by Nicholas Bird, Reynolds Porter Chamberlain
If you listened very carefully you might just have heard a sigh of relief in EC3 last Thursday. There is no doubt that the House of Lords' decision has saved many millions of pounds for professional negligence and liability insurers.
It wasn't merely all the claims stacked up in the Court of Appeal pending the outcome. The real horror was the prospect of hundreds of worm-ridden claims waiting to be exhumed. No one quite knew the full extent of that, but there was obviously a significant threat, in particular, from the institutional users of professional service providers with many closed files.
Professional indemnity policies are based on claims made or circumstances notified during the policy period. The prospect of an almost unlimited class of historic claims coming back to life would have created a significant uncertainty for underwriters. There would have been no realistic way of predicting which files might produce a claim during the policy period.
Perhaps more worrying was the prospect of claims arising out of circumstances notified as being commenced decades after a policy's expiry. This would not only be a headache for run-off, but also mean defending claims years after the documents had been destroyed and memories lapsed.
Thankfully, these prospects have now largely subsided. But it is not all roses. Deliberate concealment will continue to present issues for insurers and their lawyers, but the class of such cases has been drastically reduced.
For example, although nearly all cases of deliberate concealment will now involve impropriety on the part of the insured, the insurer will not usually be able to withdraw cover by the dishonesty exclusion. This is because the conduct comprising the deliberate concealment will inevitably not have been the cause of loss to the claimant. Where, however, the insured's concealment leads to a claim being brought years later, it might be possible to show that the insured's conduct had prejudiced the insurer's ability to defend the claim.