Traps and tactics of solicitors could leave you without cover
During the 1990s the MoD employed John Mowlem to design and build what was, at the time, the biggest office accommodation project in the UK. The Court of Appeal has recently given judgment on one of Mowlem's claims arising from the project, which was, rather unconventionally, pursued against one of its subcontractor's solicitors (John Mowlem Construction v Neil F Jones, 30 June 2004). The case is a useful reminder of the need to think about where the money to satisfy any judgment might be coming from, and a warning to treat insurers and their notification provisions with care.
Mowlem won an arbitration against its subcontractor, Commissioning South West (CSW), but CSW's professional indemnity insurer refused to pay up. To understand why not, the chronology is important.
CSW started the arbitration, and in February 1997 Mowlem's solicitor wrote to CSW's solicitor (Mr Jones) intimating a large counterclaim. That counterclaim, on which Mowlem was ultimately successful, was served in June 1997. Meanwhile, CSW's insurance was due to expire in March 1997, and Mr Povey of CSW filled in a renewal form. The form asked whether CSW was aware of circumstances that might give rise to a claim, to which he answered 'no'. As a result of non-disclosure or misrepresentation, the insurers would not pay.
CSW went into liquidation and there was an assignment of its rights to Mowlem. So Mowlem ended up suing Jones, saying that Jones should have advised CSW to notify its insurer of a threatened claim, and its failure to do so resulted in the insurer avoiding liability. The trial judge found against Mowlem on both liability and causation, and the court upheld his judgment.
Jones accepted that when Mowlem threatened to counterclaim, its scope of services extended to deal with every aspect of the counterclaim. The question was whether this included an obligation to ask CSW about its insurance and to advise about notification. Jones had taken the view that the threat of a counterclaim in February 1997 was tactical, and said that the question of CSW's insurance simply did not enter his mind. Tellingly, Mowlem's solicitor said it had not occurred to them to ask about CSW's insurance until after the counterclaim had been served, having 'woken up to the fact that we might obtain a pyrrhic victory'.
The court referred to Povey's experience in arranging and maintaining CSW's professional indemnity (PI) insurance, and the guidance about notification that the insurer had provided. In considering Jones' obligations, the court said that Jones had not been retained to advise the client about insurance, 'who was perfectly competent to deal with such matters'.
Against that background, the court asked itself whether a reasonably competent solicitor, faced with what it thought was a tactical counterclaim, would have immediately asked about insurance and advised notification. It decided that the answer was no, particularly as at the time the insurance question had not occurred to Mowlem's solicitor either.
The court also agreed with the trial judge that even if Jones had advised CSW to notify its insurer, Mowlem could not show that the result would have been notification. Two key facts led it to this conclusion. First, in July 1997, after the counterclaim had been served, Jones did advise Povey to notify insurers.
Povey told Jones that he had made a notification, but in fact did not do so until October 1997.
Second, there was a CSW board meeting note, which the trial judge decided that Povey had prepared, which said: 'I believed that if we had no PI cover then Mowlem would probably cave in and settle our claim for additional monies.' The court decided that the evidence was consistent with Povey having chosen not to notify, in the belief that Mowlem's counterclaim was a tactical ploy best defeated by not involving CSW's insurer.
As to the wisdom about PI policies that emerges, it is noteworthy that in reaching its conclusions as to what Jones should have done, the court weighed in the balance CSW's competence to deal with its own PI policy. And it is perhaps worth bearing in mind Mowlem's counsel's description of the notification provisions in such policies: 'A trap for the unwary.'