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25 March 2010

A Summary Of Recent Developments In Insurance, Reinsurance And Litigation Law

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The claimants alleged that they suffered personal injury from the use of sofas purchased from (inter alia) Land of Leather ("LoL").
United Kingdom Insurance

Horwood & Ors v Land of Leather & Zurich

Breach of condition giving control of claims to insurer/scope of implied duty of good faith during the policy

The claimants alleged that they suffered personal injury from the use of sofas purchased from (inter alia) Land of Leather ("LoL"). LoL was insured in respect of product liability by Zurich. After LoL went into administration, the claimants sought to claim against Zurich pursuant to the Third Parties (Rights Against Insurers) Act 1930. Zurich claimed that it was not liable to indemnify LoL and so was not liable to the claimants. Zurich claimed that LoL was in breach of a condition ("Condition 3") which gave it the right (inter alia) to control settlements and prohibited settlements by the insured without the consent of Zurich. LoL had entered into a settlement with the sofa manufacturer, whereby the manufacturer compensated it for damage to reputation and unsold stock.

However, a further agreement was entered into a few months later, under which (the judge found) LoL had agreed that it would not pursue any right of indemnity from the manufacturer in respect of any liability for personal injury which LoL owed to the claimants. Teare J went on to consider whether, as a result of that agreement, insurers could rely on two defences:

  • Breach of Condition 3. The judge rejected the argument that the prohibition on settling claims applied only to claims against the insured and not to claims which the insured itself could bring against third parties. Furthermore, the condition was given the status of a condition precedent to liability in the policy. Accordingly, Zurich was not liable to indemnify LoL.
  • Breach of an implied term. Zurich argued that if the agreement with the manufacturer had not extended to the release of the personal injury claims (or, if it did, but the agreement was unenforceable), LoL was still in breach of an implied term of the policy to act reasonably and in good faith with due regard to Zurich's interests and rights of subrogation. In view of the judge's conclusion that Zurich did not have to indemnify LoL, he did not need to reach a decision on this issue but he stated what his decision would have been had it been necessary.

It was argued on behalf of LoL that the implied duty did not extend to the situation where a settlement was not actually concluded and so the insurer was not prejudiced. That argument was rejected by Teare J. The implied term arises because the insurer has a contingent right to be subrogated to the rights of the insured when he indemnifies the insured. If the insured acts without regard to that contingent right, he may harm the value of that right to the insurer. Obviously a settlement may deprive the insurer of that right, "But in principle harm may be caused to the insurer's rights of subrogation where the claim against the third party is not lost or reduced in value by settlement. For example, the documents necessary to establish such claim may be destroyed".

However, on the facts of the case, if there was no settlement by LoL, there was no breach of the implied term even on this formulation of the implied term (although if the settlement had been concluded but was unenforceable, the judge said that that would have been a breach of the implied term, but that it could not have caused any loss).

Pegasus v Ernst & Young

When is damage sustained in a "wrong transaction" case - of possible interest to liability insurers

The first instance judgment in this case was reported in Weekly Update 44/08. The claimant issued a claim form against the defendant firm of accountants in November 2005 alleging negligent advice which led to a subscription for shares in a company in April 1998. At first instance, Lewinson J found that the defendant was entitled to summary judgment. He also went on to find that the claim was time-barred in any event because damage had been suffered when the transaction took place. The claimant appealed.

The Court of Appeal upheld Lewinson J's finding that the claimant had no realistic prospect of proving that it had entered into a retainer with the defendant or that the defendant had assumed responsibility to the claimant. Accordingly, the defendant was entitled to summary judgment. The claimant had further argued that no damage had been suffered in April 1998 because the "adverse consequences" from the transaction (broadly, having to pay more tax when the shares are sold in future) had not taken place yet (because the shares had not yet been sold). The claimant was not "inevitably doomed" to suffer the adverse consequences - he could, for example, have liquidated the company and repaid himself the next day. That argument was also rejected by the Court of Appeal. This was a "wrong transaction" case, whereby, because of the alleged negligence of the defendant, the claimant had not received what it ought to have received. The Court of Appeal, having reviewed the relevant authorities, found that in the past, arguments that the claimant had, immediately after the transaction, only faced the possibility or risk of future losses had not succeeded in showing that actual damage had not yet been sustained. Although the quantification of the claimant's loss in this case, if carried out at an early stage, would undoubtedly have been very difficult, that did not prevent a finding that damage had already been suffered and "the court would have done the best it could". Accordingly, the claim was also time-barred.

