Welcome to the latest in the series of blogs from Fenchurch Law: 100 cases every policyholder needs to know. An opinionated and practical guide to the most important insurance decisions relating to the London / English insurance markets, all looked at from a pro-policyholder perspective.
Some cases are correctly decided and positive for policyholders. We celebrate those cases as The Good.
Some cases are, in our view, bad for policyholders, wrongly decided, and in need of being overturned. We highlight those decisions as The Bad.
Other cases are bad for policyholders but seem (even to our policyholder-tinted eyes) to be correctly decided. Those cases can trip up even the most honest policyholder with the most genuine claim. We put the hazard lights on those cases as The Ugly.
#15 (The Good & Bad)
West Wake Price & Co v Ching  1 WLR 45.
This case is known for three important principles of insurance law, which we consider below.
The Plaintiffs (a firm of accountants) were insured by the Defendant (a Lloyd's underwriter) for any "claim" in respect of an act of neglect, default or error. A clerk employed by the Plaintiffs had stolen £20,000 which had been entrusted to the firm by a client, who duly issued a writ against the Plaintiffs for:
- Damages for negligence in failing properly to supervise the clerk;
- Monies had and received; and
- Monies converted by the Plaintiffs for their own use.
The case is a difficult one for the modern reader, not least because the 2nd & 3rd grounds of the claim (money had & received, and conversion) are relatively unfamiliar. For present purposes, both can be regarded as the equivalent to vicarious liability for the clerk's fraud.
A further source of difficulty is that the case was concerned with an obscurely drafted and now archaic form of QC clause. This required the insurer (i) to settle a claim if it appeared likely that there would otherwise be a liability covered by the policy, but also (ii) to settle a claim which was not likely to result in liability at trial but where the policyholder nevertheless reasonably objected to defending it (eg, because of adverse publicity).
Thus in West Wake the Plaintiff accountants argued that the insurer was obliged to settle the claim because (i) they did indeed wish to avoid the publicity of a trial and, as they argued, (ii) "the claim" based on their allegedly negligent failure to supervise the clerk was ostensibly covered by the policy.
Devlin J found in the insurer's favour, and, in so doing, established these three points of principle.
First, he distinguished between a "claim" and a cause of action. He held that, in the context of a liability policy such as this one, a "claim" was characterised by the object which was being claimed and was not the same as the cause of action supporting it. Thus, "You are liable to me for £100" is a claim. "You are liable to me for £100 for fraud and for negligence" is still a single claim, not two claims. This reasoning has proved crucial in the context of aggregation disputes.
Secondly, Devlin J held that, in a dispute between insured and insurer, the court will look at the substance of a claim (ie, its true underlying facts) and not how it may have been pleaded against the insured by the claimant. A claimant may well have his own reasons for trying to depict a fraud claim as one for negligence or a claim for poor workmanship as one for inadequate design. (And the lesser-known corollary to that principle is that an insured, who has been held liable to a claimant in fraud, is nevertheless entitled to argue, in a subsequent dispute with his insurer, that he was not in fact fraudulent but merely negligent and thus entitled to indemnity under his policy: Omega Proteins v Aspen  1 Lloyd's Rep IR 183.)
We have no hesitation in categorising both these aspects of the judgment as "Good".
The third aspect of the judgment in West Wake was Devlin J's view that the policy did not cover a "mixed" claim: a policy covering claims for negligence did not cover one based on both negligence and fraud, let alone one which was (in his view) primarily for fraud and only secondarily for negligence.
It is not obvious how the Judge's reasoning here sits with two later and equally well-known decisions – Wayne Tank  1 QB 557, and the "Miss Jay Jay"  1 Lloyd's Rep 32. In those cases, the Court of Appeal held that, where there are two proximate causes, one of which is covered, the policy will respond if the other proximate cause is simply not mentioned but will not respond if it is specifically excluded.
In the light of those cases (and, indeed, also in the light of the Supreme Court's judgement in FCA v Arch, considered in a previous blog in this series), we consider that the better analysis of the facts in West Wake would be that the clerk's fraud and the Plaintiffs' negligent failure to supervise him were both proximate causes so that, since the former was not excluded, there would have been cover (and thus the Plaintiffs could try to insist, by virtue of the QC clause, on the claim being settled).
Devlin J's decision that, as a matter of causation, the clerk's fraud "trumped" the Plaintiffs' alleged negligence seems to have been the result of a disinclination to hold that there could in practice be two truly proximate causes of a loss, with him instead preferring the view that one of two competing causes will almost always be more dominant.
Nowadays, the courts will be far quicker to find that two causes, whether they be independent or interdependent, were both proximate.
In that respect, and in that respect only, we categorise West Wake as "Bad".
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.