An insured’s solicitors do not owe a duty of care to their client’s insurer
Guild Insurance Limited t/as Acerta v DH BI Pty Ltd  NSWSC 524
In Guild Insurance Limited t/as Acerta v DH BI Pty Ltd  NSWSC 524, Ball J found in favour of the plaintiff and struck out the proportionate liability defence raised by the defendant. In granting the strike out, his Honour held that the defendant’s proportionate liability defence, which pleaded that its own lawyers owed a duty of care to both it and to its insurer, was bound to fail as a lawyers’ duty of care does not extend to its client’s insurer.
On 1 September 2018, the defendant’s historical property known as “Briar’s Inn”, was damaged by a fire caused by the tenants. The defendant’s insurer, Guild Insurance Limited, indemnified the defendant for loss and damage suffered by the fire.
On 19 November 2020, the insurer commenced subrogated proceedings against the tenants only to discover that, unbeknown to it, the defendant had entered into a deed with the tenants in mid-2020 which released the tenants from any liability arising from the fire (in return for the tenants surrendering the lease) (Deed). Law firm, Dentons, acted for the defendant in relation to the Deed.
The insurer then commenced proceedings against the defendant claiming damages flowing from the opportunity it lost as a result of being unable to recover damages, interest and costs from the tenants and also sought its costs associated with the aborted subrogated proceeding.
The insurer’s claim and the insured’s defence
The insurer’s claim was put four ways:
- firstly, it was alleged that by settling with the tenants, the defendant breached obligations it owed under the policy;
- secondly, it was alleged that the defendant breached the terms of a deed by which the defendant’s insurance claim was settled;
- thirdly, it was claimed that the defendant owed the insurer a duty of care (which it breached by releasing the tenants); and
- lastly, the insurer claimed restitution for an amount equal to the amount it paid to the defendant.
In its defence, the defendant raised the defence of proportionate liability, namely that its solicitors owed both its insurer and it, a duty of care in the preparation of the Deed. In its cross-claim against its solicitors, the defendant claimed that its lawyers should have preserved the insurer’s right of recovery when preparing the Deed.
How far does a solicitors' duty extend?
The general rule is that a solicitor only owes a duty of care to his or her client and the Court rejected the defendant’s novel argument that a solicitors’ duty of care could extend to a client’s insurer because the interests of the client and client’s insurer were not coincident.
His Honour cited the High Court majority in Badenach v Calvert (2016) 257 CLR 440:
“In Hill v Van Erp, Brennan CJ explained [(1997) 188 CLR 159 at 167] that a solicitor’s duty is generally considered to be owed solely to the client because the duty is to exercise professional knowledge and skill in the protection and advancement of the client’s interests in the transaction in which the solicitor is retained. That duty cannot be compromised by a duty to a person whose interests are not coincident with those of the client…”
His Honour did not agree with the defendant that the existence of the duty needed to be determined at the final hearing and instead struck out the defendant’s proportionate liability defence.
In the Court’s view, the insurer’s interests lay in preserving its rights of subrogation whereas the defendant’s interests lay in reaching an agreement with the tenants to surrender the lease. The two interests were not, therefore, coincident and solicitors’ duty of care does not extend to their client’s insurers.
The proceeding otherwise continues and is listed for a directions hearing this month.
 White v Jones  2 AC 207 at 256 per Lord Goff.