Court Cases And Arbitration

England & Wales: Court upholds application of insolvency exclusion

The professional indemnity insurer of an insolvent independent financial adviser (Target) successfully relied on an insolvency exclusion in the policy to deny liability to third party (former) clients of Target1.

In 2005 Target had advised Mr. and Mrs. Crowden to invest £200,000 in a "Secure Income Bond" issued by SLS Capital SA in Luxembourg and Keydata Investment Ltd.2 SLS went into liquidation in 2009.

The Crowdens lost £150,000, and later received only £84,642.92 in FSCS compensation, due to the FSCS cap. Target entered liquidation but, undaunted, the Crowdens sued Target, and were able to obtain judgment for £197,698.05 after the liquidator chose not to defend the proceedings. Target's PI insurer had declined to participate in the proceedings, on the grounds that it considered it had no obligation to indemnify Target due to the insolvency exclusion, which excluded "claims...arising out of or relating directly or indirectly to the sued Target, and were able to obtain judgment for £197,698.05 after the liquidator chose not to defend the proceedings. Target's PI insurer had declined to participate in the proceedings, on the grounds that it considered it had no obligation to indemnify Target due to the insolvency exclusion, which excluded "claims...arising out of or relating directly or indirectly to the insolvency...of the Insured or of any... sued Target, and were able to obtain judgment for £197,698.05 after the liquidator chose not to defend the proceedings. Target's PI insurer had declined to participate in the proceedings, on the grounds that it considered it had no obligation to indemnify Target due to the insolvency exclusion, which excluded "claims...arising out of or relating directly or indirectly to the insolvency...of the Insured or of any... business...with whom the Insured has sued Target, and were able to obtain judgment for £197,698.05 after the liquidator chose not to defend the proceedings. Target's PI insurer had declined to participate in the proceedings, on the grounds that it considered it had no obligation to indemnify Target due to the insolvency exclusion, which excluded "claims...arising out of or relating directly or indirectly to the insolvency...of the Insured or of any... business...with whom the Insured has arranged...any...investments". The Crowdens sued the insurer pursuant to the Third Parties (Rights Against Insurers) Act 1930 (which...