Solicitors PII - Blanket notifications
The recent case of McManus and others v European Risk Insurance (2013) considered a blanket notification made in the context of a solicitors’ professional indemnity policy.
The claimants were partners in McManus Seddon Runhams (“MSR”) – a solicitors' firm that was, as a result of a number of takeovers, the successor practice to Sekhon Firth (“SK”), a firm that had carried out mainly residential conveyancing work. In November 2011, MSR received a claim from a former lender client of SK. More claims followed and, by mid May 2012, a total of 17 claims had been made.
In September 2012, after examining the files giving rise to the claims and noticing that there were similarities between them, an urgent review was undertaken by MSR, with assistance from a third party consultant, into conveyancing files conducted by SK. Whilst only a limited number of files were reviewed, the review revealed, according to the third party consultant, a consistent pattern of breaches which included but were not limited to the failure to warn lenders about suspicious features to conveyancing transactions.
As a result, MSR sought to make a blanket notification to their professional indemnity insurer of circumstances which may give rise to claims. The notification letter drew attention, amongst other things, to the 17 claims and their considerable similarity and the subsequent file review that had further endorsed and confirmed MSR’s ‘worst suspicious of shortcomings’ by SK. It concluded that, although it has not been possible to carry out a full review of all of the files, “every file conducted by SK……contains or is more likely than not to contain examples of malpractice negligence and breach of contract and so each and every file……should be properly notified to you as individually containing shortcomings on which claimants will rely for the purposes of bringing claims.” A spreadsheet listing the many hundreds of SK files was enclosed.
The notification was, however, rejected by the professional indemnity insurer on the basis that MSR had not identified the specific ‘incident, occurrence, fact, matter, act or omission’ (being the policy definition of a ‘circumstance’) which would give rise to a claim on each individual file. It argued that simply stating that SK worked on the files did not constitute a valid notification.
MSR subsequently sought a declaration from the Court as to the validity of the notification. In her judgment, Ms Vivien Rose (sitting as a Deputy Judge) referred to J Rothschild Assurance plc & Ors v Collyear & Ors  C.L.C 1697 and HLB Kidsons (a firm) v Lloyd’s Underwriters  EWCA Civ 1206 – both cases where the relevant notifications were held to be valid in relation to later claims that arose from the circumstances notified, even though the relevant notifications had not even referred to the transaction from which the later claim arose, let alone identified a defect in relation to the handling of that particular client as likely to give rise to a claim by that client. This led her to conclude that the stance taken by the professional indemnity insurer was wrong – to reject the notification on the basis that a ‘specific incident, occurrence, fact, matter, act or omission’ had not been identified ‘on each individual file’ was, in her view, misconceived and at odds with the case law. She stopped short, however, of declaring it to be an effective notification of the circumstances that MSR were seeking to notify (believing that this was best left to be determined if and when a claim arose).
This case illustrates the difficulty in rejecting a notification purely on the basis that it seeks to notify a large number of files (a ‘hornet’s nest’ or a ‘can of worms’ type of scenario) without identifying the circumstance(s) that may give rise to a claim on each particular file. Rather, one must look at what circumstances existed at the time, whether those circumstances were validly notified based on the wording of the notification and, ultimately, whether any subsequent claim arises from those circumstances.
This article first appeared in Law-Now, CMS Cameron McKenna's free online information service, and has been reproduced with their permission. For more information about Law-Now, click here.