The claimant was involved in an accident with the defendant and alleged that the defendant was at fault. The defendant's insurers admitted liability in April 2013 but did not make any further settlement offer, despite hire charges continuing to accrue and being chased by the claimant's solicitors over 5 times. Proceedings were then issued against the defendant alone in July 2013 and default judgment was obtained a month later. A further hearing assessed damages but the insurers were not notified of the hearing before it took place. When they were told about the award, they then instructed solicitors (in November 2013) and an application to set aside the default judgment pursuant to CPR r13.3 was made, and subsequently granted. The claimant appealed against that decision and the insurers then alleged that the claim was fraudulent and that the claimant and defendant had known each other before the accident.
The Court of Appeal has now held as follows:
- The judge had been wrong to regard allegations of fraud as providing an exemption from the tests set out in Mitchell (see Weekly Update 43/13) and Denton (see Weekly Update 26/14).
- The tests set out in Denton apply to applications under CPR r13.3.
- A default judgment cannot be set aside as a matter of course just because an arguable fraud has been alleged, however long after that judgment the application is made.
- The delay of two months, including the Christmas period, taken by the insurers to investigate the claim after the solicitors were instructed "may not, in itself, be unreasonable". However, there had been no explanation for the delay in instructing solicitors in the first place, or in commencing the investigation.
- The insurers had shown a real prospect of successfully defending the claim (the first part of CPR r13.3). However, the court is entitled (under the second part of CPR r13.3) to take into account whether the application had been made promptly. The Court of Appeal held that after admitting liability in April 2013, the insurers had known it was at risk of proceedings but they had failed to instruct solicitors for a further 7 months. The insurers could also have found out "with reasonable diligence" about the default judgment by the end of September 2013 (and so could then have applied to set it aside). It was held that: "The court cannot ignore that insurers are professional litigants, who can properly be held responsible for any blatant disregard of their own commercial interests".
- Applying the tests laid down in Denton, there was no reasonable excuse for the insurers' delay: "The insurer could and should have protected itself when it knew proceedings were being issued by appointing solicitors to accept service on behalf of [the defendant]…. It cannot avail an insurer in this position to say it was not a party to the claim at that stage. It was directly affected by it and knew that it had to protect its interests from the moment liability was admitted. It was able at any stage to conduct [the defendant's] defence".
- Nor should the order assessing damages be set aside pursuant to CPR r39.3(5). This rule refers to a party who has failed to attend trial for a good reason: "There is an anomaly in the conditions, because they apply to "a party who failed to attend the trial" and the insurer was not such a party. But in a case of this kind, it seems to me that the insurer cannot be regarded as being in a better position than its insured". If the insured failed to protect the insurers' interests (because, it is alleged, he was colluding with the claimant), that is a matter between the insurers and the insured and the insurers will have to pursue what remedies they can by way of a new fraud action.
COMMENT: One point of more general interest in the case is the Court of Appeal's confirmation that a period of two months (including the Christmas period) to investigate a (at the time) low value road traffic accident claim may be reasonable. That is noteworthy because of the potential changes to English law allowing for late payment damages where an insurer has unreasonably delayed paying a claim. It may be recalled that in Brit UW Ltd v F&B Trenchless Solutions (see Weekly Update 29/15), the judge cited a period of 4-5 months as being a reasonable timeframe to allow investigation of a complex claim under a contractors' combined liability policy (plus a decision on whether to avoid). Those two decisions therefore give some indication of the amount of time which the courts may allow for insurers to investigate a claim, if the Enterprise Bill is passed.