Court of Appeal rules that third-party claimants have no right to professional indemnity insurance proceeds: key implications for the professional services industry

On 15 July 2025, a key Court of Appeal judgement in Dilip Desai & Anor v Paul David Wood & Anor [2025] EWCA Civ 906 was handed down, in which it was held that, where a professional indemnity insurance payout was paid directly to the policyholder company prior to its liquidation, the third-party claimants had no right to the policy proceeds.

The case facts

The appellants, Dilip Desai and Paresh Shah, had appointed an interior design and project management company, Boscolo Ltd (Boscolo), under a written design contract, to advise them in relation to a lavish refurbishment of a property that they were about to purchase in Hampstead, London. Boscolo negligently advised the appellants that they would not need listed building consent for the refurbishment and they suffered large losses as a consequence.

Boscolo had contracted with the appellants that it would obtain and maintain professional indemnity insurance up to the level of £250,000. Boscolo took out the requisite professional indemnity insurance with Royal & Sun Alliance Ltd (RSA). RSA paid the full limit of indemnity in respect of the appellants’ claim (£250,000) to Boscolo directly (thereby relieving them of any further liability for the appellants’ claim) and RSA relinquished control of the claim. Boscolo then went into voluntary liquidation shortly thereafter.

The lower court’s decision was that the insurance proceeds belonged to Boscolo. Desai and Shah appealed that decision. They argued that the money should be ring-fenced and payable to them and not distributed in the liquidation. They advanced two alternative cases of implied term: the first for an implied term in the design contract; and the second for an implied term in both the design contract and the insurance policy.

The Court of Appeal found against Desai and Shah, ruling that there was no implied term or trust under the design contract that required the insurance proceeds to be held on trust for them. The Court of Appeal’s reasoning was that the benefit of the insurance policy to Boscolo’s clients was indirect, because it flowed from the fact that the insurance was taken out by Boscolo to provide Boscolo with funds to meet claims against it and to protect it against having to apply its own monies or assets to pay claims. Further, under the general law, insurance proceeds are part of the insured’s general assets unless specific contractual or statutory provisions dictate otherwise.

The cruel irony of the case is that, had the insurance payment not been made prior to liquidation, the appellants would have been able to access the insurance funds via the Third Parties (Rights Against Insurers) Act 2010. The only way that the appellants could have protected themselves against the outcome in this case would have been to insert a clause into the design contract to confer a proprietary right or security interest over Boscolo’s rights under the policy or any other assets of the company in the event of its insolvency.

Implications for third-party claimants and their professional service providers

The decision, though clearly correct in law, was a harsh one for the appellants and it has wide implications for parties engaging professionals under service contracts. No doubt, in light of the decision, it will become standard practice for parties commissioning professional services[1] to seek to insert a clause into the service contract so as to confer a proprietary right or security interest over the service provider’s rights under the relevant insurance policy.

If you have any questions or concerns about professional indemnity insurance or insurance coverage and policy disputes, please contact insurance lawyer Marie-Claire Di Mambro.

[1] Note: this decision will not apply to claims involving solicitors, as solicitors’ professional indemnity insurance is a compulsory insurance scheme which confers a benefit on the third-party client as well as the solicitors (Swain v The Law Society [1983] 1 AC 598).