A summary of recent developments in insurance, reinsurance and litigation law.
This Week's Caselaw
Merrix v Heart of England NHS: Judge holds that detailed assessment is still available where a costs budget has been approved
This is the first reported decision to have considered the relationship between costs budgeting and costs assessment. The receiving party here argued that if the costs claimed were at, or less, than the figure approved in its budget, the paying party would have to show that there is a good reason to depart from that figure, and those costs should otherwise be assessed as claimed, without further consideration. The paying party argued that the costs judge's powers and discretion are not fettered by the budgeted figure, but instead the budget is just one factor to be considered in determining reasonable and proportionate costs on assessment.
The judge agreed with the paying party. Costs budgeting is not intended to replace detailed assessment and the receiving party's last agreed or approved budget is just another factor that that the court will take into account: "No special weight is attached to that budget. The rules were not amended to say that "first consideration" would be given to the budget or that it would be "of paramount importance"".
The judge did not agree with either side's definition of a "budget", though: he said it did not mean a cap or a fixed amount, but instead was more of "an available fund": "The available fund is considered to be within the reasonable range of proportionate costs but nowhere is it stated to be a fixed assessed amount. If that had been the intention then the rules would surely state as much".
That said, the judge also held that this did not mean that the paying party had complete discretion to attack a bill on detailed assessment. Instead, the parties had a duty to help the court by narrowing the issues between them: "By adopting an ADR-like philosophy in negotiation and the preparation of budget discussion reports it should then be possible, in the majority of cases, to produce a proportionate budget that is so accurate when compared to the actual, yet still proportionate costs, incurred at the conclusion of the case that the difference between the parties should be so negligible that it would not be worth the time, trouble or risk to pursue a detailed assessment".
The judge noted that such an approach would benefit paying parties, such as insurers, as they will be able to reserve on a more accurate basis.
Lyons v Fox Williams: Judge holds solicitor was not retained to advise on coverage issue, scope of Long Term Disability claim
The claimant was injured in a road accident in Russia. He sought to claim under insurance policies taken out by his employer for the benefit of its employees. The claimant alleged that his solicitor's advice regarding his Accidental Death and Dismemberment ("AD&D") policy claim had been negligent, as the solicitor had only looked at the Members' Booklet, rather than the policy itself. That claim was settled (the judge finding that, had it gone to trial, he was satisfied that the solicitor would have been found to have acted negligently regarding that claim), but the claimant also alleged that the solicitor's handling of his Long Term Disability ("LTD") policy claim had also been negligent.
Turner J held that, on the facts of the case, the LTD claim had fallen outside of the scope of the solicitor's retainer. Nor was the solicitor under a duty to warn the claimant, nonetheless, of the scope and validity of the LTD policy. The solicitor had not become aware of a risk to the claimant relating to the LTD policy and it was not objectively unreasonable for him to have omitted to flag up a risk. The LTD policy was legally distinct from the AD&D policy: "Perusal of and advice upon the latter did not require any knowledge of the scope or terms of the former".
The claimant had also alleged that his solicitor had been negligent in failing to include an English law and jurisdiction clause in a settlement agreement subsequently entered into between the claimant and his former employer. The judge held that it would have made no difference if the solicitor had warned the claimant about the disadvantages of omitting such a clause. The judge also found, on the facts, that the claimant had been aware of the position and accepted the risk.
For the sake of completeness, though, the judge considered what the position would have been under the LTD policy had the claimant been retained to advise about it, and whether the claimant might have been said to have lost a real and substantial chance to claim under that policy. Various arguments were raised by the defendant, including the following:
(1) The claimant's argument that he would have reduced his salary to less than 80% to claim under the policy would not have worked because the insurer would have seen the move as being artificial and could have resisted the claims for benefit as a deliberate and legally impermissible attempt to bring about the circumstances to trigger his entitlement to claim under the policy. The judge described that as a "relatively remote risk", though, given the extent of the claimant's injuries: "The extent of the claimant's injuries and the impact which they had upon him and his work could very probably have been presented both plausibly and legitimately as a justification for reducing his salary. The fact that [his employer] continued to pay his full salary does not prove that it would have been improper for them to have chosen not to". It was held that the claimant could have recovered for loss of chance in the period immediately leading up to his leaving work.
