UK: (Re)insurance Weekly Update 4 - 2016

Last Updated: 3 February 2016
Article by Nigel Brook

A summary of recent developments in insurance, reinsurance and litigation law.

This Week's Caselaw

ERGO Insurance v IF P&C Insurance: Court of Justice of the European Union considers the applicable law in a contribution claim between insurers∂=1&cid=781370

A tractor pulling a trailer overturned in Germany (due to the driver's negligence), causing property damage to a third party. The Lithuanian insurer of the tractor paid the third party and then sought a contribution from the Lithuanian insurer of the trailer (on the basis that it was jointly liable for the damage). Under German law (but not Lithuanian law), liability would be shared with, and a contribution could be sought from, the trailer's insurer. A dispute therefore arose as to whether German or Lithuanian law applied to this issue, and the question was referred by the Lithuanian courts to the Court of Justice of the European Union ("CJEU"). It has now ruled as follows:

  1. The EU Motor Insurance Directive, which helps EU residents involved in a road accident in another EU country, did not assist with resolving this issue, since it was concerned with compensating road accident victims, rather than with the relationship between motor insurers.
  2. There is no contractual relationship between the two insurers and so the applicable law governing the relationship between them must be determined in accordance with the Rome II Regulation (EC Regulation 864/2007), rather than the Rome I Regulation (EC Regulation 593/2008).
  3. Article 4 of the Rome II Regulation provides that the applicable law to determine the issue of contribution between the insurers will be that of the country in which the harm was sustained, i.e. German law on the facts of this case.
  4. However, it is first necessary to determine whether the non-paying insurer is under any duty to compensate the victim of the accident. That issue will be determined by that insurer's contract with its insured. The paying insurer could then be subrogated to the victim's rights against the non-paying insurer.
  5. The issue of whether the non-paying insurer is liable to the victim is therefore governed by the Rome I Regulation. Article 7 of that regulation provides that the law of the country where the insurer has his habitual residence (i.e. Lithuania) will apply (unless it is clear from all the circumstances that the case is more closely connected to another country).

The case was therefore remitted to the referring courts to determine which applicable law applied on the facts.

COMMENT: How does the CJEU's approach fit with the approach adopted under English law to these issues? The CJEU categorised the paying insurer's claim for contribution as arising from its right to be subrogated to the rights of the victim against the insurer. Under English law, a contribution claim is based on equitable principles (and so is non-contractual (as was confirmed recently by the judge in XL v AXA (see Weekly Update 44/15), albeit there it was held that the claim arose out of the operation of law, rather than equity) and so the dispute between the insurers would presumably be governed by Rome II and not Rome I). However, in order for a claim of contribution to arise between insurers, there must be two policies covering the same risk or peril, and that is a contractual issue which, presumably would be governed by Rome I. It remains to be confirmed, though, how the English courts would approach a similar factual scenario to the one in this case.

Deutsche Bank AG v Sebastian Holdings: Court of Appeal considers non-party costs application

The first instance decision in this case was reported in Weekly Update 24/14. The judge made a non-party costs order against Mr Vik, the sole shareholder and sole director of the defendant. Mr Vik appealed and the Court of Appeal has now dismissed that appeal.

Mr Vik had raised three objections:

  1. It was argued that the application was separate from the underlying action against the defendant and so should be treated in the same way as any independent proceedings. The Court of Appeal held that, in principle, a summary procedure should be adopted by the court considering a non-party costs application. Furthermore, "the critical factor in each case is the nature and degree of [the non-party's] connection with the proceedings, since that will ultimately decide whether it is appropriate to adopt a summary procedure".
  2. Mr Vik also argued that the application should not have been granted because he had not been warned that the claimant might seek an order against him. It was held that, in this case, Mr Vik could and did contest the claimant's factual and legal case. Therefore, the only advantage which a warning would have given him would have been an opportunity to reconsider his own position in relation to the proceedings. However, no evidence had been adduced from Mr Vik to support a suggestion that his approach would have been different, and it was held that it would not be appropriate to admit that evidence now. The Court of Appeal therefore concluded that the judge had been right to find that the failure to warn was "of very little weight at all".
  3. Mr Vik also argued that he should not, in any event, be required to pay the costs of accountants to reconstruct records which the claimant ought to have maintained. The Court of Appeal found that there was no reason to exclude these fees from the costs ahead of a detailed assessment of the costs: "the basis of the judge's order for costs against Mr. Vik was not that he had caused the Bank to incur the experts' fees but that he was the real party to the litigation".

The Court of Appeal also referred to the earlier Court of Appeal decision of Oriakhel v Vickers (see Weekly Update 28/08), in which insurers were refused a non-party costs order against a third party who had acted as a witness, in part because an order would have infringed the principle of witness immunity. That case was distinguished from this one and it was said that the earlier Court of Appeal's views on this issue were only obiter and should be "treated with caution". The witness in Oriakhel had not funded and controlled the litigation for his own benefit. The possibility of a costs order against a witness should not be excluded, although the power should be exercised with considerable care: "To make an order for costs against a witness simply because he has given false evidence might well infringe the principles of witness immunity, but to make such an order on the grounds that he had conspired with others to pursue a claim that was entirely fabricated would not, even if in order to support it he had given false evidence".

C&S Associates v Enterprise Insurance: Costs consequences for adducing expert evidence without permission/producing trial bundles with irrelevant documents

Following judgment of various preliminary issues (see Weekly Update  01/16), costs in this case were reserved as a Part 36 offer had been made. However, Males J held that the claimant must in any event bear the following costs:

  1. The costs of preparation of the claimant's expert report. The expert had included a lengthy section in his report on a topic for which no permission had been given. The claimant had sought to argue that the costs order should be confined to the costs of preparing the particular section in question but the judge said that it was necessary to "mark the disapproval of the court" and that "a party who deliberately chooses for tactical reasons to adduce expert evidence for which in large part no permission has been given should bear the risk that, in appropriate circumstances, the costs of preparing such a report may be entirely disallowed".
  2. 80% of the costs of preparing the trial bundles. The claimant had produced 29 bundles dealing with individual claims and only one of these bundles was even opened during the trial.  The contents added nothing to any understanding of the case. The judge commented that: "It is true that disclosure of the documents contained in these bundles had been ordered, but it does not follow that it was reasonable, let alone necessary, for these to be included in the trial bundles". However, the judge accepted that approximately 20% of the bundles would have been required in any event.

Commodities Research v King and Wood Mallesons LLP: Whether reference to dates of meeting with lawyer are privileged

It is an established principle that not everything in a lawyer's records are covered by legal professional privilege. For example, the date and time of a meeting with a lawyer would not be privileged (see R v Manchester Crown Court ex p. Rogers [1999]). Accordingly, a reference to such matters will not normally constitute a waiver of privilege over what took place at the meeting.

However, in this case, such a waiver was held to have taken place when reference was made to meetings with the claimant's solicitors. That was because the claimant had used that information in order to elaborate on its claim for lost management time as a result of the litigation (and this was an issue in the proceedings). Accordingly, a reference in the witness statement of the CFO of the claimant to the dates of communications with the claimant's solicitors had amounted to a waiver of privilege in those communications (some of which included the solicitors' advice on the merits of the underlying case).

(Re)insurance Weekly Update 4 - 2016

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Nigel Brook
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