UK: Insurance And Reinsurance Weekly Update - 13 March 2012

Last Updated: 21 March 2012
Article by Nigel Brook

British Waterways v RSA

Whether loss fell within the terms of a motor insurance policy and the meaning of "arising out of" in the context of a policy exclusion Html

A father and son were killed when the tractor which they were reversing along a towpath toppled into a canal. They were independent contractors retained by the claimant to carry out hedge-cutting services. The tractor belonged to the claimant. The claimant pleaded guilty to an offence under the Health and Safety at Work Act 1974 and thereafter reached a settlement with the the deceased men's estates. They sought to recover the amount of that settlement (and other amounts) from the defendant insurers. Burton J held as follows:

(1) On the facts, the claimant had been liable to the deceased both under common law and statute (the Provision and Use of work Equipment Regulations 1998).

(2) The policy provided cover for "legal liability incurred for respect of accidental death of...any connection with the use of the Insured Vehicle". The judge rejected the argument that the policy, like the Road Traffic Act 1988, should be construed as excluding the driver or user of the vehicle. Furthermore the clause should not be construed so that cover was for "legal connection with the use" of the vehicle. Instead it meant that liability had to have been incurred for damages in respect of the accidental deaths of the two men in connection with such use.

(3) The judge then considered the scope of the following policy exclusion: "The insurers shall not be liable for liability arising out of... the operation as a tool of the insured vehicle". On the facts, the judge was not satisfied that the tractor was being used to cut hedges at the time of the accident. The key issue, though, was whether the deaths (rather than the liability) "arose out of" the operation of the tractor as a tool.

Burton J conducted a review of the meaning of "arising out of" in an insurance context. He found that there have been a series of conflicting decisions, with some cases interpreting "arising out of" as meaning the proximate cause and some applying a wider test which contemplates more remote consequences than those envisaged by the words "caused by". Does a stricter test apply in the context of a policy exclusion? Burton J concluded that it does: "I have the inevitable feeling that a court may in fact have a different approach to concluding whether there is cover for an event from where the court is being asked to conclude that an insurer can exclude cover, even though the words the court is considering may be identical". He concluded that in this case, the exclusion did not apply because the proximate cause of the tractor toppling into the canal was its being reversed too close to the bank and not the use of the tractor to cut hedges.

COMMENT: Weekly Update 23/11 referred to the case of Beazley v Travelers, in which Clarke J found that, in the context of the policy in that case, "arising out of" did not dictate a proximate cause test and instead allowed "a somewhat weaker causal connection". This case, involving an exclusion rather than an aggregation clause, again underlines the importance of considering the meaning of "arising out of" in context. It adopts textbook analysis (and the reasoning in two Scottish cases) to support the view that a more stringent approach is needed where the words are used in a policy exclusion.

Sans Souci Ltd v VRL Services

Privy Council determines scope of court order remitting an award to the arbitrators

The Court of Appeal of Jamaica allowed an appeal against an award of damages and remitted the matter to the arbitrators "to determine the issue of damages only". The issue in this case was whether that order should be read without any limitation or whether it should take into account the specific issue which the arbitrators had not dealt with in their original award (and in relation to which the appeal had been brought). This was of relevance because the appellant sought to raise two further points on damages and to lead fresh evidence on them.

The power to remit an award, in whole or in part, for reconsideration by the arbitrators under Jamaican law reflects that laid down in section 68(3) of the English Arbitration Act 1996. The Privy Council dismissed the argument that it should consider the meaning of the words used in the order and then resolve any "ambiguities" which emerge from that consideration: "the construction of a judicial order, like any other legal instrument, is a single coherent process". It is always admissible to take into account the reasons for making the order which are given by the court in its judgment: " The reference in the order to "the issue of damages", although necessary, begged the question "Which issue of damages?" The order does not itself answer it. Only extrinsic evidence can do that... it cannot rationally be held inadmissible to construe [the order] by reference to the issues which the remitting court regarded as calling for reconsideration by the arbitrators."

In addition, where the order is given in the context of the judicial supervision of arbitration proceedings, it should not be readily assumed that the court has exceeded the proper limits of its functions (ie by asking the arbitrators to reopen findings where there were no grounds for remission and where the arbitrators had already reached a conclusive decision).

Thus in this case, no new challenges could be raised before the arbitrators when the matter was remitted.

Simon v Helmot (Guernsey)

Privy Council comments on appropriate "discount rate" in a personal injury case

The respondent was very seriously injured by the appellant, who admitted liability. The only issue was therefore the appropriate quantum of damages.The Guernsey Court of Appeal substituted a 1% discount rate (applied at first instance) for a discount rate of -1.5% for earnings-related losses and 0.5% for other losses (which increased the total award of damages by about Ł4.5m). The appellant appealed to the Privy Council, challenging that decision.

In reaching its decision, the PC referred to English law for guidance. English law requires that an award of damages take the form of a single lump sum. Accordingly, the award must take account of all likely future loss. However, an adjustment (usually in the form of a discount) must be made to those future losses because the claimant is, in effect, getting funds early and so will have the opportunity (not available normally) to earn income on that lump sum over a period of years. It has been assumed until very recently that the rate of return which the claimant can get on capital will more than offset the effects of inflation on the amount of the award. However, the Court of Appeal had accepted that the adjustment might result in an increase (rather than a discount) if the evidence shows that the rate of inflation will outpace the rate of return in future.

