Partners made “secret profit” from flight delay ATE insurance

Flight delays: Clients had to opt out of insurance

Two law firm partners who made a “secret profit” by opting thousands of flight delay clients into an after-the-event (ATE) insurance policy have been fined a total of £55,000 by the Solicitors Disciplinary Tribunal (SDT).

Simon Pinner and Daniel Morris, directors of flight delay firm FairPlane UK, failed to tell clients that they jointly owned broker Box Legal and did not adequately disclose they had a financial interest in the scheme’s insurer.

The SDT said FairPlane had “tens of thousands of clients”, who “by default were committed” to paying for an ATE insurance premium which varied but at its lowest was £20.

The partners and their wives benefited through dividends on the preference shares they owned in the scheme’s insurer, Leeward.

The SDT said: “The firm might have achieved relatively low levels of profit from the airline claims work, but this did not necessarily apply to the respondents’ financial benefit from the insurance policies they encouraged their clients to buy.

“The respondents’ actions were clearly planned; they formed part of a chain of relationships from the firm they majority owned, through the brokerage that they wholly owned, to the insurance company from which they benefited by way of a dividend on their preference shares.

“The tribunal considered that the respondents had acted in breach of trust because they had failed either completely or adequately to give information to clients to enable them to understand the nature of the respondents’ conflict of interest, before deciding to take up the recommended policy.”

The SDT said that the partners were effectively “making a secret profit from a system that clients were opted into”.

The tribunal heard that all clients who instructed the firm to make an airline cancellation or flight delay claim were recommended to obtain ATE insurance via Box Legal with Leeward and were committed unless they opted out.

It was not disputed that the partners did not disclose that they each owned 50% of broker Box Legal.

Box Legal did not receive a referral fee from Leeward, and Mr Pinner argued that there was “nothing to disclose” because the broker had no “financial or other interest” in the referrals.

However, the SDT said the partners and their wives received the profit Leeward derived from the policies arranged by Box Legal. Mr Pinner told the tribunal that the dividend they received was “all the profits of the airline business”.

The SDT said clients received a client care letter and information pack of 24 pages, where the link to Leeward was “obscurely referenced” via a mention of Box Legal’s website, without a hyperlink, where they could find the policy wording.

Only if they found the policy, would clients see an ‘important notice’ about the partners’ interest in Leeward.

“The tribunal considered that the obligation to advise clients of a conflict of interest arising from a solicitor benefiting from a financial product he/she was advising a client to buy, was not satisfied by placing such disclosure in a document clients would only see if accessed a web address provided to them towards the end of an ‘information pack’”.

This breached SRA principle 2 (acting with integrity), along with a number of other principles and outcomes.

The conflict was “enhanced” by the fact that the relationship between Box Legal and Leeward ranged beyond airline policies – Box has been a long-time provider of ATE insurance and only brokered it through Leeward.

The solicitors also failed to check that clients had adequate before-the-event insurance, the tribunal ruled.

Mr Pinner said his surveys of the market indicated that it was extremely unlikely that another policy existed that would cover what Leeward’s did and that he was only obliged to make reasonable enquiries.

The SDT said this was insufficient without asking clients what cover they had and was not acting in their best interests.

Mr Pinner and Mr Morris admitted three accounts rule breaches as well. They self-reported these, and the SDT said it would not fine them as they were “systemic” problems and the solicitors had made good shortages in their accounts when they were pointed out.

In mitigation, the solicitors said they had “changed their practices” and stopped offering the ATE policy, instead charging clients an administration fee.

The SDT said the impact on the reputation of the profession was greater than that on clients – it was hard to ascertain the latter – but the degree of harm caused was not such that a strike-off or suspension was merited. They had recognised the need to disclose conflicts but were wrong to believe they had discharged their responsibilities.

Mr Pinner was fined £30,000 and Mr Morris £25,000. They were ordered to pay £25,000 in costs on a joint and several basis.

Simon Solomon Pinner was born in 1957 and qualified in 1981. Daniel Edward Morris was born in 1969 and admitted in 1997. Each partner owned 42% of Fairplane and each wife 8% – it is an alternative business structure.

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