(2) The claimant had ceased to be an employee after entering into the settlement agreement with his employer (instead becoming a part-time consultant). The defendant argued that he was therefore no longer an "insured" under the LTD after that time. That argument was also rejected by the judge: "To hold otherwise would lead to absurd results under which a totally disabled employee would have to be maintained in employment to be eligible and remain eligible to receive benefits under the policy. The defendant's interpretation is unsustainable and would lead to consequences which would be liable to defeat the whole purpose of the scheme with those most severely disabled being the most likely to lose out".
On the facts, had the claimant succeeded in the underlying claim, the judge said he would have applied a discount to reflect the loss of a chance at the level of 50%.
Kazakhstan Kagazy v Zhunus: Court of Appeal holds freezing injunction can be granted in aid of a contribution notice
The claimant alleged fraudulent conduct against two defendants. Defendant 1 settled with the claimant and defendant 2 (plus another defendant) then sought permission to serve a contribution notice on defendant 1 (seeking a contribution if they were eventually held liable to the claimants, on the basis of allegations made by the claimants against defendant 1). The judge refused permission for the service of a contribution notice and also declined to make a freezing order against defendant 1, on the basis that there were no proceedings in existence to support that application. The Court of Appeal has now allowed the appeal from that decision, finding as follows:
(1) Although defendant 2's primary case was that there had been no fraudulent conduct at all, he was entitled to formulate an alternative case that, if he was held liable and there was fraudulent conduct, defendant 1 was fraudulent as well. The mere fact that defendant 1 had settled with the claimant, did not mean that proceedings for contribution could not be initiated or continued (see section 1(3) of the Contribution Act 1978). It did not matter that a finding that defendant 2 was liable did not necessarily mean that defendant 1 was liable as well.
(2) In relation to the freezing order application, the judge had held that, since defendant 2 had no cause of action until he is held liable, no freezing order can be granted because there are no existing proceedings until that point. Although reference had been made to a string of cases in which an accrued cause of action was required before a freezing order could be granted, those cases: "were not, however, considering cases in which it was appropriate for proceedings to be issued, despite the absence of a cause of action in its strictest sense". The Court of Appeal went on to hold that "there may be cases in which an injunction can be granted even if a cause of action (in its strict sense) does not yet exist, if it is nevertheless possible to issue proceedings, as it is with contribution notices. Alternatively, one can say that if a co-defendant is entitled to issue and serve a contribution notice, he has a cause of action for so doing. Either way it is obvious good sense that in a proper case a freezing injunction can be issued in support of a valid contribution notice and obviously inconvenient if it cannot be so issued".
(3) Although it is necessary to come to court with "clean hands" (and benefits should be denied to those who have acted fraudulently), it was not possible to say that contribution would never be ordered in this case. There can be orders for equitable contribution between fraudsters (especially if one has benefited more than the other). Accordingly, all the freezing order did was hold the current position, so that defendant 1 could not dissipate assets.
Leslie v Farrar Construction: Court of Appeal summarises law relating to over-payment by mistake
The claimant appealed against a decision that he was not entitled to recover overpayments of building costs. The Court of Appeal, when handing down its judgment, usefully restated and summarised the position regarding payments under mistake.
Various defences may be raised to counter the general position that a claimant may recover money paid to a party by mistake. The key one which was of relevance in this case is that: "where C voluntarily makes a payment to D knowing that it may be more than he owes, but choosing not to ascertain the correct amount due, he cannot ordinarily recover that overpayment. I say "ordinarily", because different considerations arise if there has been fraud or misrepresentation. There is no plea of fraud or misrepresentation in the present case".
In this case, the claimant had made a conscious decision to pay the requested sums without investigation, because it suited his purposes. He had not wished to devote further resources to "grinding through the figures" with accountants. Accordingly, his appeal failed.
The Court of Appeal also noted that where parties settle litigation, or otherwise reach an agreed settlement, they must accept the consequences of what they have agreed, even if the law subsequently changes to one side's advantage, or it turns out that one side made a bad bargain.
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.