Calculating a meaningful claims reserve figure can be a frustrating process when dealing with a loss of chance claim. However in the recent decision of Whatley v Philips, the privy council has now helpfully confirmed the principles to be applied when any loss caused by the professional’s negligence depends on the hypothetical action of a third party (for example, the court in a lost litigation claim, or a seller/buyer in a lost transaction claim).
The claimant lost the chance to bring a claim for personal injury arising out of an accident at work. The intended defendant company had been wound up. Any claim would therefore have to have been made under that company’s EL insurance policy. The EL insurers had reserved rights under the policy, due to the company’s failure to notify (a condition precedent).
The court therefore first had to consider whether the claimant’s chance of establishing liability against the company was more than negligible; if so, then secondly, the percentage prospects of:
- establishing that liability; and
- the percentage prospect of recovering any money from insurers.
It then multiplied those two assessments together to achieve the overall percentage of the original claim that would be awarded as loss under the professional indemnity claim. The case history was as follows:
- The trial judge assessed both at 25 per cent, and awarded 25 per cent of the original claim.
- The Gibraltar court of appeal found that the prospect of establishing liability was 100 per cent, and of recovering from insurers, 80 per cent, providing an overall figure of 80 per cent.
- The privy council thought the trial judge too pessimistic, and the Gibralter appeal court too optimistic! It found that the prospects at (1) were 70 per cent and at (2) were 40 per cent. Multiplied together, the overall loss awarded was 28 per cent of the original claim.
Commentary – the three stage test Importantly, the privy council reaffirmed the principles which apply when dealing with loss of chance claims. The three questions to be applied to the circumstances are:
- can the claimant show on the balance of probabilities that if it had not been for the negligence, it would have pursued the opportunity (eg, to bring a claim) or avoided the risk (eg, pulled out of a burdensome contract). If yes, then;
- was the chance to take the opportunity/ minimise the risk real as opposed to negligible or speculative. Percentages as low as 15 per cent have been sufficient for professional negligence claims to succeed. If yes, then;
- in percentage terms, what was the value of the chance? The court will do its best on the available evidence. Whether or not to hear “new” evidence will be decided on a case by case basis. The court will not conduct a trial within a trial.
If there were a number of issues in the underlying action that would have impacted on the chance, those issues will be assessed individually and the percentage chances multiplied together.
Whilst the three-stage test appears to be here to stay, unfortunately, as shown in Whatley, three different courts can assess the chances of success at vastly differing rates!