In Axa Insurance Ltd (formerly Wintherthur Swiss Insurance Co.) v Akther & Darby Solicitors & Ors [2009] EWCA Civ 1166, the Court of Appeal held that insurers of a legal expenses insurance scheme were deemed to have accrued a cause of action against negligent solicitors at the point when policies were issued on claims that had not been properly vetted by the solicitors. The clock therefore started to run on the cause of action at that time and not at the later time when a claim could have been made under the policy. As a result of this earlier accrual of action, a large amount of the insurer’s claims against the solicitors were statute-barred.
The appellant, Axa, was the assignee of an insurer which provided after the event (ATE) insurance to members of the public through a claims management company. The claims management company used solicitors, including the defendant, to vet the claims and conduct litigation such that unmeritorious claims were not granted insurance. Because of alleged negligence by the solicitors, the insurers lost large sums on the scheme and sought to recover from them.
Axa argued that, following the House of Lords case, Law Society v Sephton & Co [2006] 2 AC 543, the insurer’s liability under the ATE insurance was no more than an unsecured contingent liability until the time a claim could be made under the policy. Lord Justice Longmore and Lady Justice Arden, with the majority view (Lord Justice Lloyd dissenting), distinguished Sephton as the case in hand was not one of mere contingent liability as there was an additional measurable relevant loss on the inception of the policies as any valuation of the policies at that time would have to take into account the fact that there had been no proper vetting. In the case of negligent conduct of the litigation by the solicitors, the damage occurred when the conduct breach took place.
