A summary of recent developments in insurance, reinsurance and litigation law.

Haberdashers' Aske's Federation Trust v Lakehouse Contracts & Ors: Judge holds that insurers can pursue subrogation claim against sub-contractor on a project


A main contractor entered into a project insurance policy, which included cover for sub-contractors. The main contractor sub-contracted roofing works to a sub-contractor, which was undertaking "hot work" at the project site when a fire broke out, causing extensive damage to buildings. The project insurers indemnified the main contractor and then sought to recover some of that payment from the sub-contractor. The sub-contractor argued that the subrogation claim couldn't be pursued because it was a co-insured under the project insurance policy. However, there had been an express term in the roofing sub-contract entered into between the main contractor and the sub-contractor that the sub-contractor would obtain its own third party liability insurance cover (which it had done). The project insurers argued that, as a result, the sub-contractor was not entitled to be covered under their policy.

The insurers accepted that sub-contractors who had already contracted with the main contractor when the project insurance policy was taken out would ordinarily be covered under the policy. They also accepted that sub-contractors who were appointed after the policy was in place were also covered by the policy because of an implied term in the sub-contract ("This implication of a term would occur by means of a standing offer to a sub-contractor to be included in the Project Insurance, that offer being accepted by the sub-contractor by execution of the sub-contract". The Contracts (Rights of Third Parties) Act 1999 was excluded under the policy). However, the project insurers argued that there was an exception to this position where there was an express term in the sub-contract that the sub-contractor would take out its own insurance.

That argument was accepted by Fraser J. Reference was made to the recent Supreme Court decision in Gard Marine v China National Chartering (see Weekly Update 17/17) where, although it was held that subrogated claims cannot generally be brought against co-insureds, it was also emphasised that regard had to be made to the particular terms of the particular contract between the co-insureds. Fraser J also pointed out that "in order to avail itself of what is effectively immunity from suit by a co-insured, [the sub-contractor] has to demonstrate that it is a co-insured in the first place". He held that it could not do that given the express term in the sub-contract, and he rejected arguments raised by the sub-contractor based on agency or a standing offer from insurers: "Indeed, on any approach – standing offer or the application of agency principles – it is necessary to consider the intention of the parties" (those parties here being at least the main contractor and sub-contractor, and possibly other parties such as the insurers as well). Put another way, the judge asked "How, it could be posed rhetorically, could the parties be taken to have intended to create an insurance fund which would be the sole avenue for making good the relevant loss or damage, when those parties had expressly agreed that [the sub-contractor] would obtain its own separate insurance?".

The judge went on to find that, since the sub-contractor was not a co-insured under the project insurance policy, it would not take the benefit of an express waiver of subrogation clause in that policy: "If my analysis above is correct, and clause 6 of the roofing sub-contract prevents [the sub-contractor] from being an insured party (because the term that would have to be implied for [the sub-contractor] to have that status would be contrary to the express term agreed by [the main contractor] and [the sub-contractor])then [the sub-contractor] is not entitled to rely upon the waiver of subrogation term within the Policy Insurance...The only way in which [the sub-contractor] could take advantage of this is if [the sub-contractor] were to be entitled to the benefit of the Project Insurance. I do not consider that CPR is so entitled, and therefore this is the end of this argument too".

The judge also tested the commercial sense of his decision by considering whether (if the project insurers had rejected cover for the fire) the third party liability insurers of the sub-contractor would have been able to avoid liability under that policy because of the existence of the project insurance policy: "I doubt that it could. Under this hypothetical procedural scenario, the concept of double insurance would arise".

Finally, although not required to decide the point, the judge also considered the issue of "uninsured losses". The project insurers had paid out over £8 million, but the insurance policy taken out by the sub-contractor only had a limit of £5 million. The judge considered that "I doubt in the commercial context that [the intention of the main contractor and the sub-contractor], objectively ascertained, would be that [the sub-contractor] would be exposed to the whole amount of the losses incurred on the occurrence of an insured event, regardless of any limit on the cover of the [sub-contractor's own insurance policy]".

