A summary of recent developments in insurance, reinsurance and litigation law.
This Week's Caselaw
Teal Assurance v WR Berkley: Court of Appeal holds payment into an escrow account did not mean that liability had been ascertained
The first instance decision in this case was reported in Weekly Update 15/15.
Black & Veatch Group Ltd (BVGL), a global engineering group, had the benefit of a five layer programme of professional liability insurance cover. Teal was BVGL's captive insurer. The Appellants (Reinsurers) reinsured the fifth layer in the tower (referred to as the "top and drop" layer).
In the relevant policy year BVGL faced a number of claims. One of those claims concerned the design and construction of a sewage works in Ajman. In December 2010 BVGL entered into entered into a Payment Deed and Escrow Agreement with the Ajman Claimant. The arrangements effectively formed part of a compromise agreement, under which BVGL was required to deposit $13.5 million in cleared funds into an escrow account. The terms of the Escrow Agreement then permitted the Ajman Claimant to draw down monies towards the construction of an additional piece of plant intended to improve the operation of the sewage works.
It was common ground that the right to indemnity in respect of a particular claim is triggered when the insured's liability to a third party is established and ascertained by judgment, arbitration award or settlement (and in this context that "ascertained" is synonymous with "quantified").
The particular question on appeal was whether:
- As had been held at first instance, and as Teal contended, BVGL's liability was not established and ascertained unless and until monies were drawn down from the Escrow Account by the Ajman Claimant; or
- As the Reinsurers contended, BVGL's liability was established and ascertained when the monies were paid into the Escrow Account by BVGL.
The answer to the question would determine when there arose an immediate enforceable obligation on BVGL's professional liability insurers to indemnify BVGL, on the basis that the money was a sum BVGL had "become legally obligated to pay as Damages" (which was the language of the insuring clause). Given the different terms on which the different layers were written, this would determine whether BVGL got cover.
Reinsurers' argument was that the payment into the Escrow Account amounted to an established liability on the part of BVGL which required it to physically part with a sum of money. This was notwithstanding that it was conceivable that some or all of the monies might be returned to BVGL. Reinsurers argued that this was consistent with Cox v Bankside, in which the Court of Appeal had recognised that an interim payment on account of damages did trigger a right to indemnity under the policy (notwithstanding that it was conceivable that the Court could ultimately make a lesser award such that some monies might need to be returned).
The Court of Appeal dismissed Reinsurers' argument and found that the deed and payment did not trigger a liability under the policy to indemnify. This was on the basis that the requirement in the Escrow Agreement that BVGL pay monies into the Escrow Account did not amount to an obligation upon BVGL to "part with its money", given that there remained various conditions to be fulfilled before the monies could be drawn down from the Escrow Agreement Tomlinson LJ, giving the lead judgment of the Court of Appeal, considered the terms of the Escrow Agreement and found, amongst other things, that the sums had not been paid away and might be released back to BVGL, that interest accrued on the money for BVGL whilst in escrow, and that the agreement identified no specific sum which, without more, BVGL was required to pay the Ajman Claimant. Tomlinson LJ considered that a closer analogy than an interim payment (which he described as a minimum amount that will be due by way of damages) was a judgment for damages to be assessed. It would therefore be the payment out of the Escrow Account on ascertainment of a liability that would constitute a loss.
Given the findings of the Court of Appeal as to the particular construction of the Escrow Agreement and Payment Deed, it was not necessary for the Court of Appeal to consider arguments as to how Cox v Bankside would have been decided had it involved alternative facts.
Pickard v Marshall: Court of Appeal considers the applicable law under the Rome II Regulation where accident involved a number of persons and vehicles
The first instance decision in this case was reported in Weekly Update 44/15. The case involved an accident in France in which an Englishman was killed (and his colleague seriously injured). The accident involved a number of persons and vehicles and the issue in the case was which governing law applied under the Rome II Regulation. This was important because under English law, the English driver would not be liable to the deceased's widow, whereas he would be liable under French law.
At first instance, the judge found that French law was the applicable law because of the application of Article 4(3) of the Regulation, which provides that, where it is clear from all the circumstances of the case that the tort is manifestly more closely connected with another country (other than one indicated by the application of Articles 4(1) or 4(2) of the Regulation), the law of that country shall apply. On the facts, he had found that English law might apply under Article 4(2) but that Article 4(3) applied to return the governing law to French law (which applied because of Article 4(1)).
The defendants appealed and the Court of Appeal has now dismissed that appeal.
It held that the phrase "all the circumstances of the case" in Article 4(3) is not restricted to the circumstances of the case brought by the victims against a tortfeasor. Although Article 4(3) is an escape clause, its ambit is not unduly narrow. Whilst certainty is important, so is doing justice in individual cases. The judge had been entitled to take account of the facts that: both Englishmen had been hit by a French-registered car driven by a French national; that collision was the cause of the accident, subsequent collisions and the injuries sustained; and claims by the Englishmen against another were also governed by French law. The judge had therefore been correct to find that French law applied.
