealed.

 

The Court of Appeal upheld the decision by a 2-1 majority. It considered there to be more than a contingent liability on inception of a policy, as the claimant had suffered additional loss on the basis that liabilities under the ATE policies were greater than they should have been, and the value of the policies reduced. This was measurable loss and not a purely contingent liability.

Comment

The decision followed a line of cases since Law Society v Sephton & Co (2006), which decided that time would not start to run until there was something more than purely contingent liability. Sephton (in which there was no additional loss) was distinguished by the majority, who held that measurable loss was present in this case as negligent vetting meant N’s liabilities under the policies were greater than they would have been. This is good news for the solicitors’ professional negligence insurers. However, the claimant has obtained permission to appeal to the Supreme Court, so the debate may well continue.

 

BLM’s professional negligence team in London acted for Akther & Darby Solicitors and other firms in one of the main defence groups.

- Jennifer Bates, BLM Manchester and Michael Harvey, BLM London

This law report first appeared in Post Magazine on 4 February 2010

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