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

Last Updated: 23 November 2010
Article by Nigel Brook

This Week's Caselaw

Shulman v S H Simon

Recovery of medical expenses from a tortfeasor by an insurer of a group scheme/scope of subrogation principle

It is a rule of law that, where a claimant has taken out an insurance policy which covers him against an accident, the proceeds from that policy are not to be deducted from damages received from the party responsible for the accident (see Bradburn v Great Western Railway [1874]). However, that rule does not apply where the claimant has not paid (directly or indirectly) for the insurance policy himself (see Gaca v Pirelli General Plc[2004). In this case, the claimant developed mesothelioma as a result of the defendant's admitted negligence. Her employer had taken out a group scheme insurance policy to provide benefits to its employees. The premium was paid by the employer. Following payment of the claimant's medical expenses, the insurer then sought to recover those payments from the defendant. Mackie J held as follows:

  • He agreed with the claimant's argument that she had made an indirect contribution towards the premium because she owned part of the company which paid the premium. However, the defendant argued that Gaca was concerned only with whether credit should be given for money received by the claimant and it did not apply to this case, where it was the insurer itself which was trying to recover its payment. The judge declined to express a view on that argument.
  • The defendant argued that the insurer was subrogated to the rights of the employer but not to those of the claimant since it had not entered into a contract with the claimant. The judge held that the absence of a contractual relationship was not abar to subrogation. Subrogation "is the most flexible of remedies" and is not confined to established categories (see Goff & Jones on Restitution). The claimant obtained treatment for which she was primarily liable. The insurer "paid for the treatment not as a gift or because it was meddling but because it had received premiums from another and was legally obliged to that other to do so". The insurer, when paying, clearly had no intention of seeking to reduce any claim which the claimant would have had against the defendant. Accordingly, none of the conventional bars to subrogation arose (ie there was no contractual exclusion of subrogation and payments were not made gratuitously or voluntarily). Furthermore, it would be unjust for the defendant to benefit from payments made to discharge liabilities incurred by the claimant only because the defendant had been negligent.

Accordingly, the insurer was entitled to recover the medical expenses, because it could "step into the shoes" of the beneficiary (and not the named insured) under the policy.

Guangzhou Dockyards v ENE Aegiali I

An attempt to appeal to court on a finding of fact by an arbitration tribunal/construction of arbitration agreement

There are 2 grounds on which a party can challenge an arbitration award made in England:

  • the tribunal lacked jurisdiction (section 67 of the Arbitration Act 1996 ("the Act"));and
  • there was some serious irregularity in the arbitral proceedings (section 68 of the Act).

Parties can also appeal to the court on the ground that there was an error of law arising out of an award made in the proceedings (section 69 of the Act). The claimant in this case did not seek to rely on sections 67 or 68. Instead, it argued (in a novel appeal) that the parties had agreed that questions of fact (as well as questions of law) could be appealed to the English court. So, this was not a case where the claimant was trying to dress up questions of fact as questions of law. Instead, as Blair J put it: "These are questions offact dressed up as questions of fact".

The arbitration agreement between the parties provided that the parties "agree that either Party may appeal to the English High Court on any issue arising out of any award"(emphasis added). The claimant argued that section 69 expressly applies "unless otherwise agreed" and so the parties are free to agree appeals of fact. Alternatively, section 1(b) of the Act emphasises the principle of party autonomy: "the parties should be free to agree how their disputes are resolved" .

Blair J rejected the claimant's arguments. Section 69 is concerned only with appeals on questions of law and a factual appeal cannot be brought under section 69. Nor could the claimant seek to invoke the court's original jurisdiction on an inherent basis. As stated by Mustill J in The Chrysalis [1983]: "Moreover, I am very doubtful whether, even if this hadbeen the intention [ie to allow appeals on issues of fact], it could validly have been put intoeffect. The Court has no jurisdiction to review the arbitrator's decision otherwise than byan "appeal" on a "question of law"".

In any event, the clause in question did not allow appeals on issues of fact. Clear wordingwould have been required but the judge held that the words "any issue" only meant "anyissue susceptible of an appeal". It was of "limited significance" that the words "of law"were not added to those words. The parties had only intended to dispense with the needto obtain permission for an appeal on a question of law (pursuant to section 69). Thatoutcome was "commercially unsurprising". Accordingly, the claim was struck out.

AAG Investments v BAA Airports

Without prejudice rule and whether a dispute existed

This judgment, heard before the recent Supreme Court decision in Oceanbulk Shipping vTMT Asia was handed down (see Weekly Update 40/10) contains a useful summary of the background to the without prejudice rule and relevant caselaw. One of the issues in the case was whether a meeting which had taken place between the parties attracted without prejudice status. The claimant argued that there had been no dispute to clarify at the time of the meeting because it was unaware what the defendant's position would be. It claimed that, had there been a genuine intention to settle, the defendant's position would have been stated clearly before the meeting.

It can be difficult for the courts to distinguish between cases where there is no dispute yet between the parties (and hence the without prejudice rule does not apply) and cases where the parties are taking their first tentative steps towards negotiations (and so the rule applies). Walker J held that in this case, the meeting did attract without prejudice privilege. On the facts, the meeting had been expressly arranged to take place on a without prejudice basis. The claimant may not have known exactly what the defendant's problem was, but it must have been clear that there was a problem, with differing views of the legal position on each side. The aim of the meeting was to "start on the process of finding a solution" and possible ways forward were identified as the meeting progressed.

Eurocall v Energis

Champerty claim - of possible interest to third party funders

Third party funding is a prima facie breach of the ancient common law rule against camperty (where a third party funder shares in the proceeds or the subject matter of the action (i.e. the parties agree to a "division of the spoils")). The common law rule came about because the courts were concerned that outside parties would be tempted to abuse the legal process by, for example, inflating damages, suppressing evidence or intimidating witnesses. However, the rule has been relaxed in recent years, especially in relation top professional funders. This case (which did not involve a professional funder)demonstrates that the courts continue to be willing to adopt a flexible approach whenparties allege that an arrangement is champertous.

Mr Warr sold his shares in Eurocall to YCG. The share sale agreement made no reference to a possible claim which Eurocall might have against another company, Energis. Subsequently, YCG entered into to an agreement with Mr Warr agreeing that he was entitled to conduct a claim against Energis in the name of Eurocall. YCG then agreed to pay Mr Warr 70% of any sums recovered by Eurocall from Energis. Energis argued that the claim was therefore void for champerty because Mr Warr did not have a significant commercial interest in the enforcement (rather than in the value) of the claim.

Stadlen J rejected the argument that the claim was champertous. He took into account the need to look at the question "in the round and broadly and not adopting an over analytic or over-technical approach". There was no public policy which would be offended by the transfer to Mr Warr of the right to sue. The distinction which the defendant tried to draw between a commercial interest in the value of a claim and a commercial interest in the enforcement of a claim was "very unattractive" and the judge rejected that argument.Furthermore, here the share sale agreement and the subsequent agreement wereeffectively a single transaction (even though the right to sue was only granted after MrWarr had sold his shares in Eurocall). Accordingly, the claim was not void for champerty

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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