Pickering v Davy: Court of Appeal considers whether limitation period ceased to run against a claimant when company was struck off the register
The court has power under the Companies Act 2006 to make a direction preventing a limitation period from running during all or part of the period in which a company is dissolved or struck off the register (in order to place the company (and anyone else) in the same position as if the company had not been dissolved or struck off). Prior caselaw has concentrated on whether the direction should be made in favour of the company, to allow it to bring a claim. However, in this case, the issue was whether the claimant was entitled to the direction in order to bring a claim against the company.
At first instance, the judge had made the direction on the basis that there had been a "window of opportunity" (if only a small one) during which the claimant might have issued proceedings had the company not been struck off the register.
The Court of Appeal has now allowed the appeal from that decision. It held that the judge had set the bar too low. Instead, the correct test to be applied was whether the claimant can show a clear causal link between the company's dissolution and the failure to bring proceedings within the applicable limitation period. Applying that test to the facts of the case, the Court of Appeal concluded that there was "no more than speculation" as to what might have happened had the company not been struck off and it was not possible to conclude that the claimant might well have issued proceedings.
Lloyds Bank v McBains Cooper: Court considers the costs consequences of withdrawing a Part 36 offer
In October 2013, the claimant offered to accept £700,000 in a Part 36 offer. In January 2014, it offered to accept £310,000 in a further Part 36 offer. That offer was subsequently withdrawn. The claimant was eventually awarded just over £400,000. An issue then arose as to the weight to be given to the January 2014 offer.
The CPR provides that a withdrawn Part 36 offer ceases to attract the Part 36 costs consequences, but can be taken into account when the court exercises its discretion under CPR r44.3. The claimant sought to rely on Stokes Pension Fund v Western Power , in which the Court of Appeal held that a defendant who had made an offer which did not comply with Part 36 was nonetheless still entitled to the same costs consequences as if it had been a valid Part 36 offer.
Edwards-Stuart J referred to conflicting prior cases on this point and concluded that the claimant's withdrawn offer should not be treated as if it was the equivalent of a Part 36 offer: "I say this for two reasons. First, the rules specifically provide that offers that are withdrawn are not to be so treated. Second, the January 2014 offer was replaced by an offer which was far less favourable to [the defendant], thereby indicating that the [the claimant] was no longer prepared to accept the lower sum - so why should [the claimant] be treated as if the January 2014 offer was somehow still in place? I see no reason why it should". Accordingly, the claimant was not entitled to its costs on the indemnity basis.
COMMENT: The conclusion in this case is the same as that reached by the judge in Gulati v MGN Ltd (see Weekly Update 24/15), where it was held that Stokes did not help the claimant as it was decided under a former Part 36 regime and nor did it matter that the claimant was not seeking all the costs consequences under Part 36 – the award of indemnity costs was said to be a "very significant" consequence.
Holyoake v Candy: Subject access requests and reliance on the legal professional privilege exemption
The Data Protection Act 1998 ("DPA") provides that material protected by legal professional privilege is exempt from the subject information provisions (the "LPP Exemption"). The defendant claimed the benefit of the LPP Exemption when served with a subject access request ("SAR") by the claimant.
A preliminary issue was whether it mattered why the defendant had made the SAR. There is currently uncertainty on this point: Some prior caselaw supports the view that the subject access regime is "purpose blind", whereas other cases support the view that a SAR cannot be made in order to obtain early disclosure for the purpose of present or contemplated legal proceedings. This matter is currently before the Court of Appeal and so the judge in this case did not rule on it. On the facts, though, he thought that there was a risk of a substantial overlap with disclosure in legal proceedings.
Warby J also accepted the general proposition that personal email accounts which are not processed by a company as the data controller do not need to be searched, but said that that proposition may not apply in an individual case: "A company director who has used a personal email account for corporate business may owe the company a duty to allow access to that account, if that is needed to enable the company to comply with a SAR. But I do not believe the company is bound to ask the question unless there is some sufficient reason to do so".
It was accepted that litigation privilege applied to the data in question. However, the claimant argued that the LPP Exemption could not be claimed where privilege was "designed to act as a cloak for crime or fraud".
The judge held that a strong prima facie case of iniquity had to be proven. The criminal conduct alleged here was unlawful obtaining of personal data (falling under section 55 of the DPA) by surveillance. However, the judge found, on the facts, that there had been no surveillance and held that "It cannot be said that the instruction of private investigators necessarily involves a breach of s 55, or even that it is inherently suspicious. That is clearly not the case".