A weekly news bulletin from Greenwoods Issue 292: 17 November 2011 In this issue - When is an insurer entitled to adopt Article 75 status? - Vicarious Liability - Procedure/interim payment application - Procedure/infant settlement - Costs - Dates for your diary Seminars - Construing & interpreting insurance policies - Without prejudice negotiation of solicitors costs - do s and don ts Bristol One Redcliff Street BS1 6NP T. 0117 910 0200 London Bedford Square 18 Bedford Square WC1B 3JA T. 020 7323 4632 London Market Office 77 Gracechurch Street EC3V 0AS T. 020 7220 7818 Manchester 57 Spring Gardens, M2 2BY T. 0161 245 6520 Milton Keynes 2 Eskan Court Campbell Park MK9 4AN T. 01908 298200 Southampton 3600 Parkway The Solent Centre Solent Business Park Fareham PO15 7AN T. 01489 882900 SPOTLIGHT ON PRACTICE AND PROCEDURE When is an insurer entitled to adopt Article 75 status? We still find that there is confusion as to when an Article 75 insurer can/should adopt the status of an Article 75 insurer; the procedure that must be followed; and the In addition to gaining Article 75 status by obtaining a benefits of doing so. declaration on the grounds set out above, other situations that may give rise to Article 75 status include: The usual ground for seeking Article 75 status is where, following an accident, an insurer discovers that a policy A short period policy is issued (i.e. one for a term of has been issued on the basis of a material nondisclosure or misrepresentation by the policyholder. It expiring, a new insurance for the same vehicle and the less than three months) but rather than the policy may then apply to void the policy ab initio (i.e. as if it same policyholder begins within a period of 15 days had never been incepted). Grounds for voiding the from the expiry date. [Article 75 (2)(iii)]. policy in this way include a failure to disclose a serious disability or a drink-drive conviction. The policy is cancelled but the certificate is not recovered and the insurer obtains a declaration under To avoid retaining RTA status the insurer must apply S152(2). under S152(2) Road Traffic Act 1988 to obtain a declaration that it is entitled to void the policy ab initio. A cover note is issued but not taken up but the The application to obtain the declaration must be made insurer does not cancel it. before or within three months of the commencement by a claimant of proceedings arising out of the accident. On an open certificate there is a substituted or If there are additional claimants they must be told that additional vehicle of which the insurer was not made the declaration has been obtained before or within aware. seven days of the commencement of their action. The use of the vehicle at the time was not one An insurer successfully obtaining a declaration will covered by the policy e.g. the policy was for social and continue to deal with any third party claims under domestic purposes only and the vehicle was being used Article 75 (of MIB s Articles of Agreement) but has a for business purposes. number of advantages over a contractual insurer or an insurer dealing with the claim as RTA insurer under the Wherever the insurer s status is anything other than 1988 Act. contractual it will wish to protect its position in any proceedings and at the same time preserve its rights of - There is no liability if there is another insurer with a recovery against the driver and any causers or higher status (i.e. contractual or RTA) and their driver permitters. This will involve an application under CPR has a meaningful degree of liability. 19.6. to join the insurer to any proceedings as an additional defendant. Once joined the insurer may - There is no liability to meet subrogated claims. exercise all the rights of a defendant, without prejudicing its position against any other party. If this procedure is - Claims for damage to property arising before (but not not followed the insurer may inadvertently affirm the after) 11 June 2007 are subject to a compulsory excess contract of insurance and prejudice its rights of of 300. recovery. www.greenwoods-solicitors.com Personal Injury l Property & Construction l Insurance l Commercial & Financial Risks l Fraud l Health & Safety l Motor Prosecutions
Page 2 of 5 VICARIOUS LIABILITY The financial burden on the Catholic church of abuse claims is so great that it is now arguing that it should not be vicariously liable for the acts of priests. That was the preliminary issue in JGE v English Province of Our Lady of Charity and another (2011) EWHC 2871 QB. The claimant alleged that she had been sexually abused and raped by a priest when resident at a children's home between 1970 and 1972. The home was operated by the first defendant. The preliminary issue to be determined was whether the second defendant (the diocese) could be vicariously liable for the wrongful acts of the priest, who was now deceased. The second defendant argued that he was not its employee and that vicarious liability could not attach to the relationship between them. In finding in favour of the claimant the High Court judge held that there was a two-stage test when examining whether one party could be vicariously liable for the acts of another. The first stage involved an inquiry into whether the relationship between the parties was one to which the principles of vicarious liability might