ATE insurers seek to pass on £56m liabilities of failed claims

Legal expenses insurers seeking to pass on liabilities of up to £56m after two law firm clients collapsed have won an argument over disclosure at the Court of Appeal.

Amtrust, which provided ATE cover for claims run by the now-defunct Pure Legal and High Street Solicitors, wanted access to any communications between those firms and an insurance firm trading as Sompo International.

Sompo, which provided professional indemnity insurance to both Pure and HSS, is subject to Part 20 proceedings brought by AmTrust to be added to an ongoing claim resulting from the failed cases.

The overarching litigation centres on the estimated 10,000 cases being run by Pure and HSS which turned out to be unsuccessful. Novitas, the litigation funder providing the money for running these claims, ia seeking to recover around £56m from AmTrust. AmTrust in turn seeks to pass on any liability on to Sompo. The ATE insurer also wants to recover damages of £15m for the amount it has paid so far in disbursements and adverse costs for the claims-handling by Pure and HSS.

A five-week trial of preliminary issues is due to start in November. Among other things, this will establish where liabilities lie. In the third case management conference ahead of that hearing, AmTrust sought disclosure of communications between Sompo and the law firms for the five months before policies were entered into.

Peter MacDonald Eggars KC, sitting as a deputy High Court judge, refused to order disclosure of this material, saying he was not satisfied the documents would be relevant or important to the fair resolution of the claim. AmTrust appealed, saying the judge was wrong about the potential relevance of the documents and wrong to have made a final decision about this when that should have been left to the trial judge.

Lady Justice Asplin, ruling in AmTrust Specialty Ltd v Endurance Worldwide Insurance Ltd (t/a Sompo International), said Eggars had pre-empted the trial judge and unfairly restricted the scope of the argument available to AmTrust at the trial of the preliminary issues.

‘He applied the wrong test when determining whether to order extended disclosure and erred in pre-judging the proper construction of the policies,’ added Asplin. ‘In doing so, he shut out AmTrust from being able to argue that the documents are relevant to the proper construction of the policies and shut out the trial judge from being able to consider that question in the light of all the relevant documentation.’

Lord Justice Underhill agreed, saying that it was not necessary for the judge to decide definitely whether the documents were likely to be relevant, and in any event he was not in a position to safely do so.