Employees have an implied duty of care toward their employers to exercise reasonable care and skill when performing their duties. Where employees fail to act in this way, and it leads to a breach of contract, employers will often sue the employee for that breach. It is not as common for employers, or indeed insurers, to pursue employees for their negligent acts. However, the case of Pemberton Greenish LLP v. Jane Margaret Henry demonstrates that insurers have the ability to bring a subrogated claim against an insured organisation's employee.

The facts

Ms Henry was engaged by Pemberton Greenish LLP (Pemberton) as a consultant. She acted for a couple who wanted to mortgage an investment property in order to fund a business loan. This progressed to a deferred sale agreement whereby £500,000 was received and distributed by Ms Henry to the third parties directed by the clients. Following receipt of correspondence from the Land Registry, it emerged that this transaction was fraudulent and the registered owners of the property knew nothing about it.

Upon discovering the fraudulent nature of the transaction, Ms Henry realised that the written authority to complete the transaction had not been returned. Instead of drawing this to the relevant person's attention, she forged the clients' signatures and deleted all emails that referred to the individual who had introduced the clients to her.

Following a police investigation, Ms Henry's engagement at Pemberton was terminated and she was issued with a police caution. The Solicitor's Disciplinary Tribunal found that Ms Henry's failures amounted to a breach of the Money Laundering Regulations 2007 and she was struck off the roll of solicitors as a result of her dishonesty.

The defrauded lender managed to recover some of the money, but the insurer had to pay out £370,000. The insurers brought a subrogated claim against Ms Henry to recover the loss suffered by her professional negligence.

The issue

The issue for the court to decide was whether the insurer could establish that the losses it suffered were a direct result of a dishonest, fraudulent, intentional, criminal or malicious act or omission of Ms Henry. It was only in one of those circumstances that the insurer could exercise its right of subrogation against Ms Henry directly under the professional indemnity policy.

The court's decision

The court found that Ms Henry breached the Money Laundering Regulations 2007.

However, the court also recognised that these failures were a result of the urgency in which the transaction had to be completed. Furthermore, the court appreciated that, while Ms Henry's actions were negligent, her involvement in the transaction up to the point of the fraud being discovered did not amount to dishonest behaviour. In relation to the period following the discovery, the judge considered that Ms Henry had acted out of genuine fear when forging the clients' signatures and deleted the emails in order to protect the very fragile mental health of the individual who had introduced the clients to her. Therefore, the insurer was unable to successfully demonstrate that its losses were caused by Ms Henry's dishonest acts or omissions and it was unable to recover the subrogated damages from her.

Comment

Although this case reaffirms the long-standing position that there might be a right of employers and/or their insurers to pursue employees for damages arising from an employee's negligence, this is not something that is regularly pursued. However, notwithstanding this, the moral of the story here is that, often, the consequences of trying to cover something up can be worse than the acts or omissions being covered up.