Springer v University Hospitals of Leicester: Court of Appeal holds that claimant is not entitled to relief for failing to give notice of funding in time


Where a CFA or ATE insurance policy was entered into before 1 April 2013, it is still possible to recover the success fee or insurance premium from the other side. However, from 1 October 2009, such recovery is only possible if the party entering into the CFA/ATE policy informs the other parties about this arrangement "as soon as possible and in any event within 7 days of entering into" it (see the Pre-Action Conduct Practice Direction, para 9.3).

In this case, the claimant entered into a CFA with a firm of solicitors in June 2010, but did not give notice to the prospective defendant (an NHS Trust) at the time. The claimant later disinstructed that firm of solicitors and instructed a new firm. He entered into a new CFA with that firm, together with an ATE insurance policy but notice to the defendant of the second (but not the first) CFA and the ATE insurance policy was only given about 6 months later. It was held that the claimant could not recover the success fee or premium and the claimant appealed to the Court of Appeal. The Court of Appeal considered two issues:

(1) Had the claimant breached the notification requirement? The Court of Appeal held that he had and that "as soon as possible" is unambiguously clear. It was no defence to argue that requiring a party to give notice of funding at a time when it was not obliged to give details of the potential claim (and so the defendant could not assess the claim) would be absurd. Nor could it be said that there had been an obvious drafting error. If (in a rare case) it is not possible to identify all or any proposed defendants, notice would have to be given only when they had been identified.

(2) Had the judges below erred in refusing to grant relief from sanctions? The Court of Appeal held that they had not. The test in Denton v TH White (see Weekly Update 26/14) had been correctly applied and the NHS Trust had suffered prejudice because of its "loss of opportunity of acting in a different and pro-active way".

Daewoo Shipping v Songa Offshore: Judge rules that appeal against an award (following correction of the award) was made too late


After an award was issued, the claimant applied under section 57(3) of the Arbitration Act 1996 ("the Act") to correct certain clerical errors. This was done 27 days after the award was issued. The claimant then sought permission to appeal the award under section 69 of the Act some 24 days later.

Section 70(3) of the Act provides that a section 69 application must be brought "within 28 days of the award or, if there has been any arbitral process of appeal or review, of the date when the applicant or appellant was notified of the result of that process". The first issue to be considered in this case was whether the 28 days ran from the date of the award or from the date of the correction.

The claimant sought to rely on the case of Surefire Systems v Guardian [2005], in which it was held that time ran from the date of an arbitrator's clarification. However, no authority was cited in support of that decision and the judge did not give reasons. In this case, it was held that K v S [2015] had set out the correct position: namely, that the reference to "any arbitral process of appeal or review" does not apply to corrected awards, which are not the same thing. The fact that a party has sought a corrected award does not, without more, extend time. The judge also agreed with the decision in Essar Oilfields v Norscot (see Weekly Update 35/16) that where there is a material application for a correction pursuant to section 57, the 28 day period does run from the date of the corrected award (but that was not the case here): "Challenges to arbitration awards are strictly limited by the Arbitration Act…. I … consider that an application for correction of an award is material and will properly serve to postpone the running of the 28-day period until the date of the corrected award where the correction is necessary to enable the party to know whether he has grounds to challenge the award. .. However, where the grounds for challenge are known and are not dependent upon the outcome of the application for clarification then there is no good reason to postpone the running of the 28-day period until the date of the corrected award... To do so would unnecessarily delay the making of a challenge to an award. That would be contrary to the aim and object of the Act to promote the finality of arbitration awards".

The judge also declined to exercise his discretion to extend time pursuant to section 80(5) of the Act. The factors which the court has to take into account when deciding whether to exercise this discretion include the following:

(1) The length of the delay. The judge said that this should be measured against the 28 days provided for in the Act: "Therefore a delay measured even in days is significant". The delay here was described as substantial.

