UNLOCKING LIABILITY: DIFFICULT DEFENDANTS
Daniel Lawson
Sarah Fraser Butlin
1.
This talk will address: a.
New structures within the NHS and the difficulties arising; b.
Vicarious liability; c.
Non delegable duties. d.
Insolvent Defendants e.
Third Parties (Rights Against Insurers) Acts 1930 and 2010
PRIVATE AND PUBLIC HEALTHCARE: NEW STRUCTURES; NEW
CHALLENGES
New structures within the NHS and difficulties arising
2.
The Health and Social Care Act 2012 introduced huge change to the NHS in particular regarding how services are commissioned and the scope of private health care firms to provide services within the NHS. For an excellent overview of the changes across the NHS, please see http://www.kingsfund.org.uk/projects/nhs-
65/alternative-guide-new-nhs-england .
3.
The establishment of Clinical Commissioning Groups has resulted in 200 groups made up mostly of GPs, taking over 60% of the NHS budget, which they must use to commission services for the public in their region.
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4.
There are two potentially interesting issues which arise with CCGs: a.
What duties apply to a CCG to ensure that the services they are commissioning are appropriate? b.
Is a CCG liable if they fail to ensure that proper indemnity arrangements are in place with the organisation they commission?
NHS documentation suggests that CCGs “will need to satisfy themselves that providers have adequate and appropriate indemnity arrangements in place” (see NHS Commissioning Board A special health authority
Frequently Asked Questions).
5.
A further aspect of the Act is to open the NHS up to competition and there appears to be movement in this direction. In particular s5 of the Act requires the Secretary of State to ensure freedom of competition in the provision of health services. This means that there is likely to be far greater scope for private health care providers to operate within what was traditionally the domain of the NHS. Inevitably this raises significant issues when it comes to determining who is liable for negligent treatment.
6.
There are also very real concerns about the challenges involved in establishing what the indemnity arrangements are in relation to the private healthcare providers. There are also concerns that there may be circumstances where there is inadequate insurance in place and thus, an indemnity gap.
7.
One possible route through for very recent cases is the Health Care and Associated
Professions (Indemnity Arrangements) Order 2014. This has amended various
Acts and requires medical practitioners to have “appropriate cover” for practising.
It covers doctors, nurses, midwives, chiropractors, opticians and many others.
“Appropriate cover” is defined as “cover against liabilities that may be incurred in practising… which is appropriate, having regard to the nature and extent of the risks of practising..”. The failure to have appropriate cover may result in the withdrawal of that person’s licence to practise. It may be that we see an increase in claims against individual practitioners.
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8.
Another aspect of significant change is that of GPs. Until 2004 GPs had personal responsibility for providing out of hours care to their patients. But in 2004 GPs could opt out of this provision and it was for the primary care organisations to commission care. This is where a number of cases have arisen: the use of GPs and locums who were inadequately qualified or unfamiliar with local protocols and processes. But more fundamentally in recent years there has been a huge fragmentation of out of hours care with NHS Direct, NHS 111, walk in centres and minor injury units (a recent example is Pringle v Nestor [2014] EWHC 1308.
These are staffed by people of varying experience and qualifications: one can no longer assume that a client was seen by a doctor when seen under out of hours provision.
9.
Finally the 2012 Act requires NHS England, CCGs, monitor and health and wellbeing boards to make it easier for health and social care services to work together. A similar duty is being placed on local authorities via the Care Bill.
There is additional funding being provided to ensure better linkages between the health and the social care systems and individuals are being given personal health budgets – an amount of money people can use in the way they want to in order to provide for their care needs.
10.
When considering vicarious liability it is essential to recall that it is imposed for policy rather than conceptual reasons:
Vicarious liability
“The policy objective underlying vicarious liability is to ensure, in so far as it is fair, just and reasonable, that liability for tortious wrong is borne by a defendant with the means to compensate the victim” (Lord Phillips, Various
Claimants v Catholic Child Welfare Society [2013] 2 AC 1 at para 34).
11.
