UK: Insurer's Duty - Ramsook v Crossley

Last Updated: 8 May 2018
Article by Clyde & Co LLP

Most Read Contributor in UK, November 2018

Privy Council considers insurer's duty when conducting defence on behalf of an insured

The insured was driving when she was involved in a road accident (in Trinidad and Tobago) and was sued by her passenger. Her motor insurance policy contained the following clause: "Representation: No admission, offer, promise, or payment shall be made by or on behalf of the Insured without the consent of the Company which shall be entitled, if it so desires, to take over and conduct in the Insured's name the defence or settlement of any claim for indemnity or damages or otherwise and shall have full discretion in the conduct of any proceedings and in the settlement of any claim ...."

The insurers admitted liability without informing the insured (who did not believe that she had been negligent). After judgment was entered against the insured (for an amount significantly in excess of the policy limit, insureds only being required to take out insurance of up to USD 1 million in Trinidad and Tobago), she applied to have it set aside on the basis that she had not been served with the proceedings and the proceedings had been conducted in her name but without her authority. The judgment was set aside and the appeal from that decision was dismissed by the Court of Appeal of Trinidad and Tobago. The Privy Council has now allowed the passenger's further appeal.

The Privy Council held that, pursuant to the clause in the policy, the insurers had had actual and apparent authority to take all the normal steps that the insured might take, including filing a defence and admitting liability. However, it also held that the insurers' conduct "fell very seriously short" by failing to take proper instructions from the insured and to keep her informed, where the proceedings were being conducted in her name and she faced a potentially very large exposure. It further held that the policy clause "is not carte blanche to insurers to conduct proceedings in their own interests, without regard to reality or to their insured's account of events or to the fact that here the claim was likely severely to affect [the insured] as well as [the insurers]". The insured believed that she was not at fault for the accident and the insurers "ought at least to have ascertained and considered her position, with a view to deciding whether it was appropriate simply to admit liability on her behalf". The insurers should also have kept the insured informed about the progress of the proceedings.

However, the Privy Council also held that, given the insurers' actual and apparent authority, the passenger's position was not affected and judgment in his favour should not have been set aside.

COMMENT: In reaching its decision, the Privy Council referred to the 1939 case of Groom v Crocker, in which it was held that insurers who take over the defence of a claim can decide tactics but should act in good faith and in the interests of both themselves and the insured. In that case, the insurers had admitted negligence on behalf of the insured even though they knew the insured had not been negligent, because they wished to also settle an entirely separate claim involving the same insurer on the other side. It was held that the insurers had not been entitled to be influenced by a desire to obtain an advantage for themselves which was "altogether outside the litigation in question with which the assured has no concern". That was despite the relevant clause in the policy being very wide (as it was in this case), as it gave absolute control of the proceedings to insurers.

This case again confirms that there are limits to the extent of control over the proceedings which the insurers can exercise, although the precise limits were not explored in detail in this case. Unlike in Groom v Crocker, it does not appear that the insurer was influenced by extraneous factors (the reason for admitting liability is not clear from the judgment). The Privy Council was critical of the insurers' failure to consult and inform, but it did not go so far as to suggest that the insurers would not have been entitled to reach the decision which they did, provided they had first consulted the insured.

The Privy Council also confirmed that the remedy for the breach of duty by insurers is a matter between the insurers and insured and the insurers' conduct would not affect the unsuspecting third party's position. Presumably, the insured would be seeking to claim damages arising from the insurers' failure to consult her, but it may be difficult for her to demonstrate any loss arising as a result of that failure.

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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