The Court of Appeal has today handed down judgment in Norman Hay PLC v Marsh Ltd, a case which provides a helpful summary of the approach to take in claims against insurance brokers where the allegations include a failure to put in place insurance.
Mishcon de Reya, together with Graham Chapman KC and Marie-Claire O'Kane of 4 New Square, act for Norman Hay plc (in members voluntary liquidation) (NH) in its claim against Marsh in which it alleges that Marsh failed (amongst other things) to arrange non-owned auto cover for it and its subsidiaries. The claim arises out of a tragic accident where an employee of NH's subsidiaries was driving a rental car in the US when he hit an oncoming vehicle. The employee tragically died and severely injured Ms Sage, a US citizen. Ms Sage issued a claim in the Ohio court against a number of parties, including NH and its subsidiary. That claim was not insured by any of the insurances NH had in place. NH settled Ms Sage's claim on legal advice and is seeking to recover the settlement sum from Marsh.
Marsh sought to strike out the claim and were unsuccessful before Mr Justice Picken at first instance. Marsh was then granted permission to appeal. Its application was essentially brought on the basis that, where the complaint was that a broker had failed to put in place an insurance policy, the claimant must establish that the putative insurance policy would respond. In this case, Marsh asserted that the policy would have been an indemnity policy and relied on the established line of authority that, where an insured is seeking to recover from its insurers under an indemnity policy, the insured must establish that it was actually liable to the party who claimed against it. Marsh's position was that because NH had not pleaded that it or its subsidiary was liable to Ms Sage, NH would be unable to prove that it was liable and therefore the putative insurance policy would not have responded.
In his judgment, Lord Justice Males agreed that would be the case were NH suing its insurer under a liability policy. However, he agreed with the analysis of Mr Justice Picken that a claim against a broker for negligently failing to arrange a policy is different. Mr Justice Picken held that in these types of cases there was scope for a broader inquiry as to what would have happened if the broker had not been negligent, and the claim had been presented to a putative insurer. That would involve an assessment of the chance that the claim would have been met by the insurer and particularly whether an insurer would take a "pragmatic and commercial stance" when faced with the claim. That was founded in the Court of Appeal case of Fraser v B.N. Furman [1967] in which a client sued its broker for failing to arrange employer's liability cover. In Fraser the court stated that it must assess the chance that "an insurance company of the highest standard and reputation" (in that case Eagle Star) would have paid under the policy notwithstanding its legal rights.
Lord Justice Males held that the approach in Fraser v Furman was in accordance with the general principle which applies to when claims must be assessed on a loss of a chance basis, as explained by the Supreme Court in Perry v Raleys Solicitors [2019] i.e. the claimant must establish on a balance of probabilities what it would have done had it received competent advice, but where the outcome depends on what others would have done, that depends on a loss of a chance evaluation.
In light of the above, Lord Justice Males held that the fact NH did not plead that NH or its subsidiary were actually liable to Ms Sage was not the "knockout blow" Marsh considered it to be. If Marsh is able to prove that neither NH or its subsidiary were liable to Ms Sage (despite the substantial settlement paid to her as a result of the employee's negligence) then that would be one factor in the counterfactual analysis of what the putative insurer would have done when notified of the claim.
Marsh also argued that the claim should be struck out because any liability of the subsidiary to Ms Sage was not NH's loss and therefore could not be claimed by NH. In response to that point Lord Justice Males stated that had the putative insurer taken over the claim it is likely it would have funded the settlement without distinguishing between the position of different companies in the group. He also noted that Marsh was engaged to arrange cover for all companies in the group.
NH's claim against Marsh continues.