This is expanded in paragraph 35 of the judgment:
“There is no difficulty in identifying a number of policy reasons that usually make it fair, just and reasonable to impose vicarious liability on the employer when these criteria are satisfied: (i) the employer is more likely to have the
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means to compensate the victim than the employee and can be expected to have insured against that liability; (ii) the tort will have been committed as a result of activity being taken by the employee on behalf of the employer; (iii) the employee’s activity is likely to be part of the business activity of the employer; (iv) the employer, by employing the employee to carry on the activity will have created the risk of the tort committed by the employee; (v) the employee will, to a greater or lesser degree, have been under the control of the employer.”
12.
There are two parts to the test of vicarious liability and they must be considered in turn. Firstly whether the relationship between the tortfeasor (D1) and the party said to be vicariously liable (D2) is capable of giving rise to vicarious liability.
Secondly whether there is a sufficient causative link between the relationship between D1 and D2 and the act or omission of D1.
13.
As to the first, it is clear that an employment relationship is a relevant relationship.
However there is no longer a need to consider the details of whether an individual is an employee in the employment law sense. Following E v English Province of
Our Lady of Charity [2013] QB 722, the test is whether the relationship is “akin to employment”. Or alternatively expressed as “whether the relationship … is so close in character to one of employer / employee that it is just and fair to hold the employer vicariously liable” (at para 73).
14.
This was explained by the Supreme Court in the Catholic Child Welfare case as arising where the defendant and the tortfeasor are not bound by a contract of employment but “their relationship has the same incidents” of employment (at para
47).
15.
Therefore for our purposes, a tortfeasor’s actual status becomes less important and only need be “akin to employment”. The issues will be highly fact specific and focus on the reality of the relationship. Thus the Ministry of Justice was vicariously liable for the actions of a prisoner working in the prison kitchen: Cox v
Ministry of Justice [2014] ICR 713. The Court of Appeal held that he was a
“quasi employee” performing useful work that was necessary for the functioning
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of the prison and avoided the need to employ someone at a full daily rate
(McCombe LJ at paras 43-46).
16.
The second question which must be considered is whether there is a “strong causative link” between the relationship between the defendant and the tortfeasor and the acts or omissions in question (see para 86, Catholic Child Welfare case).
17.
In many medical contexts it is quite clear that the acts of tortfeasor were the very acts for which they were contracted to undertake. Thus, where a surgeon is contracted to undertake ophthalmic surgery and does it badly, there is clearly a
“strong causative link” between the negligence and the relationship with the defendant.
18.
The difficulty usually arises where the act or omission is simply outrageous or illegal. Thus in the Catholic Child Welfare case the question was whether sexual abuse was sufficiently closely connected to the duties of a priest to give rise to vicarious liability. The Supreme Court emphasised that here liability was imposed
“where a defendant, whose relationship with the abuser put it in a position to use the abuser to carry on its business or to further its own interests, has done so in a manner which has created or significantly enhanced the risk that the victim or victims would suffer the relevant abuse” (at para 86).
19.
There is an ongoing Supreme Court challenge dealing with the requisite closeness between the relationship of the tortfeasor and defendant and the acts involved:
Mohamud v Morrisons Supermarkets Plc [2014] EWCA Civ 116 the Court of
Appeal rejected a claim that Morrisons were vicariously liable for the actions of an employee who was working within a kiosk of a petrol station and attacked a customer. The Court of Appeal rejected the claim of vicarious liability drawing a distinction between the cases where the employee ‘s duties involved a degree of confrontation and violence (such as Mattis v Pollock (t/a Flamingos Nightclub
[2003] 1 WLR 2158) and the employee at Morrisons who had express instructions not to engage in any form of confrontation (see para 35). Treacy LJ held that the case law indicated that “the mere fact that the employment provided the opportunity, setting, time and place for the tort to occur is not necessarily
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sufficient. They demonstrate that some factor or feature going beyond interaction between the employee and the victim is required” (at para 46). Consequently in this case there lacked the requisite close connection.
20.
However he did concede that “many would feel that, if the employee did what he did on the employer’s premises and at a time when the contact between the two men arose out of the fact that the employer was carrying on his business, the employer should be liable” (at para 48).