(2) Whether the claimant had acted reasonably. This was said to include an investigation of the reasons for the delay and here "the fact that "Korean corporations have very hierarchical management structures and take a considerable period of time in relation to important issues does not begin to justify delay".

FM Capital v Marino: Court decides there has been a waiver of privilege and discusses relevancy of documents


When the claimant received a letter of complaint from a fund about the assets which it has managed for the fund, it conducted an investigation, and then suspended its CEO. The claimant brought proceedings against the CEO and 3 other people. One of those co-defendants sought specific disclosure of a report created in the course of the internal investigation. Leggatt J rejected an argument that litigation privilege could not be claimed: litigation had been in serious contemplation and had been the dominant purpose of the investigation: "For what it is worth, I would have thought it inherently less likely that a company faced with serious allegations and a serious potential claim against it from one of its clients would be predominantly or even equally concerned with disciplining its own employee as opposed to preparing to defend litigation being threatened against it and to pursue a claim potentially against its employee".

The report had been provided to the CEO and a dispute arose as to whether there had therefore been a waiver of privilege. The judge noted that prior caselaw had found that the mere provision of a privileged document to someone does not necessarily amount to a waiver and it is a question of fact as to whether confidentiality has been lost. It was held that there had been no express or implied restriction on the use of the report and so the CEO had been entitled to deploy the report in these proceedings (and he had done that). As a result, "privilege has been lost as against the other parties to these proceedings for the purposes of these proceedings".

A further issue was whether the co-defendant was entitled to see documents recording a settlement between the claimant and another co-defendant. The judge held that the claimant ought to disclose whether any person was to be paid for giving evidence (other than reimbursement of actual expenses). However, the terms of the payment obligations under the settlement agreement were not relevant because: "an agreement to pay a sum of money actually or contingently, if there is one, does not as a matter of law affect the liability of another defendant".

Belhaj v DPP: Court considers issues relating to inadvertent disclosure


CPR r31.120 provides that "where a party inadvertently allows a privileged document to be inspected, the party who has inspected the document may use it or its contents only with the permission of the court". Caselaw has developed the principle that the court may prevent a document being used where a document has been made available for inspection "as a result of an obvious mistake". A mistake will be obvious if the solicitor receiving it appreciates that a mistake has been made or if it would be obvious to a reasonable solicitor in his position that a mistake has been made. In this case, the disclosing party had inadvertently provided unredacted material which should have been redacted on the basis of legal professional privilege. It was held on the facts that "The suggestion that [the defendant] would deliberately disclose part but not all of its legal advice in such sensitive proceedings is intrinsically counterintuitive and improbable".

Furthermore, since it was not contended that the defendant had engaged in any tactical deployment of the privileged legal advice in order to give only partial disclosure, the issue of cherry picking did not arise. Accordingly, no use could be made of the disputed documents.

Marcura Equities FZE v Nisomar Ventures: Court considers whether settlement meeting was without prejudice save as to costs


One of the issues in this case was the status of a settlement meeting between the parties before they reached an agreement a year later, and whether a judge who was considering costs issues was entitled to take into account what was said at that meeting.

The parties had agreed that the meeting was without prejudice, but they had not discussed whether it was without prejudice save as to costs ("WPSATC"). Reference was made to the Court of Appeal decision of Gresham Pension Trustees v Cammack [2016], in which it was said that the parties had to agree that a meeting was WPSATC if they didn't want the general rule precluding the admission of without prejudice communications to apply. The judge in this case said that he was not required to decide whether the Court of Appeal meant that WPSATC status can only ever be achieved by an express statement. That was because he found that there was nothing in the surrounding circumstances which could give rise to an inference in this case that the meeting was intended by both parties to be WPSATC, despite nothing express being said to that effect.

Accordingly, he did not read the evidence as to what happened at the meeting.