Court looks at meaning of “insurance”

A court has considered whether a law firm that offered an indemnity against adverse court orders when acting for claimants on a conditional fee basis was in fact carrying on insurance business.

The defendant firm of solicitors operated a portal through which it represented claimants in personal injury claims, and, once requested, submitted bills and made deductions for its costs from the awards given to the claimants. The defendant firm’s appeal focused on whether the retainer between the claimants and the firm (CCL) that represented them in the current litigation was an illegal insurance contract.

Each claimant signed up with the defendant on a conditional fee arrangement, but was dissatisfied with the deductions the defendants made from the damages achieved for unrecovered costs. The claimants retained CCL with a view to them bringing claims for a “solicitor-won client costs assessment” of the relevant bills.

The defendants alleged that the service CCL provided to the claimants in providing them with an indemnity should they lose their claims and suffer adverse court orders as a part of the Conditional Fee Arrangements between CCL and the claimants. The defendant said the “premium” the claimants paid for this was in entering into CFAs. The judge threw out this argument, saying there was no discernable premium paid to CCL. However, the part of the definition of an insurance contract which states that the agreement was to pay out on the future happening of an adverse event, was met. The court also relied on a 2011 judgment that appeared to give solicitors the right to provide indemnities. So the judge held the indemnity was not the provision of insurance.  He then went on to consider whether the overall arrangement (CFA with indemnity) could be a contract of insurance. He cited again a previous case where the judge’s view was that any bystander would not see the arrangements as such and that even though the indemnity had some features similar to an insurance contract, it would be “to go too far” to categorise the arrangements as a whole as an insurance contract. The judge then went on to consider the RAO definition of the category of general insurance that is fidelity bonds etc, and noted that these arrangements are insurance only where they are “not effected merely incidentally to some other business…”. The judge considered PERG and case law and concluded the correct approach to assessing the matter was:

  • determine whether the indemnity on its own is an insurance provision, by reference to whether (a) the “insurer” contracts to pay out on the occurrence of some change and (b) the “insurer” receives a premium for this
  • if that determination is that there is an insurance provision, then the court had to consider whether the whole contract should be characterised as an insurance contract, and, in doing so, should consider whether the contract is a single purpose contract or a multiple purpose one – and, if the latter, consider what it should take into account when concluding its main purpose. If the indemnity part were insurance, the purpose of the claimants in entering into the arrangement with CCL was to obtain legal services to get refunds from the Defendants. The claimants took no risk at all – the risk was all on CCL as to whether it would win and get paid at all, and on whether it would have to pay out on the indemnity.
  • and, on the basis of that, the judge concluded this was a contract for the provision of legal services, with the indemnities being a minor or ancillary term – and that, even if the indemnities were insurance (which the judge said they were not), then the entire CFA arrangement was still not an insurance contract.


Emma Radmore