21.
One final point to flag is that where two defendants are potentially vicariously liable for the act of the tortfeasor, each defendant must be considered separately:
Catholic Child Welfare Society case at para 45. But it is possible to have two defendants who are both vicariously liable ( Viasystems (Tyneside) Ltd v Thermal
Transfer (Northern) Limited [2006] QB 510).
Non-delegable duties
22.
A non-delegable duty of care “has become the conventional way of describing those cases in which the ordinary principle is displaced and the duty extends beyond being careful, to procuring the careful performance of work delegated to others” (Lord Sumption,
Woodland v Swimming Teachers Association [2014] AC
571). The non-delegable duty of care arises in contexts where there is no vicarious liability: namely the negligence of those who are truly independent contractors.
23.
Does a hospital owe a non-delegable duty of care to any patient who is treated in it by any person who is engaged to perform functions on its behalf? How far should this extend?
24.
The answer to the first question is an emphatic yes. In X (Minors) v Bedfordshire
County Council [1995] 2 AC 633, Lord Browne-Wilkinson said:
“It is established that those conducting a hospital are under a direct duty of care to those admitted as patients to the hospital (I express no view as to the extent of that duty). They are liable for the negligent acts of a member of the hospital staff which
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constitute a breach of duty, whether or not the member of the staff is himself in breach of a separate duty of care owed by him to the plaintiff” (at 740).
25.
The real issue is the scope of that non delegable duty. Thus in A (A child) v
Ministry of Defence [2004] EWCA Civ 641 the Court of Appeal rejected a claim that the Ministry of Defence owed a non-delegable duty to a wife and child of a
British Army soldier when they were treated negligently by a German obstetrician in a German hospital. Lord Phillips rejected the argument that the duty should go beyond cases where the hospital was actually carrying out the treatment (see paras
32 and 33).
26.
This was expanded on by Smith LJ in
Farraj v King’s Healthcare NHS Trust;
Cytogenetic DNA Services Ltd
[2009] EWCA Civ 1203. She emphasised that “the rationale for [the non delegable duty of care by hospitals] is that the hospital undertakes the care, supervision and control of its patients who are in special need of care. Patients are a vulnerable class of persons who place themselves in the care and under the control of a hospital, and as a result, the hospital assumes a particular responsibility for their well-being and safety” (at para 88). The scope of the duty is to be determined by what is fair, just and reasonable (at para 91).
27.
When the Supreme Court considered the issue in Woodland , the case of a young girl who suffered a serious hypoxic brain injury during a swimming lesson. The lesson took place during school time but the swimming teacher was not employed by the education authority. After an extensive review of the authorities, Lord
Sumption set out the “defining features” which characterised the cases in which a non delegable duty had been found: a.
The claimant is a patient or a child, or for some other reason is especially vulnerable or dependent on the protection of the defendant against the risk of injury. b.
There is an antecedent relationship between the claimant and the defendant, independent of the negligent act or omission itself (i) which places the claimant in the actual custody, charge or care of the defendant, and (ii) from which it is possible to impute to the defendant the assumption of a
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positive duty to protect the claimant from harm, and not just a duty to refrain from conduct which will foreseeably damage the claimant. c.
The claimant has no control over how the defendant chooses to perform those obligations d.
The defendant has delegated to a third party some function which is an integral part of the positive duty which he has assumed towards the claimant; and the third party is exercising the custody or care and the element of control to fulfil that function. e.
The third party has been negligent not in some collateral respect but in the performance of the very function assumed by the defendant and delegated by the defendant to him. (at para 23).
28.
Therefore it is easily established that a hospital is under a non delegable duty towards a patient but there are considerable challenges around how far that extends in the context of the new and complex arrangements within the NHS.
INSOLVENT DEFENDANTS
&
RIGHTS AGAINST INSURERS
Introduction
1.
The Defendant is insolvent. There are insurers, but they are refusing to indemnify.
Can anything useful be done to take the claim forwards? This seminar aims to answer that question [with a qualified “Yes”].
