Crowden v QBE (High Court) Case Alert - [2017] EWHC 2597 (Comm)

High Court holds that an Insolvency Exclusion applies in respect of a claim under the Third Parties (Rights Against Insurers) Act 1930 ("1930 Act") and awards summary judgment accordingly but declines to provide much-needed guidance on insurers' liability in the case of claims partially settled by the Financial Services Compensation Scheme ("FSCS").

The insured financial adviser provided investment advice to the Claimants, who were the trustees and sole beneficiaries of a self-administered personal pension scheme. In 2005, the Claimants invested £200,000 in a bond issued by the now well-known "Keydata". In 2008, the Claimants invested £150,000 in securities issued by Lehman Brothers through a plan known as "Meteor". Following the collapse of Keydata and Lehmans, the claimants suffered significant losses. The insured having entered liquidation in 2013 (but, prior to that, having been in administration since late 2011), the Claimants sought to pursue the insured's professional indemnity insurer, QBE, under the 1930 Act.

The insurer applied for summary judgment or strike out, on the basis that the claim had no reasonable prospects of success, because:

The insurer was not liable to the insured under its professional indemnity insurance as a result of the application of an insolvency exclusion in the policy; and/or The Claimants did not have the standing to pursue the insured (or its insurers) in circumstances where they had assigned their rights of action against the insured to the FSCS. 1) The application of the Insolvency Exclusion

The policy excluded cover for any Claims, liability, loss, costs or expenses "arising out of or relating directly or indirectly to the insolvency or bankruptcy of the Insured or of any insurance company, building society, bank, investment manager, stockbroker, investment intermediary, or any other business, firm or company with whom the Insured has arranged directly or indirectly any insurances, investments of deposits" (the "Insolvency Exclusion").

The insurer made plain to the Claimants early on that it considered that the Insolvency Exclusion applied on the basis that the insolvencies of Keydata and Lehmans were a cause of the liability faced by the insured (which cause need not be a proximate cause - attention was drawn to the words "arising out of" and "relating...to" with the Judge concluding "If the intention had been to import a requirement of a proximate cause, the Insolvency Exclusion would not have used...