Exercise of insurer’s discretion to indemnify insured/vicarious liability

http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/QB/2014/1024.html&query=title+(+whetstone+and+medical+and+protection+)&method=boolean

The claimant owned a dental practice at which another dentist - Mr Sudworth - worked as an associate. Mr Sudworth admitted negligence in professional disciplinary proceedings. The defendant is a not for profit mutual organisation which, amongst other benefits, provides an indemnity to qualifying applicants in respect of a qualifying claim. The grant of an indemnity is entirely within the discretion of the defendant. The defendant rejected the claimant’s claim for indemnity after various patients commenced proceedings against him and Mr Sudworth. Judge Richard Seymour QC held as follows:

  1. The claimant’s claim for an indemnity in relation to one third party failed because he had not requested an indemnity prior to the commencement of proceedings by that third party 
  2. In relation to another third party claim, the defendant’s refusal of indemnity was not unfair, irrational or otherwise subject to challenge. A court will interfere with the exercise of a discretion only in exceptional cases. The judge rejected an argument that if a discretionary decision was based on a number of grounds, and one of those grounds was erroneous, the decision cannot stand. As long as there is at least one ground for the decision which objectively justifies the result, the court will not interfere. In this case, a letter sent by the claimant to patients had prejudiced a defence of any future claims and justified a refusal of indemnity. That was because the letter had given to those patients a clear message that (in the words of the judge): “There is a pot of money here. You can have some of it if you sue”
  3. Although not required to decide the point, the judge concluded that the claimant had been vicariously  liable for Mr Sudworth’s negligence. Although not an employee, the relationship was “akin to employment”. The claimant exercised a high degree of control over Mr Sudworth and his activities. The claimant set his hours of work and fees and provided the necessary equipment and support staff