2.
One must begin with some basic principles as to corporate personality and the effect of insolvency. Consideration then turns to the workings of the Third
Parties (Rights Against Insurers) Act 1930 (“the 1930 Act”) with the focus on practical options when faced with an intransigent insurer. Finally brief mention will be made of the Third Parties (Rights Against Insurers) Act 2010 (“the 2010
Act”). This received Royal Assent on 25 March 2010 but has still not been brought into force, 4½ years later.
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Defendant’s Identity
3.
This can be a critical background consideration. If D1 is insolvent and uninsured, one needs to know whether there is a viable D2. Some important points to bear in mind are set out below.
Corporate personality.
4.
The basic underlying principle is that a company is a legal entity distinct from its members. Thus the fact that one shareholder controls all the shares in a company is not sufficient reason for ignoring the separate legal personality of the company.
5.
The circumstances in which the Courts will “pierce the veil of incorporation” are extremely limited. In essence one must show that the corporate form is being used for the purposes of fraud.
Company directors.
6.
There are situations in which a company director (who may or may not also be a shareholder) can incur direct liability to a third party in tort. Whilst this is a separate topic of some complexity, one must in essence show that the director has the status of joint tortfeasor because he or she has “authorised, directed or procured” the tort. It is a last resort form of remedy that can at least be considered when the situation is otherwise desperate: see further Tafa v Matsim
Properties Ltd [2011] EWHC 1302 for a successful example.
Holding companies.
7.
The principle of separate corporate personality is applied as between companies in the same group. A holding company will not generally be held liable for the debts of its insolvent subsidiary.
8.
Recently it has, however, been recognised that there may be special circumstances where a parent company owes a direct duty of care in respect of the health and
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safety of the employees of a subsidiary: see Chandler v Cape Plc [2012] EWCA
Civ 525 and Thompson v Renwick Group Plc [2014] EWCA Civ 635.
TUPE transfers.
9.
In the employer’s liability field one must be conscious of the effect of transfers of undertaking when selecting the correct corporate defendant. The key decision is
Bernadone v Pall Mall Services [2000] IRLR 487.
10.
Where there has been a TUPE transfer of an employee’s contract of employment from company A to company B it was held in Bernadone that: (1) Any liability in tort that company A had to the employee passes under TUPE to company B. This means that the cause of action lies against company B and only company B . (2)
However an insured employer’s right to an indemnity under employers’ liability insurance also passes to the transferee. Liabilities will only be transferred if the claimant was company A’s employee at the time of the transfer of undertaking.
If, due to his injuries or otherwise, his contract of employment was terminated pre-transfer then company A alone is liable.
Duty to secure insurance.
11.
If D1 has no insurance, can a claim lie against some other solvent defendant on the ground that it had a duty to ensure D1 held liability cover? The answer, barring exceptional circumstances, is “No”. See, for example, Naylor v Payling
[2004] EWCA Civ 560 (nightclub owner owed no duty to ensure independent contractor door staff insured) and Richardson v Pitt-Stanley [1995] 1 All ER 460
(failure by company director to take out compulsory EL insurance could not found civil claim).
Practical points.
12.
Be wary of the fact that insurers are often involved in a claim by virtue of a group policy. The entity on behalf of whom an insurer corresponds is not necessarily the entity against which the formal cause of action lies. This can create difficulties, if liability has not been admitted and no solicitor has been nominated to accept service of proceedings. In cases of uncertainty: (1) Request confirmation
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of the correct legal entity in correspondence, if appropriate within the letter of claim itself. (2) Use the Companies House “webcheck” service to obtain basic details such as registered office, date of incorporation, solvency status and change of name. (3) If necessary follow up with a full company search of documents held at Companies House.
Insolvency and Liquidation
Corporate insolvency
13.
If one is dealing with a company that is still trading, but uninsured, the key question is simple: Is this company likely to have sufficient assets to satisfy judgment? The starting point is to examine statutory accounts filed at Companies
House.
14.
