On the rare occasion that a professional adviser makes a mistake or behaves improperly, clients should be able to be confident of being compensated in full. A recent case shows how a client’s potential loss at the hands of identity fraudsters was met by insurers.

The case concerned a highly experienced solicitor with an unblemished professional history who worked for a law firm as a consultant. In the context of what she believed was a legitimate application for a short-term business loan, she had been duped by identity fraudsters. A lender suffered a substantial loss and the firm subsequently settled its claim for £370,000. That sum was paid by the firm’s insurers, who sought to recover their loss from the solicitor. Under the terms of the firm’s professional indemnity policy, however, her liability depended on proof that she had acted dishonestly in the fraud.

The High Court noted that, after becoming aware of the fraud and that she was likely to be subject to criticism, the solicitor, who was experiencing problems in her private life at the time, foolishly deleted various emails and forged signatures of the purported borrowers on a letter of authority. After the truth emerged, she had been cautioned by the police and various findings of misconduct were made against her by the Solicitors Disciplinary Tribunal.

There was no doubt that she had failed to act with integrity and that her actions after the fraud was uncovered were improper. She had exhibited a serious lack of professional care in dealing with the transaction, but the firm had not alleged that she was a knowing participant in the fraud itself. In the circumstances, the Court found that, despite her various breaches of the Money Laundering Regulations 2007, the insurers had failed to establish that their loss arose from her dishonesty.