UK: Insurance And Reinsurance Weekly Update - 27 March 2012

Last Updated: 18 April 2012
Article by Nigel Brook

Welcome to the eleventh edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2012.

These updates are aimed at keeping you up to speed and informed of the latest developments in caselaw relevant to your practice. Please follow this link for further details of the following recent cases:


Notification requirements for a Part VII transfer and former policyholders

The FSA agreed certain relaxations of the notification requirements for a Part VII transfer. However, one issue remained: Should individual notice be given not only to the current policyholders of the transferor, but also to certain former policyholders as well? The issue arose because of a Past Business Review ("PBR") which was being conducted into the transferor's business, the outcome of which might affect those former policyholders. The purpose of the PBR was said to be "to identify any customer detriment arising from the effecting or carrying out of the relevant contracts of insurance and to calculate and provide appropriate redress to any customers who suffered loss as a result of [the transferor]'s failings". The FSA believed that notice should be given to the former policyholders, but the transferor and transferee were not prepared to agree to that.

Morgan J considered that there was considerable force in both sides' arguments and his decision required a "balancing exercise". He recognised that if there was a general notification, by advertisement, of the proposed transfer (as required under the regulations), it would be highly unlikely that many, if any, former policyholders would consider that the proposed transfer had anything to do with them (should they even read the advertisement in the first place). Nor were the former policyholders in the same position as trade creditors - because of the intervention of the FSA and the ongoing PBR, there was "unfinished business" and "the former policyholders are like current policyholders in the sense that any liabilities of [the transferor] to former policyholders are being transferred just like the liabilities under current policies".

However, the judge concluded that it was not appropriate for individual notification to be given to the former policyholders. Former policyholders could only begin to see the relevance of the proposed transfer if they were also told about the PBR. However, notice at this stage of the PBR would be "less than helpful" to the former policyholders. There was no certainty yet about the outcome of the PBR and, in the absence of the proposed transfer, notice of it would not otherwise have been given. Furthermore, the former policyholders were unlikely to be financially sophisticated and so were unlikely to point out matters which the independent expert and the FSA might have missed. As a result, the benefit to former policyholders of receiving individual notification would be "insubstantial".


Whether insurers entitled to reimbursement of defence costs

Two individuals sued a firm of solicitors and its employee for negligence. Following trial, Hamblen J found that the claim failed (because the individuals had been attempting to pay a bribe). He also found that the employee had been acting outside her employment. An appeal against that finding did not proceed. The insurers of the firm and its employees then sought reimbursement of amounts paid to fund the employee's defence of the action. They relied on a policy clause which provided for reimbursement of monies paid pending dispute resolution "following resolution of any coverage dispute for any amount paid by the Insurer on that Insured's behalf which, on the basis of the resolution of the dispute, the Insurer is not ultimately liable to pay". The policy also provided that the insurer would indemnify each insured against defence costs incurred in defending a claim of dishonesty up until (inter alia) "a court..finding that Insured was in fact guilty of such dishonest...act".

The employee argued that a declaration from the court that the employee had been dishonest was required before the insurers would be entitled to the reimbursement. The judge rejected that argument. Even though Hamblen J had not described the employee's conduct as dishonest "what he found her conduct to have been was plainly dishonest". In any event, the coverage dispute was defined in the pleadings and had now been resolved in the insurers' favour. Accordingly, they were entitled to reimbursement.


Do documents produced by claims consultants attract legal advice privilege?

The claimants sought disclosure of certain documents which were produced by, or sent to, the firm of claims consultants retained by the defendants. The defendants claimed that the documents attracted legal advice privilege because the individuals acting on the matter for the claims consultants were qualified lawyers who gave the defendants legal advice. That argument was rejected by Akenhead J.

The Court of Appeal in Prudential v Special Commissioner of Income Tax (see Weekly Update 38/10) confirmed that legal advice privilege applies only to lawyers. Akenhead J said that it was important to examine the nature of the engagement. Here, it was to provide project handling and claims consultancy services. It did not hold itself out as a firm of solicitors and it made no difference that it employed some lawyers - those individuals were not retained as lawyers. In any event, it was not clear, on the facts, that the employees were qualified lawyers. Furthermore, it did not matter that the defendants honestly believed that the employees were lawyers: "The protection of privilege is not intended to extend to the relationship between a person and another who is not in fact a qualified and practising lawyer, save in exceptional circumstances ... here, the Defendants had no good reason to believe that they were employing solicitors or barristers because they were employing [the claims consultancy firm] which does not profess to be offering the services of qualified practising solicitors and barristers".


