Impact Funding Solutions Ltd v AIG Europe Insurance Ltd

Factual and Procedural Background

Company A entered into two Disbursement Funding Master Agreements (“DFMAs”) with Company B, a firm of solicitors. Under these framework agreements Company A would lend money to Company B’s clients so that litigation disbursements could be met in cases handled on conditional fee agreements. Company B failed to exercise proper care when selecting the cases, leaving many disbursements irrecoverable from defendants or insurers. Company A obtained judgment against Company B for approximately £581,354, but Company B had since gone into liquidation. Company A therefore brought proceedings against Company C (Company B’s professional indemnity insurer) pursuant to the Third Parties (Rights Against Insurers) Act 1930.

In the High Court, Judge 6 held that an exclusion clause in the policy barred Company A’s claim. The Court of Appeal, led by Judge 7, reversed that decision. Company C appealed to the Supreme Court, which heard the matter before a panel of five judges (Judges 1-5).

Legal Issues Presented

1. Whether the DFMAs constituted “any contract or arrangement for the supply to, or use by, any insured of goods or services in the course of [the insured’s] Practice” so as to fall within the exclusion in clause 6.6 of the solicitors’ minimum terms and the parallel “Trade Debts” exclusion in the policy.

Arguments of the Parties

Company C’s Arguments (Appellant)

• The Court of Appeal asked the wrong question; the focus should be on whether Company B received services under the DFMAs, not on Company B’s obligations to Company A or its clients.
• Each time a loan was made, Company B obtained valuable services: (i) immediate funding of disbursements, (ii) relief from the risk of unrecovered disbursements, and (iii) the commercial ability to take on cases it could not otherwise afford.
• These advantages amount to “services” supplied to Company B in the course of its practice, bringing the liability within the exclusion.

Company A’s Arguments (Respondent)

• Exclusion clauses must be construed strictly, particularly in insurance contracts.
• The exclusion targets liabilities arising from contracts for goods or services utilised in the solicitor’s practice (e.g., photocopying or office cleaning), not general commercial facilities.
• The loans were provided to clients, not to Company B; Company B was merely a conduit. The incidental ability to take on more work was not the purpose of the contract and is too remote to trigger the exclusion.

Table of Precedents Cited

Court's Reasoning and Analysis

The Supreme Court concentrated on the wording and context of clause 6.6:

• Purpose-based focus: The exclusion asks what the contract is for, not what incidental benefits it produces. The essential purpose of the DFMAs was to provide loans to clients, not services to the firm.
• Composite phrase “goods or services”: Coupling “services” with “goods” implies that the services must be of a kind comparable to the supply or use of goods in the solicitor’s practice. A financial facility does not fit that paradigm.
• Contrast with wider wording: The following sub-clause uses much broader language (“other benefit or advantage”), indicating that sub-clause 6.6 was intended to be narrower.
• Incidental benefit insufficient: Although Company B incidentally benefited by taking on risk-free cases, this was not the contractual purpose. Incidental or remote advantages do not transform a loan agreement into a contract for services supplied to the firm.
• Support from precedent: Drawing on Tektrol, the Court applied noscitur a sociis to limit the phrase “services.” The analogy reinforced that financial arrangements of this kind fall outside clause 6.6.

Holding and Implications

Appeal dismissed. The DFMA liabilities are not excluded by clause 6.6; therefore, Company C remains liable to indemnify Company A under the policy.

The decision confirms a restrictive approach to exclusion clauses in solicitors' professional indemnity policies. While it clarifies that financial facilities for clients will not ordinarily be regarded as “services” supplied to the firm, it sets no radically new precedent beyond applying established principles of contractual interpretation.