Quinn Direct Insurance Limited v Law Society of England and Wales
The insurer provided professional indemnity cover under the Solicitors' Indemnity Insurance Rules for a two-partner firm of solicitors that specialised in conveyancing and immigration.
During the policy period, various third party claims were made against the firm that suggested money had been improperly paid away from the client account. The allegations concerned conveyancing transactions carried out by one of the partners, Mr O.
The partners claimed under the firm's PI policy. The insurer refused to indemnify Mr O. As for the other partner, Mr I, it declined one claim and reserved its position on others.
In October 2007, the Law Society intervened in the practice and took possession of all the files it could find.
The insurer applied to the court for access to documents in the Law Society's possession "including without limitation all accounting records to consider whether under the policy [the insurer] is obliged to indemnify or obliged not to indemnify [Mr I]".
The Law Society objected to this blanket request, arguing that, as legal custodian of the documents, it had a responsibility to deliver them to the firm's former clients or to their order and in the meantime it was bound to preserve client confidentiality and privilege (Dooley v The Law Society [2002]).
Where the client had made a claim against the firm which had been notified to the insurer, the Law Society took the view that the making of the claim constituted a waiver of client privilege, so there was no problem about providing access to those documents. It had also provided the firm's bank statements.
But the remainder of the documents all contained information confidential to one or more former clients whose privilege had not been waived.
The insurer, however, argued that it was part and parcel of the regulatory scheme as a whole that the Law Society should give it access to these documents.
Solicitors are obliged by law to maintain certain levels of insurance cover. An insurer providing this cover enters into a Qualifying Insurers Agreement with the Law Society, under which it has certain obligations, for instance, to alert the Society if it suspects fraud. In such circumstances, the insurer argued that it should be entitled to see documents in the Law Society's possession following an intervention.
The insurer also relied on the fact that this was a "claims made" policy that included a term requiring the insured to produce all documents relevant to an actual or potential claim. It argued that the obligation applied whether or not the documents were subject to client privilege, on the basis that the insurer was part of a "circle of confidence" and would not make them available to others.
The judge refused the insurer's application. While there was clearly a public interest in a firm maintaining insurance cover, the real purpose of the legislation was to enable the Law Society to regulate and supervise solicitors.
The purpose of this application, however, was not to exercise any kind of supervisory function, but to gather evidence to enable the insurer to refuse an indemnity.
As for the policy term, the Law Society was not a party to that contract and was not bound by its provisions. In any event, the term did not oblige the insured to provide information and assistance whenever the insurer wanted it.
An insured is only required to provide information to assist in a claim that has already been made. It is not required to provide information solely to enable the insurer to investigate whether not the insured has breached its obligations (Gan v Tai Ping [2002]).
The insurer appealed.
The Court of Appeal upheld the judge's ruling.
Since neither the Law Society nor the firm's clients were parties to the insurance contract, the insurer could not rely on any term in the policy. The only possible grounds for the application were based on public law: in other words, that the Law Society was acting unlawfully in refusing to comply with the insurer's request.
But the appeal judges could see no reason why the Law Society was obliged to produce privileged documents.
When an intervention takes place, the law firm gives up possession of all documents, including those subject to client privilege, but there is no corresponding obligation on the Law Society to disclose those documents to the firm's insurer.
A qualifying insurer is part of the regulatory scheme only insofar as it provides indemnity insurance to solicitors' firms and information to the Law Society. It is not "meshed into" the system as the recipient of any services or information, let alone the sort of privileged client information that interventions are designed to protect.
In any event, the insurer's application was not made for public or regulatory reasons, but to seek evidence to justify a refusal of an indemnity. The Court of Appeal agreed with the judge that the insurer's purpose was completely at odds with any regulatory role.
The decision emphasises that, even as regards a law firm's own insurer, client confidentiality and privilege can only be waived with the express consent of the client, or impliedly if the client has made a claim against the firm.
The Court of Appeal refused to accept that claims made policies oblige or entitle firms to disclose confidential and privileged documents to their insurers. Solicitors are not entitled to ignore client privilege.
At the same time, of course, they are required to notify insurers of any claim or circumstances that might lead to a claim being made against them. The difficulty is that, if a firm is notifying a circumstance rather than a claim, there will be no implied waiver of privilege and so the information it is able to provide the insurer could be very limited.
Lord Justice Morritt said: "It may be that, if the client will not waive his privilege to enable proper disclosure to be made, the consequence of the resulting conflict of interest will be that the insurance is vitiated or the notification inadequate, but that is the problem of the solicitor not the client."
