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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Qualifying Insurers Subscribing To ARP & Anor v Ross & Co & Anor [2004] EWHC 1181 (Ch) (25 May 2004) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2004/1181.html Cite as: [2004] EWHC 1181 (Ch) |
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CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
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THE QUALIFYING INSURERS SUBSCRIBING TO THE ARP |
Claimants |
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and |
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CAPITA LONDON MARKET SERVICES LIMITED |
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- and - |
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ROSS & CO |
First Defendant |
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and |
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THE LAW SOCIETY |
Pt. 20 Defendant |
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Mr. Graham Ross (In Person) for the First Defendant
Mr. Stephen Morris QC (instructed by Messrs Norton Rose) for the Part 20 Defendant
Hearing dates : 11th to 13th May 2004
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Crown Copyright ©
The Vice-Chancellor :
Introduction
(1) The imposition of an obligation on individual solicitors to obtain professional indemnity insurance from qualifying insurers which satisfies the minimum conditions specified in the Rules. These requirements are contained in Part 2 of and Appendix 1 to the Rules.
(2) The constitution and regulation of the Solicitors Professional Indemnity Ltd ("SPIL") by the Law Society and St Paul International Insurance Co Ltd ("SPIICL") and its holding company to provide professional indemnity insurance which satisfies the minimum conditions on open market terms to those segments of the profession which because of some common feature, notably size or practice, find it hard to obtain such cover. This component is dealt with in a shareholders agreement dated 25th April 2000 and made between the Law Society, SPIICL, its holding company and SPIL ("the MGA Agreement").
(3) The constitution and operation of the ARP as provided for in Part 3 of the Rules and an agreement dated 4th August 2000 and made between the Law Society and the second claimant ("the ARP Agreement").
(4) The recognition of certain authorised insurers as qualifying insurers, the minimum conditions to be satisfied in relation to indemnity insurance issued to solicitors and the terms on which they underwrite the risks in the ARP. This is dealt with in the standard form agreement between the Law Society and the Qualifying Insurer ("the QI Agreement") to which 28 authorised insurers subscribed for the indemnity year 2001/02.
"the notified arrangements do not appear appreciably to restrict competition within the meaning of Article 81(1). Furthermore, even if the notified arrangements did restrict competition to an appreciable degree they would in any event fulfil the conditions for exemption pursuant to Article 81(3).
Given these conclusions it has not been necessary to form a view as to whether the Law Society is an undertaking for these purposes or whether the notified arrangements are likely to affect trade between member states to an appreciable degree."
"most insurers are not interested in firms with less than 4 - 5 solicitors. Also as previously advised insurers did not like the split of your activities (personal injury work) and the size of the practice and some were not writing new business for existing practices during the course of the year.
The only market that we are aware of that is currently writing sole practitioners is Zurich Professional, but the market is continually changing so other markets may come in for a brief period and withdraw again."
There is no evidence that Zurich or any other market was approached by Marsh on behalf of Mr Ross.
"We have approached five markets to date including Chubb your previous insurer. All markets have declined to provide a quotation. The reasons include:
- Many insurers are refusing to accept new solicitor business because of the hardened insurance market.
- The practice is involved in a high percentage of Personal Injury Work which is considered a high risk area.
- The practice is reducing its income considerably therefore insurers have minimum fee limits in order to cover their costs.
As we have exhausted all available markets, we have passed your application to our London based broking team who have access to additional markets via Lloyds Syndicates. I will let you know as soon as I hear from them."
On 18th February Marsh wrote to Mr Riccardi again confirming that their London broking team had been unable to obtain any quotation despite approaching a further six markets because most of them would only deal with firms of 4 – 5 solicitors or more.
"Neither your past letters during 2003 nor the e-mail of 19th February 2004 provide evidence of an appreciable restriction of competition affecting trade between member states that the Commission should investigate."
2. - (1) Subject to section 3, agreements between undertakings, decisions by associations of undertakings or concerted practices which-
(a) may affect trade within the United Kingdom, and
(b) have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom,
are prohibited unless they are exempt in accordance with the provisions of this Part.
