(Article from Insurance Law Alert, April 2026)
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Holding
The English Commercial Court held that obligations owed by solicitors’ firms to an after-the-event (“ATE”) insurer under terms of business agreements were commercial—not solicitorial—in nature and therefore fell outside the scope of the firms’ professional indemnity (“PI”) cover. The court also held that the ATE insurer’s right to subrogation under the PI insurance policy depended on whether the insurer’s payments were made under the ATE policies or a separate deed of indemnity. Novitas Loans Limited v AmTrust Specialty Limited (& Ors) [2026] EWHC 592 (Comm) (16 March 2026).
Background
The dispute arose from a failed litigation funding scheme (the “Scheme”) involving approximately 20,000 underlying consumer claims.
Under the Scheme, each client entered into: (1) a conditional fee agreement with a solicitors’ firm; (2) a non-recourse loan with Novitas Loans Limited (“Novitas”) to fund litigation expenses; and (3) an ATE policy issued by AmTrust Specialty Limited (“AmTrust”) to cover disbursements and adverse costs.
If a claim succeeded, Novitas, the lender, would be paid from recoveries. If the claim failed, the ATE policy was intended to both repay the Novitas loan and cover adverse costs. A separate deed of indemnity (the “Deed of Indemnity”) required AmTrust to indemnify Novitas in respect of any loan sum that the client could have claimed under the ATE policy, had AmTrust not rejected the claim or avoided the ATE policy.
The two principal solicitors’ firms in the Scheme were Pure Legal Limited and High Street Solicitors Limited. Both firms became insolvent and were insured under standard form PI policies.
AmTrust settled with Novitas for £48.5 million under the Deed of Indemnity in relation to sums loaned to clients that had not been repaid. AmTrust then sought to recover its losses from the PI policy insurer, alleging that the firms had breached duties owed under their Terms of Business Agreements (“TOBAs”) with AmTrust’s agent, and asserting subrogated claims on behalf of the firms’ underlying clients.
Decision
Of the nineteen issues before the Commercial Court, the key preliminary issues were decided as follows:
First, the court determined that AmTrust’s claims fell outside the insuring clause of the PI policies, which required the relevant liabilities to arise “out of and/or in connection with the conduct of any Professional Business.” The court distinguished the duties owed by the firms to AmTrust under the TOBAs from those the firms owed to their clients. The court found that duties arising under the TOBAs were not solicitorial duties but rather commercial obligations under a litigation funding arrangement. This decision aligns with the distinction recognized in Impact Funding Solutions Ltd v Barrington Support Services Ltd [2016] UKSC 57 between solicitor-client obligations and separate commercial dealings.
Second, the court ruled that AmTrust’s claims against each firm constituted a single “Claim,” limiting AmTrust’s potential recovery to a single £3 million per firm under the ATE policy. The court noted that even if multiple claims had been made, they would have been aggregated under the PI policies as they stemmed from “one matter or transaction”—namely, the relevant TOBA.
Third, the court held that AmTrust’s subrogation rights depended on the legal basis of payment; payments AmTrust made under the Deed of Indemnity with Novitas (which was premised on the client not being entitled to claim under the ATE policy), rather than pursuant to the ATE policy, did not give rise to subrogation rights. The question of whether AmTrust’s payments were, in fact, made under the Deed of Indemnity or under the ATE policies remains to be resolved in further proceedings.
Comments
The court’s finding that AmTrust’s claims fell entirely outside the scope of PI cover because the duties owed under the TOBAs were commercial rather than solicitorial in nature is significant for PI insurers assessing their exposure in litigation funding disputes.
The subrogation analysis also offers a cautionary lesson for ATE insurers operating within complex funding structures. The court made clear that an ATE insurer’s right of subrogation turns on the legal basis of its payments, not the identity of the recipient. Where an ATE insurer makes payments under a separate contract, such as a deed of indemnity with a lender, rather than pursuant to the ATE policy itself, those payments may (subject to the terms of the applicable contracts) not give rise to subrogation rights. For insurers and participants in litigation funding schemes, the case underscores the need for careful drafting of agreements and a clear understanding of how risk is allocated across multiple parties.