UK: (Re)Insurance Weekly Update 11 - 2015

Last Updated: 1 April 2015
Article by Nigel Brook

Welcome to the eleventh edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2015

This Week's Caselaw

Braganza v BP Shipping

The Supreme Court decides the test for insurers/parties who have a contractual power to form an opinion

The claimant is the widow of an engineer who disappeared from the defendant's oil tanker when it was in the middle of the North Atlantic. His contract of employment with the defendant provided that: "For the avoidance of doubt, compensation for death...shall not be payable if, in the opinion of the Company or its insurers, the death...resulted from...the Officer's wilful act..." (emphasis added). The defendant formed the opinion that the most likely explanation for the employee's disappearance was that he had committed suicide by throwing himself overboard. The issue in this case was whether the defendant had been entitled to form that opinion and what the test to be applied by the court in deciding that question should be. At first instance, Teare J held that the evidence was not sufficiently cogent to warrant a finding of suicide on the balance of probabilities and so the defendant's opinion had been unreasonable (it having been common ground between the parties that the opinion formed by the defendant had to be reasonable). The appeal from Teare J's decision was allowed and so the claimant appealed to the Supreme Court.

It has now allowed that appeal by a majority of 3:2.

The general issue was what it means to say that the decision of a contractual fact-finder must be a reasonable one. The Supreme Court considered whether courts should adopt the same standard of review as that adopted for judicial reviews of administrative action, or whether it should be less demanding. The claimant argued that the defendant should have taken the right matters into account whereas the defendant argued that its decision could only be impugned if its decision was one which no reasonable employer could have reached (the claimant agreed that that was also part of the test). The majority of the Supreme Court found in favour of the claimant: "If it is part of a rational decision-making process to exclude extraneous considerations, it is in my view also part of a rational decision-making process to take into account those considerations which are obviously relevant to the decision in question. It is of the essence of "Wednesbury reasonableness" (or "GCHQ rationality") review to consider the rationality of the decision-making process rather than to concentrate upon the outcome. Concentrating on the outcome runs the risk that the court will substitute its own decision for that of the primary decision-maker" (as per Lady Hale).

Turning to the particular contract in issue here, it was held that a decision that an employee had committed suicide was not a rational or reasonable decision unless the employer had had it clearly in mind that suicide is such an improbability that cogent evidence is required to form the positive opinion that it has taken place. Applying that test to this case, it was found that there had not been such sufficiently cogent evidence.

COMMENT: Although this case concerned the decision of an employer, the principles will be equally applicable to decisions made by insurers where the policy gives them a power to form an opinion. The more unlikely a certain conclusion is generally (as Lady Hale noted, "some things are inherently a great deal less likely than others"), the stronger the evidence will be needed to support the insurer's opinion.

Bianco v Bennett

A case on whether an Italian insurer could bring a subrogated claim against an English defendant in England

The claimant is the widow of an Italian killed by an English driver in England. Liability was admitted and the claimant claimed on her own behalf under the Fatal Accidents Act 1976 ("FAA") (and as administratrix of her husband's estate under the Law Reform Act 1934).

The widow had received a payment from an Italian insurer and her husband's Italian employer. Under Italian law, the insurer and employer were entitled to recover these payments from a tortfeasor (and it was a term of the insurance policy that the widow was required to bring the claim). The widow sought to bring this subrogated claim against the English defendant (as she was required to do so under her insurance policy). The issue was therefore whether this claim was recoverable in the English proceedings.

Warby J was critical of the fact the claim had not originally been pleaded. In any event, there was no head of loss under the FAA which was apt to include the subrogated claim. It was accepted that the assessment of damages was governed by English law. Nevertheless, the claimant sought to rely on Article 85 of EC Regulation 883/2004 on the co-ordination of social security systems. Article 85 provides, broadly, that Member States must recognise subrogation rights which are provided by other Member States. However, the judge held that an obligation to recognise such rights did not extend to an obligation on the English court to recognise a substantive claim which could be advanced under Italian law, but was not permitted under English law. English law was the only basis on which the claimant could advance her claim and since the receipt by the claimant of any sums paid by her late husband's insurer and/or employer are disregarded in the assessment of her claim as irrelevant, the subrogated claim could not be maintained.

Dalton v BT Plc

A decision on the meaning of "disease" in CPR r45 – of possible interest to employers' liability insurers

Although the rules changed on 1 April 2013, success fees are still recoverable where a CFA was entered into before that date. Under the old CPR r45, where a claim is for a "disease", a success fee of 62.5% will be recoverable if the claim settles before trial. If it is not a disease, it will be classified as an injury and (if sustained on or after 1 October 2004), it will attract a success fee of only 25%. The issue in this case was whether noise-induced hearing loss (NIHL) is a disease or an injury.

