Court refuses application for pre-action disclosure of insurance policy
The High Court has refused an application for pre-action disclosure of the public liability insurance policy of a company that, if litigation were pursued against it, was likely to become insolvent.
Peel Port Shareholder Finance Company Ltd were the owners of a warehouse that was damaged by fire. Peel Port alleged that the fire was caused by flame cutting work carried out by the insured, that the insured had no defence to the claim and that the claim was therefore highly likely to succeed. The insured was not insolvent but, according to Peel Port, would be unable to meet a judgment entered against it. If that happened the insured would be wound up.
The public liability insurers had denied the claim under the policy, relying on a "hot working" endorsement. They had set out the endorsement in correspondence with Port Peel but had not disclosed the full policy wording.
Application under CPR
Port Peel made an application for pre-action disclosure against the insurers under CPR 31.16, which gives the courts a discretion to make a disclosure order against a party that is highly likely to be a party to subsequent proceedings. It was accepted for the purposes of the application that the test was satisfied as, if the insured were put into liquidation, Peel Port would sue the insurers directly under the Third Parties (Rights against Insurers) Act 2010 (the 2010 Act).
CPR 31.16 allows the courts to make an order where it is desirable to dispose fairly of the case, assist the dispute to be resolved without proceedings, or to save costs.
Third Parties (Rights against Insurers) Act 2010
The insurers did not take issue with Peel Port's submission that the threshold under CPR 31.16 was met. Instead, they said that the court should not grant the application because to do so would ignore the 2010 Act.
The 2010 Act sets out a regime for the provision of information relating to available insurance cover where the insured is insolvent. This is similar (although not identical) to the regime under the Third Parties (Rights against Insurers) Act 1930, which the 2010 Act replaces. The insurers argued that if disclosure of insurance policies was available under CPR 31.16 there would be no point in the statutory regime. Moreover, the 2010 Act provides for the provision of information, not disclosure of the policy, and an order for disclosure would be inconsistent with the regime under the Act.
Jefford J accepted insurers’ argument, noting that the relevant provisions of the 2010 Act demonstrated that Parliament had not envisaged that CPR 31.16 would commonly be used to obtain disclosure of the insurance policies of insolvent insureds. Further, there is no express statutory provision entitling a litigant to obtain the insurance policy of a solvent insured and, in proceedings against the insured, CPR 31.16 would not provide a route for disclosure of the policy (because the policy would not meet the test for standard disclosure). The judge noted that in earlier cases (giving as examples West London Pipeline v Total (2008) and XYZ v Various (2013)), attempts to obtain disclosure of insurance policies under other provisions of the CPR had failed.
Against this background, the judge said that it would be curious if a potential claimant could obtain disclosure on the basis that a solvent insured might become insolvent and that the potential claimant might then have a claim against the insurers. The facts of the case, while not common, were not sufficiently exceptional to justify an order for disclosure of a solvent insured’s insurance policy.
As highlighted by the judge, the decision is in line with earlier cases where the courts have declined to order disclosure of a solvent insured’s insurance policies unless they are relevant to the issues in dispute in ongoing proceedings. While the decision leaves open the possibility that an order for pre-action disclosure could be made if the circumstances were considered very exceptional, it is clear that in the majority of cases applications against the insurers of solvent insureds will not succeed.
This is in contrast with the position where the insured is insolvent. Under the Third Parties (Rights against Insurers) Act 2010, there is a statutory duty on insurers, brokers and former directors of the insured (amongst others) to provide a potential claimant with defined information relating to the policy. The information that must be provided includes the identity of the insurers, the terms of cover and the remaining limit of indemnity. Although, as argued by the insurers in this case, the Act does not specify that the insurance policy must be provided, the requirement that the information should (if requested) include the terms of cover means that in practice it is likely that a copy of the policy will often be provided.