“The court cannot ignore that insurers are professional litigants, who can properly be held responsible for any blatant disregard of their own commercial interests.” - Gentry v Miller & Anor  EWCA Civ 141at 34.
Such was the warning sent to insurers by the Court of Appeal earlier this month in allowing a Claimant’s appeal against a decision to set aside default judgment in what the Defendant’s insurer alleged was a fraudulent claim.
The Claimant, Mr Gentry, alleged that he was in a road traffic accident with a Mr Miller on 17th March 2013 in a claims notification form valuing the claim at under £10,000. On 2nd April 2013 Mr Miller’s insurer admitted liability. On 8th April the Claimant’s solicitors wrote requesting immediate payment of the pre-accident value of his car (being £16,000) and warning that until that was received he was hiring a replacement vehicle under a credit hire facility.
Proceedings were issued against Mr Miller alone on 3rd July and on 8th August the Claimant obtained default judgement. At no point in this period did the insurer instruct solicitors and it replied to only one of seven letters.
In late August the insurer made a voluntary interim payment of £14,000 and a Part 36 Offer of £1,870. A further interim payment of £2,000 was ordered in September and paid. At a disposal hearing on 17th October 2013, DJ Benson awarded the Claimant damages of £75,089 consisting mostly of hire charges.
On receipt of notification of this award the insurer instructed solicitors who, on 25th November, issued an application referring to CPR 13.3 (1).
On 10th February 2014 those same solicitors applied to come off the record for Mr Miller, to add the insurer as the second defendant and to set aside both the default judgment and the order of 17th October. For the first time they alleged that Mr Gentry and Mr Miller were well known to each other and that the claim was a fraud.
The application to set aside was granted by DJ Henthorn on 17th March 2014 and on 4th February 2015 Mr Recorder Gregory (as he then was) dismissed the Claimant’s appeal.
The decision of the Court of Appeal
The Court of Appeal considered the applications under CPR 13.3 and 39.3.
In relation to the former Vos LJ was satisfied that the Defendant had demonstrated that it had a real prospect of successfully defending the claim but had to consider under CPR 13.3 (2) whether the application was made promptly.
The delay to the application of 25th November was inexcusable. In particular Vos LJ noted that the insurer:
- Failed to adduce any evidence of its postal systems to explain how documents might not have reached it;
- Must have been aware after admitting liability at the beginning of April 2013 that it was at risk if it did not defend or attempt to settle the claim;
- Did not instruct solicitors or investigate fraud in the seven months after that admission;
- Was repeatedly warned of hire charge risks so that the suggestion that it believed the claim to be small and therefore impliedly not worth investigating did not hold water;
- In ignoring those warnings allowed the claim to grow;
- While not notified of the default judgment of 8th August as promptly as it might have been, clearly knew that proceedings were on foot when it made a Part 36 offer on 22nd August;
- Must also have been aware of proceedings when it paid the interim payment ordered by the court;
- Upon receiving costs schedules on 19th and 23rd September sent “ahead of the upcoming application hearing”, made no enquiry as to what that hearing was about.
The court’s analysis then continued by application of the Denton test. It was common ground that Mr Miller’s default in not filing an acknowledgment of service was serious or significant. The fact that it was not served with the proceedings gave the insurer some reasonable excuse or explanation but it could and should have protected itself when it knew proceedings were being issued by appointing solicitors to accept service on behalf of Mr Miller. Finally, looking to all of the circumstances and in particular factors a) and b) it was held that “insurers are in a particularly good position to conduct litigation efficiently and proportionately and to comply with rules and orders”. It cannot avail an insurer who knows the risk from the moment it admits liability to say it was not a party at the time.
The application under CPR 39.3 to set aside the order of 17th October, despite the insurer having notice, (although not a copy), of that order since 25th October, was not made until 26th February 2014. It had not been made promptly and therefore, even if the insurer could show it had a good reason for not attending the trial and a reasonable prospect of success, the application could not be granted. Again, it would in any event probably have failed the third stage of the Denton test.
There are two key lessons for insurers arising out of this decision. The first is the reminder at the start of this post that insurers will be treated as professional litigants capable of protecting their own interests. The second is that a credible allegation of fraud is not a trump card. When weighing the competing policy interests of the desirability of testing the allegation of fraud against the requirement that there be finality of litigation, the latter at least can outweigh the former. At some point the insurer must be left to bring its own action in relation to the fraud.