(2) Subsection (1) applies, in particular, to agreements, decisions or practices which-
(a) directly or indirectly fix purchase or selling prices or any other trading conditions;
(b) limit or control production, markets, technical development or investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
(1) Subject to section 19, any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position in a market is prohibited if it may affect trade within the United Kingdom.
(2) Conduct may, in particular, constitute such abuse if it consists in –
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b) limiting production, markets, or technical development to the prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the other parties of supplemental obligations which, by their nature or according to commercial usage, have no connection with the subject of the contracts.
(3) In this section –
"dominant position" means a dominant position within the United Kingdom; and
"the United Kingdom means the United Kingdom or any part of it."
"(1) The Chapter I prohibition does not apply to an agreement to the extent to which it is made in order to comply with a legal requirement.
(2) The Chapter II prohibition does not apply to conduct to the extent to which it is engaged in in order to comply with a legal requirement.
(3) In this paragraph "legal requirement" means a requirement –
(a) imposed by or under any enactment in force in the United Kingdom;
[(b) and (c)]
(1) The agreements and Rules fix the cost of professional indemnity insurance provided by the qualifying insurers;
(2) The cost of the ARP insurance is not based on risk but is a fixed percentage of gross fees;
(3) The default premium for ARP insurance, namely that referred to in (2) together with a 20% uplift, is imposed, not negotiated, and is excessive;
(4) The agreements and Rules denied to Mr Ross the opportunity to obtain insurance in a competitive market;
(5) As all qualifying insurers participate in the ARP there is a sharing of a market or source of supply;
(6) By requiring solicitors insured in the ARP to pay excessive premiums dissimilar conditions are being applied thereby subjecting solicitors so insured to a competitive disadvantage;
(7) The requirement that solicitors insured in the ARP should permit their offices to be inspected is a supplementary obligation which has no connection with the insurance contract;
(8) It is extremely hard for solicitors insured in the ARP to practice in a reasonably profitable manner;
(9) Contrary to the understanding of the Law Society and of the Master of the Rolls at the time the Rules were promulgated default cover in the ARP is not confined to solicitors with a poor claims record and the claimants have taken advantage of their monopoly to impose default cover on solicitors with a good claims record.
(1) The failure of qualifying insurers to offer insurance outside the ARP forces a solicitor into the ARP;
(2) The ARP premium is significantly higher than the premium charged for comparable insurance outside the ARP;
(3) The ARP premium is excessive and prejudices the ability of a solicitor required to pay it to practise at a profit;
(4) The qualifying insurers share the higher ARP premium and thereby have a commercial incentive to the detriment of the relevant solicitors to force solicitors into the ARP, particularly by default;
(5) The incentive and higher premium for ARP cover obtains because of the dominant position in the market enjoyed by qualifying insurers under the Rules and Agreements.
(1) the premiums charged for professional indemnity insurance of a solicitor in the ARP are excessive,
(2) the ability of a solicitor to leave the ARP and thereby avoid or reduce his liability for the excessive premium is obstructed by the way the ARP is operated rather than by the terms of the Scheme itself, and
(3) the restriction on backdating professional indemnity insurance introduced into the Rules in 2001 (para 6 above) restricts the extent to which a solicitor in the ARP may reduce his liability for an ARP premium.
The third proposition is new. It is not to be found in either the defence or response of Mr Ross, nor in his written argument. It was not suggested that it was not open to Mr Ross to raise it in argument and I propose to deal with it in due course.
(a) In promulgating the Rules and operating the Scheme the Law Society is not an "undertaking";
(b) The Scheme does not have as either its object or its effect the restriction, prevention or distortion of competition within the United Kingdom;
(c) The Scheme is exempt pursuant to Schedule 3 para 5 because the Rules are either an enactment or were promulgated in order to comply with an enactment, namely s.37 Solicitors Act 1974.
The issues summarised in sub-paragraphs (a) and (c) are of general importance in relation to the construction and operation of the Competition Act 1998. I am conscious that Mr Ross appeared in person and I have not had the benefit of argument from OFT on these points. Accordingly I propose to deal with the issue summarised in sub-paragraph (b) first and I will deal with issues (a) and (c) only if the need arises.