The defendant sought to rely on the earlier decision of Patterson v MoD (see Weekly Update 37/12). There, it was held that, applying the "natural and ordinary meaning" of the word, non-freezing cold injury (NFCI) was not a disease. However, Phillips J held that, taking into account legislative history, there is a strong indication that Parliament intended "disease" in CPR r45 to "include any illness (whether physical or physiological), disorder, ailment, affliction, complaint, malady or derangement other than a physical or physiological injury solely caused by an accident or other similar single event". Noting that his conclusion differed from that of Males J in Patterson, the judge added: "but it does not appear that the lengthy legislative history, nor its relationship with the current Pre-Action Protocol, was drawn to his attention". Nevertheless, there are now two conflicting High Court decisions on the definition of disease in CPR r45.

The judge went on to say that even if he was wrong about the meaning of "disease", "it is nevertheless entirely clear, in my judgment, that the term (however it is defined) must be taken to include NIHL". That was because of the legislative history relating to NIHL as well as the fact that "NIHL is not merely an occupational disease but is the paradigm case of such a disease". Reference was also made to a report by the Civil Justice Council which recorded an "industry" agreement in 2005 that success fees for NIHL would be 62.5%.

Y v S

A case on whether an arbitration award should be enforced pending a challenge

The applicant obtained an award in its favour. The respondent had argued that the tribunal did not have jurisdiction to hear the dispute. It therefore issued an arbitration claim purporting to challenge jurisdiction under section 67 of the Arbitration Act 1996 and sought a stay of enforcement of the award pending that challenge. An order to that effect was made and subsequently modified to allow enforcement abroad. The respondent then sought to discharge that order and applied for leave under section 66 of the Act to enforce the award.

Applications to enforce awards are usually made under CPR r62. Eder J noted that the order made in this case had "tracked" CPR r62 by ordering that no steps be taken to enforce the award pending the challenge. In a CPR r62 application, that wording would not extend to enforcement overseas. However, the order in this case had, on the face of it, been unrestricted.

The parties agreed to a modification of the order. The issue then became whether the order should have been made at all. The judge held that it had been unnecessary and inappropriate to grant the order. There had been no evidence that there had been assets here. Furthermore, there had been no real risk of the respondent seeking to enforce the award - if he had done so, the court would have granted only an interim order, pending the final disposal of the challenge. The court went on to reject the application for a final order to enforce the award.

There was also nothing in CPR r62.18 which contemplates that a temporary prohibition against enforcement may be made subject to an order for the provision of security. Instead, "it seems to me that any application for an order requiring provision of security for the amount of dispute must be made in the context of a discrete application under ss67, 68 or 69 supported by adequate evidence pursuant to that statutory provision", because section 70(7) of the Act (which provides that: "The court may order that any money payable under the award shall be brought into court or otherwise secured pending the determination of the application or appeal") only applies to sections 67-69.

Deutsche Bank v Petromena

The Court of Appeal considers the correct test for "submission to the jurisdiction

When the claimant served its claim form on the defendant (a Norwegian company), the defendant filed an acknowledgment of service contesting the jurisdiction of the English court. The English court rejected the application for an order declaring that it did not have jurisdiction and also refused permission to appeal. An order was made permitting (but not requiring) the defendant to file a further acknowledgment of service (as permitted by CPR r11(7), which also provides that the first acknowledgment of service ceases to have effect if the court does not declare that it does not have jurisdiction). The defendant did file a second acknowledgment of service, only ticking the box indicating that it intended to defend the whole claim. The defendant subsequently obtained permission to appeal from the Court of Appeal. The claimant argued that the defendant had submitted to the jurisdiction of the English court by filing the second acknowledgment of service.

Article 24 of the Lugano Convention provides that "a court of a State bound by this Convention before which a defendant enters an appearance shall have jurisdiction". The meaning of "enters an appearance" is to be determined by national procedural law. In the combined cases of Sage v Double A Hydraulics and Chambers v Morgan Starkings [1992], the Supreme Court adopted a "disinterested bystander" test, but this was not applied in the subsequent case of Hoddinott v Persimmon Homes (see Weekly Update 45/07). There it was held that an application to set aside an order extending time for service of the claim form was to be treated as having been abandoned where the defendant filed an acknowledgment and failed to apply to challenge jurisdiction in time. In this case, the Court of Appeal held that Hoddinott did not apply only to first, and not subsequent, acknowledgments of service. It held the disinterested bystander test had no application to a "statutory submission to the jurisdiction". Furthermore, the language of CPR r11(8) (which provides that if the defendant files a further acknowledgment of service he shall be treated as having accepted that the court has jurisdiction to try the claim) was clear.

The correct step for the defendant in this case would have been to apply for a stay or an extension of time to file the acknowledgment of service in order continue its challenge (and not to file a further acknowledgment of service).

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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