Beyond that there are a number of possibilities, each with different implications:
(1) The company is in compulsory liquidation. (2) The company is in voluntary liquidation (of which there are 2 types – members’ voluntary liquidation and creditors’ voluntary liquidation). (3) The company is in administration. (4) The company has been dissolved or struck off the register.
15.
The essence of the position in each situation is set out below, without purporting to provide full procedural guidance.
Compulsory liquidation.
16.
This is where a winding up order has been made by the Court. A liquidator is appointed whose identity and address can be obtained from Companies House.
Where a company is in compulsory liquidation the permission of the Court must be obtained to commence or continue with a personal injury action [s.130(2)
Insolvency Act 1986] This is done by way of application to the Companies
Court. If the purpose is to enforce third party rights against insurers leave will almost invariably be given. There is conflicting case law as to whether the Court can grant leave retrospectively. If one is in the position of having to save
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potentially invalid proceedings, advice from an insolvency specialist is recommended.
17.
At the conclusion of the liquidation process a company is dissolved. There is a procedure by means of which one can, if necessary, apply to the Secretary of
State for a direction deferring the date of dissolution [s.205 Insolvency Act 1986].
Voluntary liquidation
18.
Voluntary liquidation occurs when the shareholders of a company decide to put the company into liquidation. A members’ liquidation occurs when the company is in fact still solvent and the directors agree to make a statutory declaration that it can pay all its debts within 12 months. A creditors’ liquidation occurs when the company is insolvent. In either case no permission, from either the Court or the liquidator, is required to commence or continue proceedings against the company.
It is, however, good practice to inform the liquidator of proceedings. This will improve the prospects of the claimant obtaining advance notice of pending dissolution.
Administration .
19.
The company administration regime was revamped under the Enterprise Act 2002 with effect from 15 September 2003. Nearly all administrations after that date are dealt with under the provisions of Schedule B1 of the Insolvency Act 1986. An administrator can be appointed by court order, by the holder of a floating charge or by the company itself. Paragraph 43(6) of Schedule B1 provides a moratorium on legal process against a company in administration. No claim can be instituted or continued against the company without the consent of the administrator or permission of the court.
Dissolved and/or struck off companies .
20.
The procedure in respect of dissolved companies or companies struck off the register changed with effect from 1 October 2009 when sections 1029 to 1032 of the Companies Act 2006 came into force. The essence of the position is as follows: (1) At the end of the liquidation process a company will be dissolved.
Further a company can come to be struck off the register of companies if, as result
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of failure to file documents at Companies House, it is no longer deemed to be in operation. (2) The effect is basically the same in this sense - the company no longer exists as a legal entity. If one wishes to sue the company (almost invariably so as to enforce rights under the 1930 Act) an application must be made for its restoration. (3) Before 1 October 2009 there were two distinct statutory routes by which restoration could be secured, under s.651 and 653
Companies Act 1985. (4) There is now a single unified procedure under s.1030
Companies Act 2006. There is useful guidance on the detail of making an application on the Companies House website.
21.
If the purpose of the restoration application is to bring a claim for damages for personal injury (deemed to include fatal accident claims) it can be made at any time after dissolution, not just within the usual 6 year limit. Section 1030(2)
Companies Act 2006 provides, however, that no order shall be made on such an application if it appears to the court that the proceedings would fail on limitation grounds. If there is a potential issue as to limitation, principles stated in Smith v
White Knight [2002] 1 WLR 616 still apply. One should put evidence before the court to show that a s.33 Limitation Act application would succeed and give notice to interested parties, including the company’s insurers.
22.
The coming into force of the Third Parties (Rights Against Insurers) Act 2010 will have a major effect in this area because it will obviate the need to apply for restoration of the defunct company.
Individuals and partnerships
23.
The permission of the Court is required to pursue a claim against a bankrupt individual [s.285(3) Insolvency Act 1986]. Likewise if a winding up order has been made against a partnership permission is required to pursue proceedings against the firm or any individual partner in respect of a partnership debt
[combined effect of s.130(2), 221(5) and 228 Insolvency Act 1986].
Summary
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24.
