UK: A Summary of Recent Developments in Insurance, Reinsurance and Litigation Law

Last Updated: 23 July 2010
Article by Nigel Brook

Persimmon Homes v Great Lakes Reinsurance

Whether ATE insurers entitled to avoid policy/allegations of negligent underwriting

An After the Event ("ATE") insurance policy was issued to the insured, who was bringing a claim against Persimmon. Persimmon won the action and the insured was ordered to pay Persimmon's costs. The insured was then wound up and so Persimmon brought a claim against the ATE insurers pursuant to the Third Parties (Rights against Insurers) Act 1930. The judge had found that the insured's employee had acted dishonestly in giving evidence against Persimmon. The ATE insurers purported to avoid their policy on a number of grounds, including misrepresentation of the risk.

Persimmon initially sought to advance the argument that, in the context of ATE insurance, the insurer must show that the material misrepresentation and/or non-disclosure would have affected the opinion of the solicitor acting for the insured in the underlying litigation and not of the "prudent underwriter". However, this argument was abandoned when the experts agreed that the misrepresentations and non-disclosure in this case were material. Steel J also rejected an argument that the insurers in this case had been aware of the misrepresentations and non-disclosure and had failed to react. A further argument was raised that there had been negligent underwriting in this case.

"Amber lights" set out in the insurers' own underwriting manual included: 1) a case with merits at 50%; 2) a case primarily dependent on oral testimony; and 3) a case with the hallmarks of a "David v Goliath". Persimmon argued that all these factors were present in this case. However, the judge noted that 1) although counsel had given an assessment of a 50% prospect of success in respect of their conditional fee agreement, of greater significance was the assessment of the merits by both counsel and solicitors in the region of 60% or more; 2) whilst the claim was mainly dependent on the resolution of a dispute between the witnesses, the dominant issue was the outcome of a meeting in respect of which the insured had an apparently contemporaneous note; and 3) although there was an element of inequality of arms, that would seem to be true of any claim for which a claimant was in need of a CFA in order to prosecute it. Steel J concluded that "Although many underwriters might (and indeed did) reject the risk, I am unable to accept the proposition that underwriters would certainly have rejected it as too risky". In particular, the willingness of counsel to act on the basis of a CFA had given the underwriter confidence to write the cover.

Ghadami & Anor v Lyon Cole Insurance Group

Whether insured liable for all of solicitors' costs where no client care letter sent

The claimants brought a claim against their insurance brokers and lost. They were ordered to pay costs on the indemnity basis. The brokers had a professional indemnity policy under which they paid the first £1,000 of their costs and insurers paid the rest. At first instance, the district judge agreed with the claimants that, on the indemnity principle as regards costs, they were only liable for the £1,000 paid by the brokers. He recognised that the normal position is that the paying party is liable for the costs borne by the receiving party's insurer as well as any paid out by the receiving party itself, but said that this was subject to any agreement to the contrary between the receiving party and the solicitors.

He found that such an agreement existed in this case. That decision was reversed by Moloney J and the claimants appealed.

The brokers' solicitors had failed to send a client care letter to the brokers and had also failed to comply with the Law Society's client care code, according to which a solicitor is required to make it clear to an insured that responsibility for the payment of the solicitor's costs remains with the insured, so that if, for any reason, the insurer refuses to pay, the solicitor will look to the insured for payment.

The claimants argued that the brokers would therefore have been able to argue that they would never be liable for more than £1,000 of the solicitors' costs. That argument was rejected by the Court of Appeal - what was needed was an agreement that the brokers would be liable for no more than £1,000 of the solicitors' costs and no such agreement existed on the facts. The Court of Appeal concluded, on the evidence, that there was an implicit agreement that the solicitors would act as the brokers' solicitors in relation to the claim brought by the claimant, but without any express terms as to charging rates. The solicitors' failure to comply with the client care code did not prevent them from recovering fees or disbursements and they would be entitled to charge the brokers reasonable fees and disbursements for the work reasonably done.

Quinn Direct v The Law Society

Request for disclosure of documents to solicitors' insurer following Law Society intervention

"O" and "I" were joint partners of a firm of solicitors. Following the intervention of the Law Society in their practice, the solicitors' insurer refused to indemnify "O" on the ground of his alleged dishonesty. The insurer then sought disclosure of all documents of the firm in the Law Society's possession "to consider whether under the policy the [insurer] is obliged to indemnify or obliged not to indemnify ["I"]". No allegation of dishonesty had been made against "I" at that stage. The Law Society agreed to provide certain documentation (where specific claims had been made by clients and there were no privilege or confidentiality objections) but refused a blanket request for access. At first instance, Smith J refused the insurer's application (see Weekly Update 42/09) and the insurer appealed.

The Court of Appeal has dismissed the appeal. There was no implied term in the regulatory scheme (which requires solicitors to be insured) that the insurers are entitled to disclosure. This conclusion was based on several grounds, including: 1) an insured solicitor is not bound or entitled to disclose to his insurers privileged documents without a client's consent; and 2) the objective of the insurer in seeking the information and documents is not the advancement of any public purpose or regulatory responsibility but the private purpose of seeking evidence to justify a refusal of an indemnity to "I" in respect of clients' claims made against him.

Yetkin v London Borough of Newham

Whether local authority owed duty of care to pedestrian

The claimant was injured whilst crossing a road. She sued the motorist and the local authority. At first instance, the judge found that shrubs planted by the local authority had obscured the claimant's vision and contributed to the accident. However, he went on to find that the local authority did not owe any duty of care to the claimant and she appealed this finding.

The Court of Appeal allowed her appeal. After reviewing the House of Lords decision in Gorringe v Calderdale MBC [2004] in detail, Smith LJ (giving the leading judgment) held that no additional requirements were imposed on a claimant bringing a conventional common law claim against a highway authority for creating a hazard on the highway. In this case, the local authority owed a duty to all road users (whether careful or negligent) to use reasonable care in the manner in which it exercised its powers when it created and maintained the crossing facility. The judge had erred in finding that he had to consider whether the danger created by the shrubs amounted to a "trap" or "enticement". Liability had been established, although it was also held that the appellant was 75% to blame for the accident, since she had crossed without waiting for the lights to change.

Price & Anor v Carter

Whether arbitration award more advantageous than offer

The claimants applied for permission to appeal an arbitrator's award. One of the issues concerned the effect of Part 36 offers made by both sides. The defendant (who was the claimant in the arbitration) offered to accept £100,000 and the claimants counter-offered £20,000. Neither offer was accepted and in the end the net recovery by the defendant had been £97,000 (the claimants were also ordered to pay the arbitrator's fee of just over £14,000 - however, that was not taken into account by the judge when assessing whether the defendant had obtained a judgment which was more advantageous, because he was only recovering amounts which he had already paid out).

Edwards-Stuart J noted that the CPR does not apply to arbitrations. He went on to find that the defendant's offer had not been bettered (even though the award had been for £3,000 less than his offer). The defendant had had no choice but to pursue the arbitration to award, whereas the claimants were unlikely to have received any commercial advantage in resisting his claim. The judge awarded the defendant interest at an enhance rate of 10%.

NOTE: This case contrasts with the recent Court of Appeal case of Gibbon (see Weekly Update 25/10), in which it was said that a straight financial comparison between the offer and the award should be made in most cases to determine whether an award was more or less advantageous. There was no reference to either Gibbon or Carver v BAA in this case, but it could be distinguished on the basis that it relates to an arbitration award and not a court judgment

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Nigel Brook
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