attach. The second stage involved an inquiry into the acts in question and whether they were within the scope of the relationship. Although the preliminary issue concerned stage one and the second stage would be for the trial judge to decide, a synthesis of the two stages was required. There was a "close connection test" at both stages. At stage two, the close connection was between the tortious act and the purpose and nature of the employment or appointment. At stage one, the closeness of connection was between "the tortfeasor and the person against whom liability is sought". A relationship between employer and employee would clearly meet that test; however, other relationships would also qualify. The relationship between the priest and the second defendant was significantly different from a contract of employment. There was no real element of control or supervision, no wages and no formal contract. However, the priest was appointed by and on behalf of the second defendant to do its work, to undertake the ministry on its behalf for the benefit of the church. He had the second defendant's full authority to fulfil that role and was provided with premises, pulpit and clerical robes. He was directed into the community with that full authority and given free rein to act as a representative of the church. He had been trained and ordained for that purpose and had been handed immense power by the second defendant. It was the second defendant who appointed him to the position of trust which he allegedly abused. The fact that some of the features of a classic contract of employment were not present might have relevance in a different context but not to the question of whether, in justice, the second should be responsible for the tortious acts of the person appointed and authorised by them to act on their behalf. The priest's activities had been set in motion by the second defendant in pursuance of a relationship into which it had entered for its own benefit. It was its empowerment of the priest which materially increased the risk of sexual assault, the granting of the power to exploit and misuse the trust which the second defendant had granted to him. It was the second defendant who introduced the risk of wrongdoing. It could therefore be vicariously liable for the priest s wrongful acts. The nature and closeness of the relationship which was the test at stage one might be easier to recognise than to define. The court would look carefully at the full nature of the relationship, with all the surrounding facts and circumstances to be considered. Those would include many of the matters which were also relevant at stage two. The obvious overlapping was not surprising given the requirement for a judgment on a synthesis of the two stages. Each case would be fact-specific; the extent to which there was control, supervision, advice and support would be relevant but not determinative. The question for the courts would be whether on the facts it was just and fair for the defendant to be responsible for the acts of the tortfeasor following close scrutiny of: (a) the connection and relationship between the parties and; (b) the connection between the tortious act and the purpose of the relationship, employment or appointment. Comment Could this case have wider implications? Vicarious liability is often looked at in terms of the liability of an employer for an employee s actions. This case expressly states that other relationships would also qualify. Does this risk, for example, extending the liability of amateur teams/clubs for the actions of their players/members? PROCEDURE/INTERIM PAYMENT APPLICATION The case of Berry (Protected Party) v Ashtead Plant Hire Co Ltd and others (2011) EWCA Civ 1304 considered the issue of which of multiple defendants could be the claimant s target for an interim payment application and the grounds for successfully making such an application. The second defendant had promoted and organised an annual music festival. Accommodation units for the festival were supplied by the appellant third defendant. It arranged for the units to be delivered to the festival site by the first defendant. They were taken to the site by the first defendant's employee, the respondent/claimant, in a lorry with a mounted crane. While the claimant was delivering the units by operating the crane either the crane or the accommodation unit came into contact with a live overhead power cable. He was electrocuted and suffered severe injuries. He brought proceedings against the first, second and third defendants, alleging a failure to provide a safe system of work, negligence and breach of the Electricity at Work Regulations 1989. The first and third defendants were insured but the second defendant was not. The health and safety adviser and manager appointed by the second defendant for the festival was also joined in the proceedings as the fourth defendant and he was
