Editorial Board

1

This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to clients of Berrymans Lace Mawer. Specialist legal advice should always be sought in any particular case. Information is correct at the time of printing.

Disclosure is published by the marketing department of Berrymans Lace Mawer on behalf of the partnership. Printed in England by Paterson Print. ISSN 1475-4711. Issue 12 © Berrymans Lace Mawer 2008. Berrymans Lace Mawer is regulated by the Solicitors Regulation Authority and accredited to quality standards ISO 9001 and Lexcel.

Editorial board

Alistair Kinley (guest editor)

Helen Cafferata

Linda Coppell

Catherine Hawkins

Val Jones

Jenny Moates

Andrew Relton

Jim Sherwood

Kathy Széputi

Editorial

The deepening credit crunch has led to a sea-change in the state’s involvement in the banking and financial sectors. Capital provided by government has altered the boundary between private enterprise and public ownership – probably for the foreseeable future. On that theme, many of the insurance and litigation topics in this edition of Disclosure deal with changes to existing legal and institutional boundaries.

A striking example is the case of Eidha v Toropodar – Michael Renshaw explains how the defendant acted as claimant in order to press for resolution. Tim Smith’s piece about the Mosley saga looks at the boundary between the public interest and privacy. Louise Abbott’s article comments on the pragmatic approach of the Court of Appeal to the boundaries of liability, even in the most serious and tragic cases. We also report on the Law Commission’s recent recommendations to re-define the legal regime for claims between the individual and the state.

We provide a costs update and touch on reforms to the claims process. Two other pieces deal with causation – Gary Allison comments on Bailey v Ministry of Defence and Joanna Peters examines whether suicide or manslaughter arising from tortious psychiatric harm are acts that break the chain of causation.

The credit crunch will lead to increased claims notifications and to a heightened fraud risk. As a senior representative of Lloyd’s observed recently ‘We know there’s a correlation between recession and claims activity but quantifying that impact is difficult’. So we expect ever-greater scrutiny of policy terms and conditions, and Cathy Hawkins looks at four lead cases on the topic. On fraud specifically, two timely articles analyse important developments regarding motor claims in particular.

Although the markets warn us that ‘past performance is not necessarily an indicator of the future’ based on the previous economic downturn increases in notifications and claims should be expected across all major casualty insurance lines. At BLM, we shall monitor the sectors most affected, look for emerging trends and share our best intelligence with you, our clients. Perhaps the ‘nice decade’ is over and things look about to get nasty.

Alistair Kinley

Head of policy development, BLM national

Defendant issues proceedings against itself

Eidha v Toropdar, High Court, 16 April 2008

All insurers have large cases on their books where a claim is continually threatened but proceedings are never issued. In smaller cases it is safe to assume that once a reasonable period of time has elapsed the claim will not progress any further and the file can be closed, particularly if the limitation period and the four months allowed for service have expired.

However, in some cases, particularly those involving claimants who do not have mental capacity, and will never regain it, insurers have a much longer term problem – particularly where they believe they have a good case on liability. What can they do?

This is a common problem in catastrophic brain injury claims. Proceedings may well be threatened but in the absence of a claim the insurer has to retain a large reserve to deal with the possible claim potentially for the rest of the claimant’s life and even then for three years after that.

As more time elapses the memories of witnesses fade, documents and evidence are lost and the possibility of a fair trial becomes more remote. The inescapable sympathy that any judge will have with an injured party may start to play a stronger part in weighing up the merits of the claim. Without strong evidence the prospects of successfully defending the claim diminish. In these circumstances further delay benefits the injured party.

The balance of justice dictates that the liability part of the case should be heard sooner rather than later. By what means does the insurer commence proceedings to enable that determination to take place?

Conventionally the way forward has been for the insurer to issue proceedings for its own insured’s damage. For example, in a road traffic collision it is possible for the insurer to commence proceedings for the damage to the insured’s vehicle and obtain a decision on liability in respect of the accident as a whole. However, there are cases where the insured has not suffered any damage, such as in a low speed collision with a pedestrian or a member of the public suffering injury through a trip, slip or fall.

