The Court of Appeal has held that a solicitor suffers an insured loss, for the purposes of a composite professional indemnity insurance (‘PII’) policy, if he is liable to pay damages to a client in respect of fees earned by the firm as a result of misrepresentation by the solicitor’s partner which induces the client to engage the firm and pay the fee. The ruling upholds the decision of Foxton J and the arbitrator, Michael Brindle KC, in an appeal on a point of law under section 69 of the Arbitration Act 1996. 

The court reasoned that the fee, if earned and due, represents the value of the services provided. If the amount of the fee must be paid away to discharge a liability in respect of it, the effect is that the solicitor has provided services without remuneration. In being deprived of the fee, the solicitor has lost an equivalent amount because “that is the value of the now unremunerated services which he has provided”. Further, to hold otherwise would be contrary to the public interest purpose of compulsory PII cover for solicitors; if the firm and all its partners were insolvent, a client would be unprotected where it was seeking to recover damages which include the fee paid to the firm. 

Richard Coleman KC and Nathalie Koh acted for the successful insureds in the Court of Appeal and before Foxton J. Timothy Dutton CBE KC acted for them in the arbitral proceedings.

The judgment can be found here.