Subrogated claims come in many guises, not just the obvious ones relating to property or motor damage. The recent case of Pemberton Greenish LLP v Jane Margaret Henry  All ER (D) 151(Feb) , which concerns an employer’s insurer pursuing an employee for losses arising from their allegedly negligent and dishonest actions, is a good example of one of the less common varieties of subrogated claims going to court.
Ms Henry, the defendant, was a solicitor employed as a consultant for Pemberton Greenish LLP, the claimant. The defendant was instructed in relation to a transaction that was ultimately revealed to be fraudulent.
The claimant was pursued by the innocent lender involved in the transaction for damages and settled this claim for £370,000, paid by the claimant’s insurers. It is worth noting that the terms of the claimant’s insurance included a clause that they could only pursue a claim against the defendant if her acts or omissions were dishonest.
As a result of the transaction, a police investigation was carried out and the defendant received a caution for forging a client’s signature. The Solicitors Disciplinary Tribunal also looked into the defendant’s actions and found that she had been dishonest in relation to that signature; she was struck off the roll of solicitors.
Money Laundering Regulations
The claimant’s insurer brought a subrogated claim in the claimant’s name for damages in negligence, based on the defendant’s conduct of the transaction and breaches of the Money Laundering Regulations 2007. The claimant alleged that the defendant had been dishonest in some of her dealings in relation to the transaction.
It was not alleged by the claimant that the defendant had been involved in the fraud, only that her actions upon realising that the transaction was fraudulent were dishonest (by forging a client’s signature and deleting emails from the person who had referred the client).
The allegations against the defendant included, inter alia, failure to:
- Obtain identification documentation for one client;
- Notice discrepancies in identification documentation for one client;
- Open a file in the names of both clients;
- Verify that one of the clients was the person identified in a passport;
- Correctly enter or amend an entry on the claimant’s money laundering system regarding where the defendant had visited the clients;
- Correctly enter or amend an entry on the claimant’s money laundering system regarding the fact that the transaction involved payments to a third party;
- Correctly enter or amend an entry on the claimant’s money laundering system regarding the fact that the transaction involved a complicated financial transaction.
The court found that the defendant had breached the Money Laundering Regulations 2007. However, it did not find that any of the defendant’s acts or omissions leading up to the fraud were dishonest in nature. Accordingly, the clause of the insurance policy allowing the insurer to pursue the defendant was not engaged.
The court found that the defendant had been negligent in her dealings with the transaction but that this was not enough to show dishonesty in the lead-up to the fraud taking place. It was not therefore causative. The court further found that after the fraud was revealed, the defendant’s actions appeared to be dishonest but that this was neither causative nor linked to the fraud.
It is useful for professional indemnity insurers to consider, in claims where they have defended a professional firm, whether there may be recourse against an employee. In order to do so, however, they will need to show that the terms of the policy allow such action and that the evidence matches the circumstances in which the policy allows subrogated claims.
In most situations, the policy will exclude the insurer from pursuing employees unless certain criteria are met. However, insurers should consider the prospects of such claims carefully when a suitable situation occurs and weigh this against the financial merits of pursuing a particular employee, as well as any appetite of the insured for such a claim.
For more information on any of the issue raised in this article or on property insurance litigation matters in general, contact our Property Insurance Litigation team or tel: 0117 904 6000.