Boscolo Limited - Case Update

The Court of Appeal has confirmed that insurance proceeds received by an insolvent company remain assets of the company available for distribution to all creditors, and are not held on trust for a claimant asserting a claim under the insurance policy.

The decision was rendered in the liquidation of Boscolo Limited, which operated an interior design and project management business. In 2013, Boscolo was engaged by the appellants, Dilip Desai and Paresh Shah, to design a refurbishment scheme for a Hampstead apartment. The work was carried out by Boscolo, and allegedly included negligent advice regarding the need for Listed Buildings Consent.

Shortly prior to Boscolo going into voluntary liquidation in 2021, its insurer Royal & Sun Alliance (RSA) paid out the policy limit of £250,000 to the company, relieving RSA of any further liability in respect of the appellants’ claim and relinquishing control of the claim. The appellants claimed that the remaining insurance proceeds of £246,000 (which remained in the hands of the company's liquidators, Neil Vinnicombe and Paul Wood of Begbies Traynor) were held on trust for them. Financial statements revealed that Boscolo had been insolvent for several years prior to the liquidation.

In July 2024, the High Court held that the insurance proceeds belonged beneficially to Boscolo and not to the appellants. The appellants appealed on primarily equitable grounds, arguing that it would be unconscionable for Boscolo to retain the funds, which they said were subject to a constructive trust. The Court of Appeal dismissed the appeal, rejecting the appellants' arguments that a trust—whether express, implied, or constructive—arose in their favour over the insurance proceeds.

The Court found that the contract between the parties required Boscolo to maintain professional indemnity insurance, but did not establish any intention that the proceeds of such insurance would be held on trust for clients. The Court similarly rejected the appellants’ proposed implied terms—that insurance funds should be protected for the benefit of claimants if the company could not otherwise satisfy the claim—finding they lacked necessity and certainty, and would effectively rewrite the bargain between the parties.

The Court also concluded that there was no conduct that would justify imposing a constructive trust, and reaffirmed the long-standing principle from Re Harrington Motor Co Ltd that third-party claimants do not have legal or equitable rights to insurance proceeds paid to an insured, even where the insurance relates to their claim.

The Court acknowledged that the result may appear unfair—particularly where an insurer pays just before liquidation, preventing a statutory transfer of rights to the claimant under the Third Party (Rights Against Insurers) Act 2010. However, it emphasised that the situation in which the appellants found themselves stemmed in large part from the terms of the policy, including that RSA was entitled to compromise the insurance claim by paying out on the policy, and that the company was free to use that sum to fund the defence of the appellants’ claim.

Accordingly, the appeal was dismissed.

Read the decision HERE.

Professionals involved:

• Suzanne Chalmers of Crown Office Chambers (instructed by Thrings) for the liquidators, Neil Vinnicombe and Paul Wood of Begbies Traynor

• Andrew Fletcher KC of 3 Verulam Buildings and Joshua Munro of Hailsham Chambers (instructed by Direct Access) for the appellants, Dilip Desai and Paresh Shah