Service of the claim out of the jurisdiction - is an original claim form required?

A claim form was issued on the last day before expiry of the relevant limitation period. It was served within the jurisdiction on the second defendant. The claimant then applied for, and obtained, permission to serve the first defendant out of the jurisdiction, in Monaco. The documents were then sent by email to a local agent who (after finding the first defendant was not home) left them for collection at the town hall. This was a method of service permitted by local law (and so complied with CPR r6.40(3) (c)). The issue in this case was whether an original sealed claim form (or a colour copy of it) should have been served. Instead, the local agent had served a print-out of the (scanned) black and white photocopy of the claim form which had been attached to the email.

The first defendant challenged the court's jurisdiction. Master McCloud held that service had been valid (although she expressed grave doubts as to whether, for service within the jurisdiction, anything less than a sealed copy of the claim form (ie a "first generation copy") would suffice, unless there had been a prior agreement that service could be made by fax or email (of a "second generation copy"- ie one that had "not physically been through the hands of the court staff")). The claimant appealed against that decision.

Tugendhat J has now dismissed that appeal. After reviewing all the relevant provisions of the CPR (and the Queen's Bench Guide which, he noted, does not have the force of law), he concluded that a claim form does not have to have the court's seal affixed to it (nor does there have to be service of a "hard copy" of the claim form) where service is effected under CPR r6.40(3)(c).

However, the judge cautioned that: "Nothing in this judgment should be taken as casting doubt on the desirability of serving proceedings" by service of a copy of the claim form which bears a seal affixed by the court office. This should always be the preferred method of service because it avoids potential delay and waste of costs if the authenticity of the claim form has to be proved otherwise than by means of the seal affixed by the court.


Court gives directions on electronic disclosure following change of solicitors

The claimant applied for extra time for the parties to agree matters relating to electronic disclosure. The following arguments were raised by the claimant:

  1. A change of its solicitors meant that the claimant required additional time. Akenhead J rejected that argument. The indulgence of the court could not be sought where a party, for entirely voluntary reasons and "with their eyes open", decides at a late stage of litigation to change solicitors. In any event, the prior solicitors were still retained and they had detailed knowledge of the disclosure exercise conducted so far.
  2. The disclosure exercise was potentially massive. The judge said that "whilst the disclosure may be massive, nonetheless it is an exercise that must be done and is an exercise which the claimants have been aware for a very long time that they must focus on and provide an appropriate level of disclosure".
  3. Where servers were located in a number of jurisdictions, it was not clear whether the parties had considered the data privacy regimes in those jurisdictions. However, it was held that that was not a good reason for postponing resolution by the court - especially as the claimant's solicitor did not believe that there would be a problem.
  4. It was suggested that certain emails might be located on a server which was not owned by a party to the action. Again, the judge did not believe that that was a valid reason for postponing resolution of the outstanding disclosure issues by the court. He ordered that, if the claimant believed it could not provide disclosure of these emails, it must file a witness statement explaining the situation precisely.

Finally, the judge concluded as follows: "I have been assured now on three occasions by counsel for the claimant that there is no intention, and never has been any intention, on the part of the claimants, and certainly not of solicitors and counsel, to delay and disrupt the timetable and the process. Yet on each of the three occasions, and possibly more, the claimants have sought to do just that". He held that this was therefore a case for indemnity costs.


Contributory negligence and a 16 year old

The defendant appealed (inter alia) against the judge's finding in relation to contributory negligence in this case. The claimant cyclist was 16 when he was hit by the defendant's car. The judge found the degree of contribution to the collision made by the claimant was 50%. However, section 1(1) Law Reform (Contributory Negligence) Act 1945 provides that the damage recoverable shall be reduced "to such an extent as the court thinks just and equitable, having regard to the Claimant's share in the responsibility for the damage". The judge considered that at 16 years of age, the claimant did not have the maturity and judgment of an adult, even though he was normally a prudent, careful cyclist. He therefore considered it just and equitable to reduce the claimant's damages only by one third.

The Court of Appeal has now found that the judge had erred in his approach. Neither side was able to find any prior caselaw authority on how to deal with contributory negligence by a young adult of 16. However, the Court of Appeal held that there was "no reason to treat the claimant as if he were anything other than an adult in this respect". Accordingly, it was held that there should be a 50% reduction for contributory negligence.

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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