UK: Harcourt V FEF Griffin [2007] EWHC 1500 (QB). Deep Pockets Revealed: A Defendant’s Obligation To Disclose The Full Extent Of His Insurance Cover

Last Updated: 3 January 2008
Article by Roger Franklin and Emma Sangeelee

Traditionally Defendants are under no obligation to disclose the extent of their insurance cover to a Claimant, it not being 'relevant' to the issues in dispute between the parties for the purposes of their disclosure obligations under Civil Procedure Rule 31. Likewise, Defendant insurers have actively discouraged such disclosure for fear that it might embolden an otherwise tentative Claimant in search of a "deep pocket".

This has long been a source of frustration to Claimants, who need to know whether or not there are prospects of recovery before they incur significant legal fees pursuing a claim for damages. However, help for Claimants may be at hand. The recent decision of Harcourt v FEF Griffin examines the circumstances in which the full extent of a Defendant's insurance cover could be 'a matter of dispute between the parties' for the purposes of Civil Procedure Rule 18 and therefore subject to disclosure on the request of the Claimant in line with the provisions of that Rule.

Background

The Defendant was an unincorporated association responsible for the provision of gymnastics coaching at the Pegasus Gymnastics Club. As a result of coaching provided by the Defendant, the Claimant suffered severe spinal injuries that rendered him a C4 tetraplegic. On the day before trial a settlement was agreed in favour of the Claimant on the basis that damages would be assessed at 75% of the full liability value of the claim (£8-10 Million). The costs incurred by the Claimant up to that point were in the region of £500,000, not including the success fee payable under his Conditional Fee Agreement.

Given the level of damages likely to be awarded, the extent of costs already incurred and the on-going costs likely to be incurred over the course of a contested quantum phase, the Claimant made a request for further information relating to the nature and extent of the Defendant's insurance cover under Civil Procedure Rule 18. This entitles a party to seek clarification or further information about an issue in dispute in the proceedings whether or not it is contained or referred to in a statement of case. In this instance, the request was made on the grounds that:

1. If the limit of the Defendant's insurance cover, together with any assets available to it were in excess of any reasonable sum likely to be awarded, the Claimant would contest the Defendant's submissions as to quantum and seek to maximise the award. However, if this were not the case it would be contrary to the best interests of the Claimant to contest quantum, thereby generating further costs which would not be recoverable from the Defendant, or only satisfied from funds that could otherwise be used for the Claimant's benefit.

2. Without the information requested, the Court would be unable to consider whether periodical payments would be a more appropriate form for all or part of the award for damages, pursuant to its obligations under CPR Rule 41 and s2 of the Damages Act 1996.

The Defendant's Arguments

The Defendant refused the request and in the course of the subsequent application raised the following arguments:-

1. The Claimant was not a party to the insurance contract and so was not entitled to know its terms. This argument was discounted on the grounds that the Court may compel the disclosure of the terms of a contract between a party to the litigation and a third party where those terms are relevant to an issue in the case.

2. The statutory exceptions provided by The Third Party (Rights Against Insurers) Act 1930, the Contract (Rights of Third Parties) Act 1999 and the Motor Insurers' Bureau, do not apply and so it would be contrary to Parliamentary intention to imply an exception in this case. It was held that the absence of a specific statutory provision allowing for this disclosure did not, in these circumstances, imply an intentional omission on behalf of Parliament.

3. Disclosure of the terms of the Defendant's insurance cover would hand an unfair tactical advantage to the Claimant. It was held that any tactical advantage afforded to the Claimant will be a question of fact to be considered by the Court in each case. In this case, no specific advantage to the Claimant had been advanced by the Defendant.

4. Granting the Claimant's request would open the floodgates to wasteful satellite litigation as it would become standard practice for Claimants to make similar Part 18 requests. It was acknowledged that orders for disclosure of this kind should be approached with caution and only made where the Claimant can demonstrate a real basis for concern that a realistic award for damages may not be satisfied by the Defendant.

5. The Defendant's disclosure obligations under CPR Rule 41 and s2 Damages Act 1996 do not extend to the actual limit of its cover, and in any event, disclosure pursuant to those provisions would not be required until such time as the Claimant was ordered to serve his Final Schedule of Costs. This argument was discounted on the grounds that, where disclosure of the information is inevitable, it would be wrong to postpone it for many months during which significant costs would be incurred on the basis of a time provision set for other purposes.

The Judgment

Irwin J held that information relating to a Defendant's insurance cover can fall within the wording of CPR Rule 18. The purpose of the Rule is to ensure that parties have sufficient information to allow them to resolve matters in dispute efficiently and in line with the overriding objective of the CPR. Accordingly, the wording "requires to be interpreted reasonably liberally" and does not require a specific disagreement regarding the Defendant's insurance cover as in many circumstances the information requested will be necessary to ascertain whether there is in fact such a disagreement.

Irwin J then held as a matter of fact that the full extent of the Defendant's insurance cover was a matter of dispute between the parties in this case. The key facts that led to this judgment were:

  • The very significant potential award for damages;
  • The very significant costs that had already arisen, and were likely to arise if the parties engaged in a contested quantum phase;
  • The Claimant had been able to establish a very real concern that the Defendant would be unable to satisfy any award made; and
  • The Defendant was unable to advance any cogent reason why the Claimant should not have access to the information requested.

Accordingly, it was ordered that the Defendant reply to the Claimant's Part 18 request for information as served and in full.

Comment

Knowledge of a Defendant's ability to satisfy the full value of a claim will clearly be of benefit to all Claimants, but particularly to those seeking to enter into a Conditional Fee Agreement, as the commercial risk to the Claimant's solicitor will be significantly reduced. However, the extent to which the success fee is recoverable from the Defendant will remain at the general discretion of the Court.

The Claimant will arguably be in a stronger bargaining position when negotiating settlements as it will be able to properly assess the risk of wasting funds pursuing the recovery of damages from an impecunious Defendant. However, the mere existence of an appropriate policy of insurance does not eliminate the prospect of cover subsequently being excluded and the policy avoided. In this respect, FEF Griffin were probably correct to identify an increased risk in satellite litigation concerning this issue, with Claimants keen to find out what cover is in place and how to frame their claims accordingly, and Defendants (or, more accurately, Defendant insurers) keen to keep their options open by confirming cover under a reservation of rights, thereby maintaining the threat of no cover.

It remains to be seen how the Court will go on to interpret the wording of CPR Rule 18 in this context, balancing on the one hand the need to ensure that Defendants can satisfy any reasonable award for damages, and on the other, the concern that such requests for information will provide an unfair tactical advantage to Claimants and lead to increased satellite litigation. On the face of it, Irwin J's reasoning as to why the extent of insurance cover was an issue in dispute could easily apply to a significant number of claims where quantum is contested, despite the unique and very unfortunate circumstances of this case.

Edwin Coe LLP has been prominent in the field of insurance law for more than 30 years and is one of the leading firms specialising in claimant insurance work.

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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