Kidsons loses £20m tax scheme insurance battle

Former partners of HLB Kidsons have lost a battle with their insurers over
failed tax schemes that could create a damages bill of more than £20m but won a
small victory which may help other firms.

A Court of Appeal ruling, which largely went against the former partners of
HLB Kidsons, could have positive implications for accounting firms in relation
to disputes with their professional indemnity insurers, lawyers have said.

The Kidsons case concerned failed tax schemes run by Solutions at Fiscal
Innovation Limited (S@FI), a company managed by the firm prior to its merger
with Baker Tilly.

Kidsons wanted its former insurers, Lloyds Underwriters and Others, to cover
it after clients sued the firm over flaws in S@FI’s tax avoidance products.

The insurers rejected these claims as they occurred after the policy expired
in April 2002, but Kidsons maintained that as they had notified the underwriters
of possible problems during the insured period, the insurers should pick up the

It was ruled that the notifications made to insurers had been too vague in
the initial High Court case, but a Court of Appeal decision conceded they were

However, the court said notifications only covered problems with the
implementation of S@FI schemes, not the design of the schemes themselves, so the
insurers’ liability is limited and the former partners of Kidsons are still
likely to be facing payouts in excess of £20m.

The case has wider implications for the industry, says Nik Carle, a partner
specialising in professional indemnity at law firm Browne Jacobson.

‘It is going to be more difficult for insurers to reject vague notifications
in the future whereas they had been able to do that with some confidence
before,’ he said.

David Turner, a junior barrister at Four New Square, which represented
Kidsons, said the case may also lead to a review of
guidance on professional indemnity.

Related reading

Life Belt with Computer Folders