The Importance of Pursuing the Correct Entity

Yesterday, the High Court handed down judgment in favour of AIG in the case of Roger Leggett & 40 Others v American International Group UK Limited [12.02.25].  Finding in favour of AIG, the judgment provides clarification of the insuring clause and successor practice rules in solicitors indemnity policies. The court determined  that AIG’s policy only responded to a judgment obtained against an insured entity if that entity was the one responsible for the damages awarded.

AIG was the professional indemnity insurer of Giambrone Law LLP for claims made against the practice in the period 1 October 2008 to 30 September 2015. 

The 41 claimants were all individuals who had instructed Giambrone & Law (“the Partnership”) or its successor practice, Giambrone Law LLP (“the LLP”) to act for them in abortive purchases of off-plan holiday homes in a development in Calabria, Italy.  They had originally commenced proceedings against both the Partnership and the LLP but at an early stage of the proceedings, the claim against the Partnership was struck out in default of valid service. In circumstances where the LLP was insolvent and AIG contended that the claims aggregated with other claims made in respect of the same development, AIG did not participate in the underlying litigation and the LLP claims were undefended.  The claimants duly obtained judgments in default against the LLP and damages were assessed by Fordham J in March 2020 (Roger Leggett and 42 Others v Giambrone Law LLP (In Liquidation) [2020] ) when he awarded them in excess of €3.5m plus costs.

The claimants sought a declaration under the Third Party (Rights Against Insurers) Act 1930 that AIG was liable to indemnify the damages awarded to the claimants.  AIG accepted that the policy provided indemnity to loss awarded against the LLP and its predecessor practice, the Partnership, but defended the claims on two grounds:

1. That AIG’s policy did not respond to the claims because the LLP was not the entity liable for the breach of duty which caused the loss – the relevant entity was the Partnership which had acted negligently and in breach of duty in its reports on title and in the advice given at that time.
2. That AIG was entitled to rely on its aggregation wording and that the indemnity limit in respect of these claims was eroded.

The court directed that ground 1 be determined as a preliminary issue.

In her lengthy judgment, Recorder Janet Bignell KC (sitting as a High Court judge) found in favour of AIG.  She was satisfied that AIG was entitled to challenge whether the insured entity had any liability at all and the basis upon which it was held that the insured was liable.  The fact that AIG was aware of the litigation and provided with information as the claim progressed did not preclude AIG from challenging its liability.  AIG had informed the claimants at the outset of its aggregation position and the claimants had proceeded with the litigation “at some degree of risk as to whether or not AIG would challenge their intended claim under the Policy on a basis other than aggregation once findings of causation and loss were made.”

Save for six of the claimants (who were identified by the claimants’ counsel only shortly before trial), the entity responsible for the causative breach of duty, namely the report on title, was the Partnership.  The damages awarded by Mr Justice Fordham all arose as a consequence of that breach of duty.

The Judge accepted AIG’s submissions that whilst the policy provides cover for both the Partnership and the LLP, it does not magically have the effect of transferring liability from one to the other to effect an indemnity for the LLP in respect of liabilities of the Partnership.

Comment

This claim was pursued by the claimants under the Third Parties (Rights Against Insurers) Act 1930.  It remains to be seen whether the same situation could arise under the 2010 Act – specifically it is likely that Insurers would now be joined to the underlying litigation.

Nonetheless the judgment makes clear the importance of ensuring that judgment is entered against the correct entity.  Failure to do so may well prove fatal to any claim for an indemnity. 

AIG was represented by Catherine Shuttleworth and Tim Hague of Kennedys and Carl Troman, Counsel from 4 New Square.