Save in the case of voluntary liquidation of a company some form of application to the Court is required before one can sue an insolvent company, partnership or individual. When one relies on the 1930 Act the cause of action is against the tortfeasor not the insurer and very serious problems can arise if the permission is not in place before limitation expires or has been overlooked and needs to be sought retrospectively .
Third Parties (Rights Against Insurers) Act 1930
Preliminary points
25.
The regime of the 1930 Act is in force at the present time. Further there will be many claims still governed be the provisions of the 1930 Act even after the 2010
Act has come into force.
26.
The provisions of the 1930 Act apply both to personal bankruptcy and to company insolvency and receivership.
27.
Section 1 of the 1930 Act provides as follows:
“(1)
Where under any contract of insurance a person (hereinafter referred to as the insured) is insured against liabilities to third parties which he may incur, then—
(a) in the event of the insured becoming bankrupt or making a composition or arrangement with his creditors; or
(b) in the case of the insured being a company, in the event of a windingup order or an administration order being made, or a resolution for a voluntary winding-up being passed, with respect to the company, or of a receiver or manager of the company’s business or undertaking being duly appointed, or of possession being taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property comprised in or subject to the charge or of a voluntary arrangement proposed for the purposes of Part I of the
Insolvency Act 1986 being approved under that Part; if, either before or after that event, any such liability as aforesaid is incurred by the insured, his rights against the insurer under the contract in respect of the liability shall, notwithstanding anything in any Act or rule of law to the
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contrary, be transferred to and vest in the third party to whom the liability was so incurred.” [emphasis added]
28.
The Act thus effects a statutory assignment of rights under the contract of insurance.
Need for liquidated judgment
29.
Section 1 of the 1930 Act does not give the third party any right to recover monies from the insurer before the liability of the assured has been established: see Post Office v Norwich Union [1967] 2 QB 363.
30.
The correct procedure is therefore for the third party to sue the insured company and secure a liquidated judgment against it in the first instance. Only then can one seek to enforce transferred rights against the insurer.
31.
Hence the need, under the current regime, to restore defunct companies to the register in order to pursue claims that only have substantive worth by virtue of rights under the 1930 Act.
32.
The height of the matter is that the court may, in appropriate circumstances, allow a claimant to seek declaratory relief against an insurer before a liquidated judgment (i.e. judgment for a fixed sum, damages having been assessed) is obtained against the assured: see Hawley v Luminar Leisure [2006] IRLR 817 where this approach was adopted.
Insurers’ defences
33.
A critical feature of the 1930 Act regime is that the third party is in no better position than the assured. The Act simply transfers to him such rights as the assured may have under the contract of insurance.
34.
Thus any defence that the insurer might have to a claim under the policy by the assured binds the third party. Any of the following, by way of example, can potentially defeat a claim: (1) Breach of warranty by the assured. (2) Material
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non-disclosure or misrepresentation by the assured at policy inception. (3) Any valid construction point on scope of policy coverage. (4) Failure to comply with a clause making prompt notification of the claim a condition precedent to the liability of the insurer.
35.
If the insurance contract contains an arbitration clause this binds the third party.
As a matter of principle all contractual conditions will bind, subject to 2 provisos.
First, there can be no contracting out of the 1930 Act. Second, there is a key distinction between employers’ liability policies and general public liability policies. Employers’ liability insurance is compulsory and governed by a distinct statutory regime. By virtue of the Employers’ Liability (Compulsory Insurance)
Regulations 1998, provisions in the policy defeating a claim by reason of acts or omissions by the employer subsequent to the event giving rise to the claim (e.g. as to accident notification) have no effect.
Provision of information
36.
This is covered by s.2 of the 1930 Act. The liquidator or receiver of the company is under a duty to provide interested persons with such information as is reasonably required to enable them to determine whether they have acquired rights under Act. The duty to provide information includes a duty to allow policies and other relevant documents to be inspected and copies to be taken. If the information obtained discloses reasonable grounds for supposing rights have been acquired against a particular insurer, that insurer falls under the same duty.
37.
