Russell-Cooke LLP recently acted for both the Law Society and the Solicitors Regulation Authority (SRA) in their respective roles as representative body and regulator, in the case of Godiva Mortgage Limited v Travelers Insurance Company Limited.

The case could have a significant impact on Professional Indemnity Insurance (PII) for legal professionals and, as a result, the High Court has granted the Solicitors Regulation Authority and the Law Society leave to intervene in to the proceedings. The case involves the capping of insurance cover by PII insurers by aggregating claims against a firm. According to the Society, major concerns may arise for solicitors' firms, if the insurer's interpretation of aggregation is accepted.

The case evolved due to a number of allegedly fraudulent property transactions, carried out for some ongoing years by a conveyancing partner at a long-established and respectable Berkshire firm, Willmett Solicitors. Unbeknown to other partners and after the abrupt resignation of the fee earner at fault the losses came to light as a result of the financial crisis.

The claimant Godiva and various lenders consequently brought numerous claims against the firm and its partners. Willmett Solicitors has since gone into liquidation with no further funds to meet the claims. The firm's insurers refusing to pay further sums beyond the £2 million, by claiming that all activities arising from the individual partner's involvement in alleged frauds can be aggregated as "one claim". This resulted in devastating outcome for some of the innocent partners at Willmet who have been made bankrupt and the remainder are facing similar fate.

The estimated losses in this legal action could be totalling up to more than £50 million. Commenting on this, SRA Chief Executive Antony Townsend stressed the importance of ensuring that the clients of law firms could, where appropriate, claim their losses from insurers. The SRA is the trustee of the Compensation Fund which is a discretionary source of last resort for a party affected by a solicitor's failure to account or dishonesty. The Fund may also reimburse grant if a client applies in instances of insurer's refusal to pay a claim. He added: "We have a duty to ensure that the Compensation Fund is faced only with appropriate applications for grants from its limited funds and therefore to be rigorous in analysing and if necessary challenging decisions by insurers to refuse to provide full cover."

Desmond Hudson, Chief Executive at Law Society, noted that the ability to intervene in the case alongside the SRA was vital and acknowledged that "the insurer's interpretation of the aggregation clause, which led them to cap their insurance indemnity, could have widespread significance for the public as it will affect many claimants' right of redress."

He went on to express his concern "to the profession in terms of their PII coverage and hence to the Society to ascertain how aggregation applies in a case such as this. Our members need to have confidence in their PII cover, and this could cast doubt on what they and their clients are protected against."

The announcement has received coverage in the trade press. See the Law Gazette news item for further information.