In this chapter of our Annual Insurance Review 2018, we look at the main developments in 2017 and expected issues in 2018 for legal practices.
Key developments in 2017
For 20 years, since the landmark case of SAAMCo, professional negligence defence lawyers have been relying on Lord Hoffman’s judgment to limit a professional’s exposure to loss. Over the years there have been myriad interpretations of the SAAMCo distinction between providing information to clients (where losses would be confined to the foreseeable consequences of the incorrect information) and advising clients on how to proceed (where more extensive losses would flow). A long-awaited clarification of this distinction came this year in the Supreme Court decision in BPE Solicitors v Hughes Holland  UKSC 21.
In BPE, Lord Sumption confirmed the SAAMCo principle and clarified the difference between providing advice and providing information as a professional. He held that a professional provides advice when it considers all matters that a client may deem relevant when deciding whether or not to enter into a transaction. When a professional contributes a limited amount of material to a client who is deciding whether to enter into a transaction, it merely gives information. For example, conveyancers and valuers will not usually be advisers as the information they provide to a client is succinct and limited, whereas brokers may provide advice if they place and write a policy.
This judgment has been welcomed by professionals and their insurers. When a professional only provides information, it is for the client to look at other considerations and make a commercial decision based on all information. A claimant cannot recover in respect of its own commercial decisions.
What to look out for in 2018
Since 4 May 2017, insurers have faced potential exposure to a damages claim by an insured if they fail to pay claims within a reasonable time and the insured consequently suffers loss. This is by way of section 13A of the Insurance Act 2015, which introduced an implied term into every insurance contract.
So far, no such claims have been reported. However, as insureds are subject to a one-year limitation period,insurers should be prepared for potential actions in 2018.
Not all delays in payment will be actionable. The Act expressly recognises the need for insurers to have reasonable time to investigate and assess a claim. Reasonable grounds to dispute the validity or value of a claim will also provide insurers with a defence.
Once claims start being made, we anticipate litigation on the question of reasonableness. A test case on the interpretation of reasonableness under the Act will be welcome.
We are also hoping to receive clarity from Parliament in 2018 regarding ground rents in leasehold properties. The current escalation of ground rents is predicted to reach crisis level and result in significant litigation, unless new legislation is introduced.
Download our full Annual Insurance Review 2018 for more insights.