A leading example

This situation arose in Toropdar v Eidha. In June 2002 Master Eidha sustained a significant brain injury in a road accident in 2002. The accident occurred when Mr Toropdar drove past a bus parked on his left and the child (Eidha) ran out from behind the bus and a collision occurred. The brain injury left the child without mental capacity which he was unlikely to regain. Limitation did not run against Eidha pursuant to the Act. For over six years solicitors on his behalf maintained that a personal injury claim pleaded in excess of £1m would be brought, but proceedings were never commenced. Therefore the insurers commenced proceedings for a declaration that their driver was not liable to the injured child for the injury, loss or damage sustained in the accident.

In the face of those assertions the insurers had to hold a large reserve for this catastrophic claim despite the fact that they considered their case on liability was strong. Having suffered no damage the insured could not pursue a claim for their losses and obtain a determination on liability in those proceedings.

Counsel for the injured child was of the view that this was an unprecedented way to proceed in apersonal injury claim. At the first CMC he asked the court to direct a preliminary issue be heard as to whether or not, as a matter of principle, a declaration of non-liability was available to a tortfeasor as a remedy in a personal injury claim when the injured party’s limitation period had not expired. The High Court master held there should not be a trial on this preliminary issue but directed that that issue, and whether or not a declaration should be granted in this particular case, should be heard at the same time.

The injured child ‘claimant’ appealed this order which was heard before Mr Justice McCombe on 16 April 2008. He upheld the master’s decision not to direct a preliminary issue be heard but to allow the claim to proceed to a full hearing to decide both whether a declaration could be allowed as a matter of principle and also whether a declaration would in fact be granted in this case. In doing so, McCombe J validated the approach advocated by the insurer and recognised that a material factor for the court to consider was how the quality of evidence was likely to be affected with the passage of time. The negative declaration procedure was appropriate given the lengthy delay, the threat of proceedings without action taken and the real danger that the trial of the action would become less and less satisfactory as time went on.

It is understood that this is the first case within the catastrophic injury field in which an insurer has pursued a declaration of non-liability on the part of its insured against the injured party. The approach has been validated by both a High Court master and a judge and the case is proceeding to a full hearing as to whether a declaration should be granted in February 2009. Even as it stands the decision of McCombe J provides an encouraging precedent to insurers that declaration proceedings are available to them as a means of resolving liability in high value claims which are repeatedly threatened but never progressed.

Michael Renshaw

Partner, BLM Southampton

Berrymans Lace Mawer and Alan Jeffreys QC of Farrars Building acted for the insurer in the declaration proceedings

Claims process reform – the curse of the sequel?

If literature offers countless examples of sequels failing to live up to the promise of their forerunners, the same could be said of the Ministry of Justice’s attempts to reform the personal injury claims process. Its first consultation in spring 2007 outlined a vision of a quicker, lower costs claims system. The formal response in July 2008 fails to deliver this across all claims types, limiting its focus only to motor injury claims under £10,000.

Case Track Limits and the Claims Process for Personal Injury Claims was issued in April 2007, following a long pre-consultation period. It set out a new process for injury claims, which depended on quick timetables for notifications, liability decisions, and negotiations. Complementing these stages would be staged fixed legal costs and, wherever possible, a standardised approach to special damages and medical evidence. The new process would avoid delay and duplicated handling and hence resolve claims more quickly and cheaply.

Ironically – given the theme of speeding up the process – government action post-consultation has been almost leisurely. The formal response to the various submissions made during the consultation process was published on the eve of this summer’s recess – a year after consultation. This immediately ensured nothing would actually happen until autumn 2008, when Whitehall and Westminster reassemble.

The government response, with its limited focus on motor claims, was met with a good deal of frustration and disappointment among insurers and businesses in particular. Excluding employers’ liability (EL) and public liability (PL) claims from a new streamlined process was quite a let down, as was the omission of any specific reference to the value and role of rehabilitation. The reasons given for excluding EL and PL claims, as stated by the Ministry of Justice, were that:

… the government considers that RTA cases tend by their nature to involve fewer complexities than EL and PL cases and therefore lend themselves to the new claims process more immediately than the others. The government considers that EL cases in particular involve a different dynamic in terms of the economic and power relationship that exists between an injured employee making a personal injury claim against their employer, and two parties contesting a road traffic accident.

Thus any possible extension to EL or PL claims is, in BLM’s view, at least a couple of years away – very probably the other side of the next general election.

