A summary of recent developments in insurance, reinsurance and litigation law.

Howlett v Davies & Anor: Court of Appeal finds that insurers did not have to plead "fundamental dishonesty" to deprive claimant of benefit of QOCS

http://www.bailii.org/ew/cases/EWCA/Civ/2017/1696.html

The claimants alleged that they had been injured in a car accident caused by the negligence of the defendant. The insurer did not accept that the accident happened (or that, if it did, not in the way that the claimants alleged).

However, the insurer did not go so far as to plead fraud in its defence. That is now a common approach for insurers, following guidance given by the Court of Appeal in Kearsley v Klarfeld [2005] that a defendant "does not have to put forward a substantive case of fraud in order to succeed".

There are various reasons why insurers might prefer this approach, including that they lack direct knowledge of the relevant events and that their lawyers are subject to professional obligations which result in them being slow to allege fraud.

The issue in this case was whether, the judge at first instance having dismissed the claim, the claimants were entitled to the benefit of QOCS ("Qualified one-way costs shifting" which applies in personal injury litigation and results in the claimant having no liability to pay costs if it loses (whereas the defendant must pay costs if it loses)). CPR r44.16 states that QOCS will not apply, with the permission of the court, "where the claim is found on the balance of probabilities to be fundamentally dishonest".

The judge had found that this exception applied, even though fraud was not pleaded in the insurer's defence. The Court of Appeal has now dismissed the claimants' appeal from that decision.

It has held that "the mere fact that the opposing party has not alleged dishonesty in his pleadings will not necessarily bar a judge from finding a witness to have been lying" and that where an insurer has put facts inviting the judge to draw an inference, the judge can conclude not just that the claimant has proven its case, but also (for example) that the accident did not happen: "The key question in such a case would be whether the claimant had been given adequate warning of, and a proper opportunity to deal with, the possibility of such a conclusion and the matters leading the judge to it rather than whether the insurer had positively alleged fraud in its defence".

Here, the insurer had adverted to the possibility of the court finding "elements of fraud to this claim" and had stated that the insurer did not believe the accident had taken place and that credibility was in issue. That had given the claimants adequate notice of the possibility that the judge might reach the findings which he did. They could not therefore suggest that they had been ambushed.

Nor did it matter that the claimants had not been cross-examined at trial on the basis that their claim was dishonest: "what ultimately matters is that the witness has had fair notice of a challenge to his or her honesty and an opportunity to deal with it. It may be that in a particular context a cross-examination which does not use the words "dishonest" or "lying" will give a witness fair warning. That will be a matter for the trial judge to decide".

YJL Ltd v Jacobs One Ltd: Judge confirms irrelevance of prior year policies when construing an insurance policy

The claimant agreed that the defendant could enter into construction contracts in the name of the claimant. After settling claims which were brought by customers of the defendant in 2013, the claimant sought an indemnity from the defendant. The judge found, on the facts, that the defendant had not agreed to indemnify the claimant. A further issue (which the judge did not need to decide) was whether the defendant was a co-insured under a professional indemnity policy taken out by the claimant.

For policies taken out by the claimant between 2002 and 2011, the definition of the insured included associated companies, and the defendant was named as an associated company. However, for the policy year in question, 2012-13, the defendant had not been covered as an associated company and the judge found that, on the facts, the defendant was no longer an associated company at that point.

She went on to say that "the evidence of what happened in prior years does not aid the construction of the contract between the claimant and a different broker and insurer. The contract has to be construed against the background for the relevant year and not by reference to what happened prior to the entry into of that policy". Nor was she prepared to imply a term into the oral agreement between the parties that the claimant would maintain professional indemnity insurance for both parties for such period as any potential liability could arise in respect of construction works carried out by the defendant: "The fact that the defendant was named as a co-insured for the year 2002 and for a number of years thereafter may lead to an inference that the parties would have agreed it if it had been suggested to them...is necessary but not sufficient basis in which to imply a term".

COMMENT: In HIH Casualty & General Insurance v New Hampshire [2001], Rix LJ said that "In my judgment, there is nothing [in earlier decisions] which binds this court to rule that where a prior contract has been followed by a further contract...there is a rule of law which makes it inadmissible to consider the terms of the prior contract....In principle, it would seem to me that it is always admissible to look at a prior contract as part of the matrix or surrounding circumstances of a later contract. I do not see how the parol evidence rule can exclude prior contracts, as distinct from mere negotiations". However, in that case, the factual circumstances were that a slip policy was followed by further policy wording between the same parties, whereas here, the 2012-13 policy was entered into between different parties.

Rix LJ accepted, though, that it might "simply be useless" to try to construe the later policy by reference to the earlier one where the later policy was intended to supersede the earlier one: any differences will usually reflect the fact that the parties have deliberately chosen to depart from the earlier wording (although he said that that was not a conclusive rule of law). He went on to advise that the earlier contract should usually be looked at where there is a dispute as to whether the later contract was indeed intended to supersede it.

Hutson v Tata Steel: Judge refuses application to add a firm of solicitors as a lead firm in group litigation case

http://www.bailii.org/ew/cases/EWHC/QB/2017/2647.html

A Group Litigation Order had been made in this case and certain lead solicitors were identified in the order. Another firm of solicitors applied to be added as a lead firm. CPR r19.13 gives the court case management powers to appoint lead solicitors.

Turner J refused the application. He noted that adding another firm of solicitors would increase the aggregate claimants' costs bill and lead to a duplication of effort. Furthermore there had been disagreements between the existing and proposed firms: for example, the firm seeking to be added had instructed two experts to provide reports on the expert evidence already collated by the lead solicitors.

The judge noted that: "The important point is that the GLO framework requires firm and consistent organisation. Internal clashes between lead solicitors on significant matters of case management and control and flavoured by personal animosity are antipathetic to the orderly progress of the litigation as a whole". Furthermore, an increase in the number of lead solicitors was likely to increase the demands on the court's own resources.

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