The position is more complex if one has a formally solvent defendant that is unlikely to be able to satisfy judgment. There have been conflicting first instance decisions as to whether a party can be under an obligation to disclose documents relating to its insurance position, or to provide the same information by Part 18
Request. The current weight of judicial opinion at first instance is against ordering such disclosure - see the review of authorities in Re PIP Breast Implant
Litigation [2013] EWHC 3643, though this is an area where clarification by the
Court of Appeal would be welcome.
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Challenging refusal of indemnity
38.
If an insurer has been identified but has indicated it is refusing indemnity the overriding focus must be upon securing sufficient information to determine whether the insurer’s position is justified.
39.
Tactics must be fact specific. It is nonetheless worth listing some of the core considerations that come into play: (1) Insurers repudiate liability for invalid reasons. Insurance litigation is like any other litigation – it is not all black and white, there is plenty of grey to argue over [see Hawley ]. (2) The chances of securing all relevant pre-action disclosure by application are minimal. (3)
Reasonableness is nonetheless the touchstone of pre-action conduct [see in particular the CPR Practice Direction – Pre-Action Conduct]. Costs protection is always improved if a prospective party has been offered opportunity to act cooperatively and put on notice of steps that will otherwise be taken. (4) The merit of joining insurers to proceedings from the outset, to seek declaratory relief as to their contingent liability to indemnify, will depend upon many factors, including their consent and the primary defendant’s formal solvency status. (5) Value of claim is often a key consideration. (6) As always, being on top of the issues early helps – before limitation looms and before there has been vast expenditure on expert evidence. (7) Reference to CPR r.40.9 is often an important tactical step. It provides: “A person who is not a party but who is directly affected by a judgment or order may apply to have the judgment or order set aside or varied”.
40.
Insurers need to rely on this provision. An insurer who has repudiated cover on borderline grounds will not be keen to have C enter default judgment against an insolvent assured, and still less keen to see damages assessed on an unopposed basis. It often assists to point out to insurers that if they refuse to involve themselves from the outset C will resist any later attempt to have judgment against their assured set aside (on the footing that timely and orderly involvement was invited, but turned down).
Third Parties (Rights Against Insurers) Act 2010
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41.
No deadline for implementation of the 2010 Act has been set. In a 25 April 2013
Ministerial Statement the government announced that it intended to introduce legislation to effect some technical amendments to the Act “when parliamentary time permitted”. The MoJ May 2014 report on implementation of Law
Commission proposals gave no further substantive update.
42.
As with the 1930 Act a statutory assignment of rights under the contract of insurance takes place when one of a series of insolvency events takes place. The main difference from the old regime is that the third party may bring proceedings to enforce the rights against the insurer without having first established the insured’s liability: s.1(2). This takes the form of claiming a declaration as to the insured’s liability to the claimant and as to the insurer’s potential follow on liability: s.2(2)
43.
One can therefore proceed without joining an already insolvent or defunct company to the proceedings at all. One simply sues the relevant insurer. Note, however, that there is nothing to preclude one suing the insured itself. That may be the safe course where, on the facts, there is room for argument as to whether the 1930 Act or the 2010 Act applies.
44.
An insurer’s contractual defences against the insured will continue to operate so as to potentially defeat a claim. There is, however, some easing of the position to prevent the most technical defences. For example, an insurer can no longer decline liability on the grounds the insured failed to notify him of a claim provided the third party has notified the insurer: s.9(1). Again, the provisions dealing with disclosure of information and documents are bolstered in comparison to the 1930 Act.
Transitional provisions
45.
These are set out in Schedule 3. If before the commencement date of the 2010 Act
(a) the insured incurs the liability to the third party and (b) the relevant insolvency event takes place then the 1930 Act will continue to apply. If either event
(liability or insolvency) occurs after the commencement date one can rely on the provisions of the 2010 Act. It follows that even for standard claims there is likely
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to be a time lapse before one can make use of the 2010 Act provisions. Moreover the 1930 Act will continue to apply to many long tail disease claims.
DANIEL LAWSON dl@cloisters.com
0207 827 4039
SARAH FRASER BUTLIN sfb@cloisters.com
0207 827 4060
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