The Privy Council agreed with the Court of Appeal's stance. As Lord Hope put it: "If the evidence shows that inflation will affect different heads of loss in different ways and that the differential is capable of being evaluated, the court should not close its mind to using different rates" and "the use of the word "discount" is not an apt way of describing the exercise. It is, in essence, simply a process of adjustment. And in principle there can be no objection to its operating in the reverse direction if the evidence shows that an adjustment which increases the multiplier is needed to ensure that the lump sum will continue to be large enough to meet losses to be incurred in the future". Nor should the court at first instance have refused to make the adjustment in the absence of a suitable index: "the law has never demanded precision in the assessment of future loss".

Giggs v NGN

Application for relief from sanctions and whether breach of CPR was intentional and serious

After the claimant failed to comply with an order for directions, his claim was automatically struck out. He applied for relief from sanctions under CPR r3.9. One of the circumstances which the court will take into account on such an application is "the extent to which the party in default has complied with other rules etc".

One of the issues in this case was the effect of an agreement between the parties of a general stay regarding service of the defence. This was a breach of CPR r15.5(1) which only allows an extension of up to 28 days. There was also a breach of the requirement under CPR r15.5(2) to notify the court in writing of any extension agreement. The claimant argued that these breaches of the CPR were not deliberate and nor were their consequences extremely serious and accordingly relief from sanctions should not be refused. He also argued that the failure to comply with these rules was a failure by all the parties.

Although it was not necessary for Tugendhat J to deal with the point (because the application failed on another ground), he expressed his view on this argument. These had been serious breaches of the rules (in part because this case involved an interference with the Article 10 right of freedom of expression): "It was clearly an intentional breach (whether or not they overlooked the requirements of CPR Part 15), and the explanation (that this was with a view to settling the action) is not a good one".

Toth v Emirates & Anor

Contractual interpretation and the factual matrix - what is "reasonably available" to the parties?

When interpreting a contract, the court is seeking to ascertain the meaning which the document would convey to a reasonable person having "all the background knowledge which would reasonably have been available to the parties" at the time of the contract (see ICS v West Bromwich [1998]). The respondent sought to argue that certain information was available on the internet to anyone who searched for it. Mann J doubted whether that constituted information which was "reasonably available". He foresaw a number of difficulties - for example, "is something "readily available" if a likely search will throw up the material on, say, the first 10 pages of a Google search, but not if it only comes up on page 15?"

The judge also agreed with the finding in an Australian case that the relevant knowledge was that which was actually known or which was "notorious" in the market. There was no place for constructive knowledge: "It may be that the notion of facts which are readily available can go so far as to cover facts which the reasonable person would suppose would be known to the contracting parties, whether actually known or not, but that is the farthest that the notion should be taken". It would quite wrong though to expect the contracting parties to be under an obligation to obtain knowledge of facts relevant to the construction of their contract.

Natas Group v Styles & Wood

Judge comments on need to adhere to court timetable/excuse for delay Html

The claimant failed to comply with certain requirements laid down in a Pre-Trial Review. The claimant has been in administration for some time and has retained solicitors on a Conditional Fee Agreement basis (and has also taken out After the Event insurance). When asked to explain its failure to comply, it stated that "whilst the Claimant would like to have several fee earners working on this case, resources are limited". Problems had been compounded by the breakdown of the claimant's solicitors' bulk copier/ scanner and an assistant solicitor contracting chicken pox.

Akenhead J commented that this situation was "wholly unsatisfactory". It is very important that bundles are prepared in sufficient time for both sides to prepare for trial. Furthermore, a claimant who wishes to alter his case must produce a draft amendment in plenty of time before trial, if at all possible. It is not good enough, usually, to indicate in correspondence what the amendments might be. Similarly, witness statements should be prepared as soon as practicable and it is generally not acceptable to indicate broadly what the evidence contained in the statements might be in correspondence.

Nor was the explanation of a lack of resources acceptable: "If parties make arrangements with their solicitors whereby the solicitors are paid on a Conditional Fee basis and with the benefit of ATE Insurance, those solicitors are professionally bound to provide the necessary resources to conduct the case efficiently and fairly". In this case, additional photocopiers, and additional solicitors or counsel, should have been found in order to keep to the court timetable.

JSC BTA Bank v Ablyazov

Jurisdiction to order surrender to tipstaff/ disclosure and unless orders Html

This is the latest in the long-running saga involving the claimant bank's allegations that it has been defrauded out of huge sums by the defendant. The defendant was found to be in contempt of court and sentenced to 22 months' imprisonment but his current whereabouts are unknown. The bank therefore sought the following further orders from the court:

(1) An order that the defendant surrender to the tipstaff (an officer of the court). Teare J held that he did have jurisdiction to make this order pursuant to section 37 of the Senior Courts Act 1981 and pursuant to the court's inherent jurisdiction to issue ancillary orders in support of an earlier order. The order was also essential because it was unlikely that the warrant of committal could be executed (and, indeed, the warrant could definitely not be executed if the defendant has fled abroad).

(2) An order for disclosure of assets. Teare J rejected the argument that the order could not be made because a disclosure order had already been made against the defendant. Nor could it be argued that the order should not be made because the defendant intended to appeal against the finding of contempt.

(3) Unless orders. The judge rejected the argument that there was a risk of injustice if the defendant was not allowed to defend the bank's claim against him. However, the unless orders should not be effective until 7 days from the determination of any appeal which the defendant might bring.

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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