Investors who lost more than £20m were defeated in the Commercial Court last week after their claim against their adviser’s professional indemnity insurance policy failed.
The claimants were former clients of adviser Michael Royde who was an appointed representative of Burns Anderson, part of Honister Capital. The claimants were previously advised by Royde to invest in unregulated collective investment schemes, including through the Pilgrim Sipp.
Burns Anderson and Honister Capital went into administration in July 2012.
The 99 claimants claimed against Burns Anderson’s PI insurer Liberty Mutual. Under the Third Parties (Rights Against Insurers) Act 1930, they claimed for losses as “statutory assignees” of any rights Burns Anderson might have had to indemnity under the Liberty PI policy.
The losses of the claimants, which totalled more than £20m, exceeded the aggregate limit of indemnity for the policy and they were therefore claiming the maximum indemnity of £2m under the Burns Anderson policy from Liberty.
Liberty sought to avoid paying on the policy on several grounds, including that there had been unfair representation of risk to the underwriter and that the claims regarding Burns Anderson were made after the policy had expired.
In a judgment handed down on 23 November, Justice Andrew Baker decided in Liberty’s favour but recognised the claimants might feel an “unfairness” or “harshness” with the result. He said the claimants were “badly let down” by their adviser Royde.
The judgment says: “If, putting things bluntly, Burns Anderson not only let the claimants down through the bad advice originally given by Mr Royde but also compounded things by not obtaining any effective insurance cover in respect of that bad advice after June 2011 and not having the resources to meet the resulting liabilities without insurance, the 1930 Act does not assist the claimants and their asserted claim under that Act is all that was before the court on this trial.”
Justice Baker adds: “It is, regrettably from their perspective, inherent in the fact that the 1930 Act only gives them a right if Burns Anderson had a right, combined with the regulatory sufficiency of ‘claims made’ insurance policies, that their ability, if Burns Anderson do not have the funds to meet their legitimate claims, to seek some recovery from Burns Anderson’s insurers is dependent upon Burns Anderson’s performance historically of its duties, including its duties of good faith, in relation to its insurance.”
The claimants secured a damages claim in 2014 relating to negligent advice given by Royde. They may also be able to claim through the Financial Services Compensation Scheme.