In Michael Jonathan Christopher Oldham v QBE Insurance (Europe) Limited  EWHC 3045 (Comm) Mr Justice Popplewell held that under a policy governed by the ICAEW Minimum Terms (the minimum professional liability coverage requirements mandated by the Institute of the Chartered Accountants of England and Wales), where it is determined that a claim is not covered by the policy, an assured must reimburse the defence costs that have been advanced by its insurer.
Mr Oldham was an accountant and licensed insolvency practitioner who had acted as one of three joint administrators of MK Airlines Limited between June 2008 and March 2009. Subsequently, he faced proceedings that were brought against him by the joint liquidators thereafter for the repayment of allegedly misappropriated company property. Judgment was made against him for a sum in excess of £1 million. An appeal is outstanding in relation to this judgment. QBE were Mr Oldham’s professional indemnity insurers and covered him for claims made in the 12 months at 19 February 2014 under the ICAEW Minimum Terms. QBE disputed that the policy responded to Mr Oldham’s potential liability in the High Court proceedings and this dispute was referred to a parallel arbitration. Pursuant to clause c10.2 of these terms, QBE was nevertheless obliged to fund Mr Oldham’s defence costs in the High Court Proceedings but indicated that it would seek to recover these should a decision be made in QBE’s favour in the coverage dispute. Shortly after the judgment in the High Court Proceedings, the arbitrator held that there was no coverage owing to the fact that the claim against Mr Oldham had been made prior to inception of the policy and that consequently, QBE could recover its defence costs.
Mr Oldham disputed this decision under s. 69 of the Arbitration Act 1996 on the grounds that as a matter of law QBE had no entitlement under the terms of the policy to recover such defence costs. The relevant clause of the contract provided that “…Insurers will advance Defence Costs and indemnify the Insured…pending resolution of any such dispute.”
Mr Justice Popplewell dismissed Mr Oldham’s arguments holding that his interpretation of the clause would lead to an absurd outcome. After noting that the liability of the insurer for defence costs under the ICAEW Minimum Terms arises “only if and to the extent that there is coverage under the policy”, he held that Mr Oldham’s interpretation would have the effect of “altering the scope of cover, to provide coverage for defence costs incurred at a time when coverage was in dispute”. The judge noted that this would bring about a situation where an assured could trigger the operation of the clause and create a right to non-refundable defence costs by simply asserting that there was coverage, regardless of the merits of any such claim. As such he found that “the natural conclusion is that…the payment [of defence costs] is to be provisional and subject to repayment in the event that the dispute is resolved in favour of there being no coverage”.