In Norman Hay plc v Marsh Ltd (2024) Mr Justice Picken held that where a broker's negligence has resulted in no insurance being available, a claimant is not required to prove on the balance of probabilities that an insurer would have indemnified the claimant; instead the measure of loss will be the claimant's 'loss of chance' to recover under the hypothetical policy.
Background
The Claimant holding company, Norman Hay plc ("Norman Hay"), whose group companies were world leaders in specialist chemicals and were located across various jurisdictions, retained the Defendant ("Marsh") as the insurance broker to the companies within the Norman Hay group. As part of its retainer, Marsh placed cover on a country-by-country basis for policy year 2017/2018 and under a global liability programme for the policy years 2018/2019 and 2019/2020.
In November 2018, Mr Kelsall, an employee of one of Norman Hay's subsidiaries was involved in a road traffic accident in Ohio, USA. He was driving a hire car but had failed to take out insurance and was tragically killed. Ms Sage, the driver of the other vehicle was seriously injured and subsequently issued proceedings against various defendants including Norman Hay alleging that the accident was the result of Mr Kelsall's negligence whilst operating a hire vehicle in the course of his employment. It was argued that the Defendants were jointly and severally liable for the negligence of Mr Kelsall and thus jointly and severally liable to Ms Sage. Ultimately, the proceedings were settled for USD $5.5m (the "Settlement").
Norman Hay were not entitled to be indemnified for the settlement as it did not have worldwide non-owned auto cover (i.e. cover for hired vehicles) under the group's travel insurance policy.
The Proceedings
Norman Hay issued proceedings against Marsh for breach of contract or negligence for failing to arrange adequate auto insurance that would have indemnified Norman Hay in the event of the third party liability of its employees when driving hire cars in the course of business.
Marsh subsequently applied to strike out the claim or, alternatively, for summary judgment on the basis that:
- The Settlement did not establish a liability for which Norman Hay would have been entitled to an indemnity and that Norman Hay failed to plead that, hypothetically, it would have been indemnified by insurance;
- Norman Hay had not suffered the loss it was claiming as the Settlement was paid by an entity that had acquired Norman Hay; and
- Norman Hay could not prove the Settlement was reasonable as it would not disclose the advice upon which it relied when agreeing the Settlement.
Norman Hay argued that where a Claimant claims to have been deprived of insurance cover that would have provided an indemnity for a loss, the Court should determine whether the Claimant would have had a valid claim on the hypothetical policy.
Judgment
In deciding the application, Mr Justice Picken was required to determine whether Norman Hay had reasonable grounds for bringing the claim and whether the claim had a real prospect of success.
In the event, the application was refused and the claim was allowed to proceed. Picken J held that where an insured under a liability policy has to prove it is entitled to an indemnity under the policy (Astrazeneca Insurance Co Ltd v XL Insurance (Bermuda) Ltd [2013] EWCA Civ 1660), the same is not true where the claim relates to negligence by an insurance broker. In such a claim, it was open to the Court to consider what would have happened in the absence of negligence and whether the putative insurer would have engaged with the client and provided an indemnity or required the client to deal with the claim as a prudent uninsured.
The Court distinguished Dalamd Ltd v Butterworth Spengler Commercial Ltd [2018] EWHC 2558 (Comm) ('Dalamd'), a case which related to a broker's advice around material non-disclosure, with Mr Justice Picken stating that:
" .. Dalamd should not be treated as authority that the only way in which a claim against an insurance broker can succeed is if the Court is persuaded, on a balance of probabilities, that the claimant (the client of the insurance broker) would have recovered under the putative policy of insurance which, but for the broker's negligence, the claimant would have had. "
"I do not consider that Dalamd lays down an absolute rule that the merits of an alternative defence available to the putative insurer always have to be determined on a balance of probabilities and that it is not also open to the Court to assess the likely value of the claim against the insurer on a lost chance basis that takes into account the prospect of the insurer taking the position that it is not obliged to meet the claim."
In Norman Hay, the Court held that it was able to assess the potential claim against the Insurer on a lost chance basis, taking into account the Insurer taking the position that it was not obliged to meet the claim.
".. it would be open to Norman Hay to invite the Court at trial to conclude that, had a liability policy been in place which covered US hire car risks, then, Norman Hay would have obtained an indemnity either in full (if Norman Hay can establish that it was liable to Ms Sage as she alleged) or in a lesser amount assessed on a loss of a chance basis because the Court is persuaded that, in all likelihood, the putative insurer would have taken a pragmatic and commercial stance which would have seen it pay a partial indemnity, thereby avoiding the risk that Ms Sage's claim was not settled and so she ended up receiving more than the US$5.5 million which she agreed to accept and that the insurer was ultimately found to be liable to provide a full indemnity – in each case, with substantial costs having been incurred in the meantime."
The issue regarding Norman Hay's refusal to disclose the advice it relied on in agreeing the settlement was rejected, as it would be inappropriate to dispose of Norman Hay's claim on this basis when the disclosure stage had not been reached.
Comment
The essential difference between Dalamd and Norman Hay was that in Dalamd, the claimant had a policy of insurance which might have covered the loss, but the insurer disputed liability because of material non-disclosure and/or a breach of condition. The claimant only pursued a claim against the broker. In Norman Hay, however, the claimant's insurance simply did not cover the driving of hire cars on company business.
Although the Norman Hay decision is not binding, as it arose from an application, as a general rule of thumb, if a broker secures an insurance policy, the insurer denies the claim for non-disclosure or breach and the claimant pursues the broker, the Court will consider whether, on the balance of probabilities, the policy should have responded. If, however, the broker fails to secure insurance that covers a particular risk, the Court will instead evaluate the lost chance of securing insurance for that risk. This evaluation will include whether a putative insurer might decide to settle a claim for commercial reasons.
The Norman Hay decision is therefore a helpful clarification of the Court's approach in two subtly different situations.