(1) the incentive to force solicitors into the ARP,
(2) the excessive level of premium for insurance when within ARP, and
(3) the impediments to leaving the ARP faced by solicitors who are insured in it.
These are alleged to be both inherent in the scheme, and therefore its object, and the result of its operation, and therefore its effect.
"During the first year of the new system in 2000-2001, firms in the ARP were permitted to obtain cover at any point during the indemnity period back-dated to the beginning of the indemnity period. This led to a number of policies being issued by qualifying insurers in the final few months of the indemnity year to firms in the ARP that had not received any claims against them during the course of that year. As such, these firms represented a relatively good risk for the qualifying insurers and by the operation of the rules at the time, these firms were able to obtain open market cover from the beginning of the year and receive a rebate of their ARP premium. Therefore to prevent this practice from the start of the indemnity year in 2001, the Rules were changed to limit the period of back-dating insurance cover to 30 days. This change was publicised in the Law Society Gazette on 26th July 2001."
"This contract cannot be cancelled other than if (and with effect from the date upon which) –
[(a)..]
(b) replacement insurance complying with the Minimum Terms and Conditions commences. Cancellation will not affect the rights and obligations of the Insurer and the Insured accrued under this contract prior to the date of cancellation."
He submitted that if in the indemnity year 2000 the new insurance outside ARP was concluded on, say, 1st February but with effect from the previous 1st September then the ARP could be cancelled on 2nd February with effect from the previous 1st September also. The suggested consequence was to entitle the solicitor to a rebate of the ARP premium as if it had been cancelled on 1st September, not 2nd February. No doubt this was the view of the Law Society, as shown by the evidence of Mr Darby quoted in paragraph 40 above, but I do not think it is correct. The amount of the rebate depended on the month in which the cancellation of the ARP policy was effective. In the example I have given that could not have been September if the insurance outside the ARP was not concluded until the following February. I see nothing in Clause 4.3 to suggest otherwise. Replacement insurance could not commence and Clause 4.3 precluded the cancellation of the ARP insurance until the insurance contract outside the ARP had been concluded.
(1) – (3) The only costs which can be said to be fixed by the Rules are the premiums for cover within the ARP. But the ARP is part of a scheme which is, as a whole, pro-competitive. It is not a separate market. The premiums for ARP cover may exceed open market rates for some solicitors, but given the purpose of the ARP they are not excessive.
(4) The Scheme did not deny to Mr Ross, or any other solicitor, the opportunity to obtain insurance in a competitive market. He obtained such insurance in the previous year and there is no reason to suppose that if he had applied for it promptly he could not have obtained it for the indemnity year 2001/02.
(5) It is true that all qualifying insurers participate in ARP but the ARP is not a separate market but part of a scheme which, as a whole, is pro-competitive.
(6) It is likewise true that premiums payable for insurance within the ARP are assessed differently from those payable for insurance outside it but no solicitor who can obtain open market insurance outside the ARP is forced into it.
(7) This is true but the requirement is not anti-competitive.
(8) There is no evidence to support this assertion.
(9) The prior understanding of the Law Society and/or the Master of the Rolls cannot make anti-competitive a scheme which, as a whole, is pro-competitive. There is no evidence to support the assertion that default cover in the ARP has been "imposed" on solicitors with a good claims record.
(a) they are not dominant on any relevant market, but if they were
(b) they did not abuse any such position, but if they did
(c) such abuse did not have any appreciable effect on trade or competition, and in any event
(d) they were engaged in such conduct in order to comply with a requirement imposed by or under an enactment in force in the United Kingdom and are thereby exempt by Schedule 3 para 5 Competition Act 1998.
"is to set out the terms and conditions on which the insurer may provide professional indemnity insurance to [solicitors] as required by the Rules and in particular the terms on which it may issue policies, shall participate in the ARP, shall comply with the claims handling guidelines and related matters."
(1) dismiss the defence of the first defendant under CPR Rule 24.2, and
(2) give judgment in favour of the claimants against the first defendant in the sum of £56,847.73 with interest.
I will hear further argument on any issue arising out of this judgment.