Carillion JM v PHI Group

Consequences of delaying commencement of Part 20 proceedings

Trial in the main proceedings was put back from January to May 2010.The defendant then applied to bring in a new party (W) by way of Part 20 proceedings in order to seek contribution or indemnity from W. The defendant first decided to bring proceedings against W (and wrote to W) in December 2009 but did not apply to join him to the proceedings until March 2010. The defendant said that it had required adequate time for the consideration of the matter with its legal advisers and insurers. Edwards-Stuart J rejected that explanation: "it should not have taken 2 and a half months for insurers to give the necessary instructions". Nor should the defendant have taken time to allow the pre-action protocol procedure to take place when trial was relatively imminent. The defendant also advised that other things had been going on in its camp during this period but that details could not be provided because those matters were privileged. The judge said that if a candid explanation for the unsatisfactory delay was not provided "the party seeking the indulgence of the court is likely to get fairly short shrift".

As a combined hearing could not now take place without a further adjournment of the trial (because W needed time to prepare for trial), this was an example of a "rare" case where the Part 20 claim should be heard and determined after the principal claim. The judge added that if W was ordered to provide disclosure well before the trial date and to serve his defence a reasonable time before the trial, the defendant would be given substantial protection against the risk of inconsistent findings of fact.

CFH Total v OCE

Transfer of case from Mercantile Court to TCC

The action was started in the Mercantile Court in the Bristol District Registry. The defendant applied to the TCC for the case to be transferred to the TCC in London. CPR r30.5 applied because both the Mercantile Court and the TCC are a "specialist list". That rule provides that a judge dealing with claims in a specialist list may order the action to be transferred to or from that list, so an application could be made to either a TCC or a Mercantile Court judge. However, the application here also involved the transfer of a claim from the Bristol District Registry to the Royal Courts of Justice in London. That meant that CPR r30.2 also applied. That rule provides that the application must be made to the District Registry in which the claim is proceeding. Edwards-Stuart J held that in these circumstances, it was for the judge in the District Registry to decide whether or not to raise the matter with the Judge in Charge in the TCC in London before transferring the proceedings. However, the judge agreed to hear the application because he had already heard submissions from the parties.

Prior caselaw has indicated that material facts to be taken into account when a transfer is requested include expedition and the saving of costs. However, Edwards-Stuart held that "the suitability of the court, in terms of the expertise of its judges, to deal with the subject matter of a particular claim is the single most important consideration". It is only if there is little to choose between the expertise of the two courts that other factors might become decisive. In this case, he held that although the TCC was an appropriate court, it was not the only appropriate court and it would not be inappropriate for a judge in the Mercantile Court to hear the case. Because the balance in terms of costs only marginally favoured London, that was not sufficient to justify depriving the claimants of their choice of venue.

Mentmore Towers v Packman Lucas

Injunction to restrain referral to adjudication

One of the issues raised in this case was whether the court had the power to grant an injunction restraining a party from pursuing a referral to adjudication. The claimants had argued that there was a difference between litigation and adjudication since adjudication does not give rise to a decision that is finally binding and there is nothing to prevent a party starting an adjudication in respect of a dispute which the courts are already dealing with (see Herschel Engineering v Breen Property [2000]). Accordingly, it was the claimants' view that different principles applied for applications for an injunction to restrain adjudication.

Edwards-Stuart J held that he saw no reason why a referral to adjudication that is unreasonable or oppressive should not be restrained. However, the fact that a claim was being pursued by adjudication might affect the court's view as to whether or not it was unreasonable or oppressive. There might be an argument that adjudication is less oppressive because it is quicker and cheaper than litigation. However, there is also an argument that the unreasonable pursuit of a claim by way of adjudication is oppressive because a winning defendant will be unable to recover his costs and (as the adjudicator's decision is not finally binding) litigation or arbitration might have to follow. On the facts of this case, the judge decided to grant the injunction.

Tom Hoskins v EMW

Assessment of damages in professional negligence case

Floyd J found that the defendant firm of solicitors had breached its duty to the claimant in the way it handled the sale of the claimant's properties. The claimant argued that as a result it was only able to complete the transaction late and on relatively unfavourable terms. The solicitors argued that as the assessment of the claimant's damages depended on the hypothetical actions of third parties, this was a loss of chance case and so the judge should consider, on a balance of probabilities, how the claimant would have acted and then should consider whether the claimant had shown that there was a real and substantial (as opposed to a speculative) chance that the third parties would have acted so as to confer the benefit in question (see Allied Maples v Simmons & Simmons [1995]). The claimant countered that that process was not necessary since evidence of how the third parties would have behaved was available. The judge rejected the claimant's argument. The application of the loss of chance principle "ought to depend on the nature of the loss claimed rather than the evidence which happens to be called." The judge applied the Allied Maples approach.

The judge also went on to find that the Court of Appeal decision in Galoo v Bright Grahame Murray [1994] did not hold that trading losses can in no circumstances be recoverable in law.

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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