For the time being the focus is on what the detail of the new process for motor claims will look like. Even here, the MoJ’s response appears to dilute last year’s consultation proposals in several key areas. First, only claims under £10,000 are to be included, as opposed to all claims in a new fast track of £25,000. Second, notification by claimant solicitors slips from five days after taking instructions to five days after the solicitor has ‘gathered all the required information’ – a more subjective test which allows later notification. Third, after the event (ATE) insurance premiums are to remain recoverable throughout the claims process, not just when contesting quantum. Finally, the matter of referral fees is side-stepped in the following terms:

The consultation paper stated that the fixed costs would not include ‘the cost of referral fees’. Some respondents understood this to mean that the government intended to ban referral fees. This is not the case, as any decision on whether or not referral fees should be allowed is not one for government to make.

On costs more generally, the proposal for staged fixed recoverable costs survives at least. The setting of figures for each of the three stages, and of the costs rules that will underpin the new process, are largely left to the MoJ’s Costs Advisory Committee. Whilst this is a sensible approach, the committee will have a lot to do over the incoming months if it is to deliver the new fixed costs regime quickly. It needs to conduct research and analysis and, according to the MoJ, to look at the new process and ‘identify the processes that need to be followed, the level of fee earner that should carry out the work and the amount of time it should take’. Recalling that the present single-stage fixed costs scheme took over two years to be implemented provides some indication of the magnitude of this important costs work. A further note of caution here is that, at the time of writing, there is no clear indication of what budget and what academic resource will be made available by MoJ to support and inform the committee’s work on costs.

Implementation of the process and costs rules will be by CPR changes and BLM’s expectation is that this will certainly be no earlier than April 2009. October perhaps looks like a more realistic date, given the sheer amount of work which will need to be completed before the new motor claims process and the associated costs regime is fully developed. Disclosure will return to this topic in future editions.

Christopher Coughlin

Partner, BLM Leeds

Insurance update: decisions, decisions!

In this article we consider four insurance decisions in three recent cases. The issues are non-disclosure, construction of the cover clauses in a Contractors’ All Risk (CAR) policy and application of multiple excesses both in property and liability policies. The subject of one of the cases was the application of an engineering policy to cover a mining company. The second case was a project CAR policy which was described by court as ‘intricate’. The final case concerned policy mis-selling. The circumstances of all the cases were complicated. Nevertheless, it is possible to divine some simpler principles of broader import from the cases.

Scottish Coal v RSA and Others (April 2008 not formally reported)

In this case, various insurers of a deep cast mine sought to avoid the policy for non-disclosure. The claimant mining company at the time of renewal of the policy was intending to engage in a riskier type of mining known as short wall mining. The insurers became aware of this so renewed on the basis of a right to cancel pending their own engineering consideration of the issues.

The background to the case appears complicated with a great deal of factual and expert evidence given about what the insured was proposing to do in terms of working the mine and what insurers knew about it. Ultimately, insurers cancelled their termination right. Shortly before this, the insurer’s engineer had become aware of the insured’s intention to mine through a cross-cut – which can be particularly risky – albeit that this information had not been formally disclosed by the insured.

Insurers sought to avoid on the basis that insurers were not told of the cross-cut intentions. Yet insurer’s knowledge of what was proposed by the cross-cut meant that the removal of the cancellation right was viewed by the court as an unequivocal election to affirm the policy, given that insurers would have known both of the implications of the cross-cut and the risks.

So far, so predictable on the basis of the findings of fact; one would expect the court to take the view that avoidance rights had been waived. What is of more interest is the approach of Mr Justice David Steel in relation to a change in risk clause which gave insurers the right to avoid ‘in the event of any … material change in the original risk …’ There are relatively few examples of change in risk clauses being the subject of litigation about the insurers’ rights to avoid. In this particular case, the clause was of no help to insurers because they knew as a result of their investigations in general terms the type of risk that the insured was intending to undertake. They could not, therefore, avoid just because the risk had increased. In contrast, many change in risk clauses are drafted to be triggered specifically by an increase rather than change in risk and it may therefore be that there is a differentiation between the two situations ie in some cases a risky activity at the top end of a range of risks may be indulged in by the insured without it giving a right to avoid because the overall nature of the risk had not changed. In contrast, in other cases the trigger for avoidance would be an increase in risk which is, largely, what insurers are interested in being protected from.