Background
Mr Kelsall, an employee of one of Norman Hay Plc’s subsidiaries, caused a car accident in which he was killed and the other driver, Ms Sage, was seriously injured. Mr Kelsall had not taken out personal motor cover and Ms Sage sued Norman Hay, alleging that Mr Kelsall was acting within the scope of his employment when the accident happened.
Norman Hay settled Ms Sage’s claim and brought a claim against Marsh Ltd, its insurance broker, alleging breach of contract and negligence in relation to Marsh’s alleged failure to obtain worldwide non-owner auto cover on behalf of Norman Hay and its subsidiaries. Norman Hay claimed a loss of £5.5m. Marsh subsequently applied to strike out the claim or have it dismissed via summary judgment, arguing that Norman Hay could not prove that it would have been indemnified under a hypothetical insurance policy.
First instance
Mr Justice Picken rejected Marsh’s application.
Marsh had argued that no insurance policy would have paid Norman Hay’s claim, as Norman Hay had not pleaded that it was liable to Ms Sage, thus no recoverable loss was suffered.
Marsh relied on two arguments, the first being the established proposition that if an insured wishes to make a claim under its insurance in relation to its liability to a third party, it must show that it is liable to the third party and cannot simply rely on a settlement agreement as evidence of liability: Enterprise Oil v Strand Insurance Co [2006].
The second proposition, taken from Dalamd Ltd v Butterworth Spengler Commercial Ltd [2018] (‘Dalamd’), is that where a policy is in place and a broker is sued for failing to obtain effective cover, the insured must show on the balance of probabilities that cover is not available under the policy.
In finding against Marsh, Mr Justice Picken distinguished Dalamd and held that there was a difference between an insured making a claim against a broker and making a claim against an insurer. In Dalamd, the insured had chosen not to pursue the insurer; however, Norman Hay did not have an insurer to pursue.
For further analysis of Mr Justice Picken’s decision see our Legal Update: Loss of Chance in broker's negligence claim | DWF Group
Court of Appeal
Marsh appealed.
The Court of Appeal dismissed Marsh's appeal, agreeing with Mr Justice Picken’s earlier decision. Lord Justice Males, handing down the leading judgment, noted that while Norman Hay’s claim faced challenges, factual issues needed to be resolved. In particular, there was insufficient evidence about Marsh’s retainer, the scope of its responsibility and whether a reasonable broker in Marsh’s position would have arranged or advised about the availability of non-owner auto cover which extended to the US. There was also insufficient evidence about the terms of such cover.
The Court of Appeal also considered Picken J’s ruling.
Marsh sought to rely on AstraZeneca Insurance Co Ltd v XL Insurance (Bermuda) Ltd [2013] EWCA Civ 1660 (‘AstraZeneca’), which established that an insured is only entitled to an indemnity under a policy if, on the balance of probabilities, the insured can show that it was actually liable for the claim. This holds true even if the insured has settled the claim or been found liable by a court, as the settlement could have been wrongly entered into or the court could have made a mistake.
AstraZeneca, however, relates to claims against insurers. The Court of Appeal held that this rule does not apply to a claim against a broker, as such claims should be decided on a loss of a chance basis. The insured may argue that had a policy been taken out, even if a loss was not technically covered the insurer might still decide that it was prudent or proper to make a payment.
As Lord Justice Diplock said in Fraser v BN Furman (Productions) Ltd [1967] 1 WLR 898,
“What damage [the Claimants] have suffered does not depend upon whether [the Insurers] would have been entitled as a matter of law to repudiate liability under their standard policy, but whether as a matter of business they would have been likely to do so. ...Even if [the Insurers] would have been entitled in law to repudiate liability, it does not in my view follow that [the Claimants] would be entitled to no damages. The court must next consider, in that event, what were the chances that an insurance company of the highest standing and reputation, such as [the Insurers], notwithstanding their strict legal rights, would, as a matter of business, have paid up under the policy.”
The Court of Appeal confirmed that Lord Justice Diplock’s approach accorded with the Supreme Court’s guidance in Perry v Raleys Solicitors [2019] UKSC, [2020] AC 352 about when claims should be assessed by reference to loss of a chance:
‘’For present purposes the courts have developed a clear and common-sense dividing line between those matters which the client must prove, and those which may better be assessed upon the basis of the evaluation of a lost chance. To the extent (if at all) that the question whether the client would have been better off depends upon what the client would have done upon receipt of competent advice, this must be proved by the claimant upon the balance of probabilities. To the extent that the supposed beneficial outcome depends upon what others would have done [in this case insurers], this depends upon a loss of chance evaluation.’’
The Outcome
Although Lord Justice Males dismissed the appeal, he explicitly approved a passage in Jackson & Powell on Professional Liability, 9th Edition 2022,
“In assessing the claimant's loss, the court is not strictly concerned with what the insured was entitled to recover under the relevant policy of insurance (where some policy was arranged). Instead, the court has to assess, on the balance of probabilities, what would have occurred had there been no breach of duty by the broker. Consequently, if the court finds that an insurer would or might have made a payment to the claimant but for the broker's negligence, then the claimant will recover damages even if (as a matter of law) the claimant would not have been entitled to any payment from the insurer. The court will assess the likelihood that the claimant would have received a payment from the insurer. If, as a result of the broker's negligence, there is uncertainty as to the claimant's likely recovery from the insurer, then such uncertainty will be resolved in favour of the claimant.”
Lord Justice Males considered that if it was clear that there was a valid claim under the policy, there was no need to apply a discount to reflect the uncertainty of recovery. Conversely, if it was clear that there was no valid claim under the policy, the case would fail as there would not be a real and distinct prospect of success necessary to assess the loss of a chance.
Additionally, Lord Justice Males observed that although there were no submissions on appeal addressing reflective loss, Marsh was engaged by Norman Hay to arrange insurance for all the companies in its group. Therefore, subject to Marsh’s retainer, it may have owed a duty to Norman Hay to arrange suitable insurance for the subsidiary; Lord Justice Males held that he ‘’would not accept without hearing …that Norman Hay does not itself suffer a loss in that event….’’
Moreover, Norman Hay had alternative ways of putting its case which did not depend on Marsh having arranged insurance. For example, had Norman Hay been told that non-owned auto cover was not available, it could have given instructions to its employees to take out their own insurance, which would have avoided the problem. Alternatively, a prior policy taken out by the subsidiary, which provided €3m cover, might not have been cancelled.
Comment
This case is illustrative of the proposition that when applying to strike out a claim or for summary judgment, the burden is on the applicant, and the test is whether the claim or defence has a real prospect of success. Even if one route to damages will not work, the Court will not strike out a claim if there are other possible routes (though it might strike out part of a claim).
But the key takeaway is that where, because of an insurance broker’s negligence, there is no insurance policy in place, the Court will apply loss of a chance principles in order to consider whether the insured would have recovered against a hypothesised policy, rather than considering whether, on the balance of probabilities, the insurer was liable for the claim.
Authors:
Harriet Quiney - Partner
Trishna Radia - Apprentice Solicitor
