Thefts From The Client Account: Will Firms' Insurance Cover It?

• Published date: 25 January 2022
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Trials & Appeals & Compensation
• Law Firm: Russell-Cooke Solicitors
• Author: Mr Michael Stacey

Insurance aggregation in solicitors' professional indemnity insurance might seem a dry and technical topic which ought to remain the preserve of insurance law specialists. However, the case of Baines & others v. Dixon Coles & Gill [2021] EWCA Civ 1211 provides a colourful example that when things go wrong, a dishonest partner's misdeeds can cause severe practical consequences for clients, firms and innocent partners.

The facts

Linda Box was the apparently respectable senior partner of a long-established Wakefield firm. She held senior offices in the Church of England. In 2015, one of her partners identified an unexplained payment from the firm's account which led him to uncover further discrepancies. When confronted, Box admitted making unauthorised payments from the firm's client account, including to meet her own tax and credit card liabilities and pay her mortgage.

Following the Solicitors Regulation Authority's (SRA) intervention, Box was charged and pleaded guilty to 13 counts of theft, fraud by abuse of position and forgery. She was sentenced to seven years' imprisonment. The total charged on the indictment exceeded '4m, although the actual amount stolen is thought to be considerably greater. The length and scale of Box's dishonesty, dating back to 2002, was described as 'quite staggering' by the sentencing judge. Between 2010 and 2015, over '3m was paid to her credit card accounts.

The other two equity partners in the firm were left to deal with the fall out, including claims from clients whose money had been misappropriated. It was not suggested they had any involvement in or knowledge of Box's thefts, but as innocent partners they were potentially liable as her partners with unlimited liability. They entered into a Partnership Voluntary Arrangement.

The insurance position

The firm was insured in accordance with the SRA's Minimum Terms and Conditions for solicitors' professional indemnity insurance, with a '2m limit of indemnity for any one claim. The insurers paid claims up to '2m limit but refused to pay further claims on the basis they were entitled to aggregate all claims arising from Box's dishonest course of conduct and treat them as one claim.

The insurer argued Box's thefts formed a series of related acts and the SRA's Minimum Terms and Conditions deemed all the claims were aggregated. If they were right, any further claims would be uninsured and clients who lost out would be left to pursue the two innocent partners personally.

Aggregation

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