The Technology and Construction Court in England has refused pre-action disclosure of the insurance policy of a currently solvent insured, notwithstanding that a successful claim would have resulted in the insolvency of the insured.
In Peel Port Shareholder Finance Company Ltd v Dornoch Limited, the claimant's ("Peel Port") warehouse was damaged by a fire caused by the defendant, European Active Projects Ltd ("EAPL"). Peel Port's claim was for sums in excess of £1 million. Peel Port argued that should a judgment against EAPL for that sum be enforced, which was highly likely as EAPL had no defence to the claim, it would result in EAPL becoming insolvent (although EAPL was solvent at the time of the application).
EAPL was insured by Dornoch Limited (the "Insurers") who denied that the fire was covered by EAPL's policy on the basis that EAPL had not complied with the endorsement to their public liability policy which required that certain precautions be taken by EAPL in the handling of flammable insulation material.
Although the endorsement to the policy had been disclosed, Insurers refused to disclose the full insurance policy and EAPL were not obliged to disclose it in accordance with the established principle that a claimant takes a defendant as they find them. Peel Port applied for disclosure of the full copy of the insurance policy under CPR 31.16 (pre-action disclosure) and s.33 (2) of the Senior Courts Act 1981.
The parties' submissions to the Court
Peel Port submitted that the jurisdictional threshold set out in CPR 31.16 was met because in the event that EAPL was put into liquidation, Peel Port and Insurers were likely to be parties to proceedings if they were commenced. In those proceedings, it is accepted that the policy would be disclosable in order to assess the effect of the endorsement. If the full insurance policy was disclosed now and Peel Port was then satisfied that the endorsement was effective, thereby excluding insurers' liability, it would not pursue EAPL (thereby avoiding putting it into liquidation) and in turn, it would not pursue Insurers, thus avoiding wasted litigation and costs.
Conversely, Insurers argued that the granting of pre-action disclosure under CPR 31.16 would ignore the provisions of the Third Parties (Rights against Insurers) Act 2010 (the "2010 Act").
Insurers' submissions were, in summary, that where a claimant sues a defendant, and that defendant is insured, the general position is that the insurance policy is not disclosable because it is not relevant to any issue in the case. However, where the insured defendant is insolvent, the claimant may have a direct claim against the defendant's insurers under the 2010 Act (as compared to the provisions of the old 1930 Act which required the claimant to establish liability before it was able to bring a claim against the defendant's insurers). The 2010 Act contains a specific regime applicable to the provision of information about the defendant's insurance position under Schedule 1 of the 2010 Act. Therefore, there would have been no need for Parliament to have passed the 2010 Act if disclosure of the insolvent defendant's insurance policy could be obtained under CPR 31.16.
Moreover, the 2010 Act draws a clear distinction between the provision of information and disclosure such that only the provision of information can be obtained under the 2010 Act.
Mrs Justice Jefford agreed with Insurers' submissions that Schedule 1 demonstrates that Parliament did not envisage that CPR 31.16 would be used to obtain insurance policies from the insurers of insolvent insureds and Peel Port's pre-action application was refused. To find otherwise would have meant that Parliament would not have passed the 2010 Act conferring this right. She further confirmed that there has never been any express statutory provision enabling a party to obtain disclosure from the insurer of a solvent company and that CPR 31.16 (permitting her to exercise her discretion with respect to disclosure from third party defendants) did not provide an alternative route to claimants outside of the 2010 Act.
The Judgment has reaffirmed that, in accordance with the position under the 2010 Act, a claimant's right to obtain information from another party's insurers where the claimant reasonably believes that the defendant has incurred a liability to the claimant, arises where the defendant is insolvent. It is not sufficient to show that the defendant is likely to become insolvent if the claimant's claim is successful and a judgment against it is enforced. The decision is consistent with previous decisions refusing to permit the disclosure of a solvent defendant's insurance policy under different parts of the CPR.
Interestingly, in forming this view the Court considered that the circumstances in this case did not constitute "sufficiently exceptional circumstances" for it to order disclosure of a solvent insured's insurance policy contrary to established practice. Whilst this suggests that CPR 31.16 may be construed as an alternative to the provisions of the 2010 Act where "sufficiently exceptional circumstances" arise, given the history of case law where Courts have rejected applications for the disclosure of an insurance policy, the scope of what may fall within "sufficiently exceptional circumstances" would seem to be very narrow.