Page 3 of 5 cont d insured. The claimant applied for an interim payment against the first, third and fourth defendants. The judge made orders against the first and third defendants on the basis that one or other of them would be found liable and both were insured so that the conditions in CPR 25.7(1)(e)(i)and 25.7(1)(e)(ii) were satisfied. On its appeal, the third defendant argued that CPR 25.7(1)(e) only applied if all the defendants were insured which was not the case since the second defendant, although not a defendant to the interim payment application, was uninsured. Secondly, it was quite possible that neither it nor the first defendant would be found liable, since responsibility for the accident was primarily that of the second defendant. In allowing the appeal the Court of Appeal held that the word "defendants" in CPR.25.7(1)(e)(i) and (ii) had to mean the defendants against whom an order for interim payment was sought. Thus, where a claimant applied for an interim payment against a number of defendants on the basis that one or another was liable and they were all insured, it did not matter that there was also another defendant who was not insured. The first and third defendants each said that the other was the claimant's employer for the purpose of performing the task of delivering the accommodation units to the festival site, but the court could not be satisfied, to the degree necessary to order an interim payment, that one or other would be liable in common law negligence or for failing to provide a safe place and system of work or under the 1989 Regulations. It was not obvious that either was in breach of a common law duty of care. The place where the accident happened was not under the control of either the first or third defendants and whether an employer had discharged his duty to take all reasonable steps to provide a safe place or safe system at a place which was not under his control required a fact-sensitive inquiry. The instant case was too fact sensitive for the court to be satisfied that either the first or third defendants would be found liable. The employer and the employee had a duty to comply with the Regulations so far as they related to matters within their control. The live cable was not within the control of the first or third defendants and it was arguable that the crane was more in the control of the claimant than the employer, whoever that was. The Regulations required work to be carried out in such a manner as not to give rise to danger, so far as was reasonably practicable. The words "so far as is reasonably practicable" brought in considerations comparable to common law negligence. The case on liability against the first and third defendants was not clear cut. PROCEDURE/INFANT SETTLEMENT The case of IB v CB (2010) EWHC 3815 (QB) looked at two important issues in relation to the approval of an infant settlement. First, in seeking the judge s approval for the settlement he had been sent counsel s opinion and copies of two reports prepared by a financial adviser. The defendant sought disclosure of the financial reports arguing that by sending them to the judge, the claimant had waived privilege. The defendant accepted that if the reports had been merely cited in counsel's opinion, then the question of waiver of privilege would not arise. Secondly the defendant sought amendments to the consent order that had been filed with the court. One of the proposed clauses of the consent order allowed the defendant to discharge the obligation to make periodical payments through an annuity provider. The defendant asked for an order requiring the claimant to undergo a medical examination in the future, in the light of the possible purchase of annuity. On the first point the judge held that if the defendant was right in relation to the financial adviser's reports, then any report of any description sent to a judge for the judge's assistance in deciding whether to approve a settlement would lose its privileged status. It was appropriate for the court to be fully advised and to know exactly why those advising the claimant had decided to recommend the acceptance of a particular offer. Those representing a claimant should not feel inhibited from presenting all relevant materials to the judge by a fear that sending a material report to the judge would cause it to lose its privileged status. There was something remarkable and unacceptable about the proposition that it would be perfectly alright for counsel to set out in his opinion a particular report in quotation marks, absolutely verbatim and in full, thus preserving the privilege of the report whereas that privilege would be sacrificed by the submission of the report itself. An expert's report sent to a judge, for the purposes already described, retained its privilege. On the second issue, the court was satisfied that the defendant's proposed clause concerning future medical examinations did not permit the insurers willynilly to seek to make the claimant undergo a medical examination. It was inserted for the sole purpose of obtaining a medical examination in the event that the insurers wished to purchase an annuity, as the proposed annuity provider would wish to have an up to date medical picture of the claimant. Its terms did not entitle the defendant to obtain medical reports for any other purpose. It was unlikely in practice that any medical examination under that clause would ever occur, but the remote possibility could not be ruled out, and it was appropriate to include the provision in the light of the defendant's option to discharge its obligations through an annuity provider.
Page 4 of 5 COSTS Although conditional fee agreements may now have a limited life expectancy the appeals in the cases of Germany v Flatman: Barchester Healthcare Ltd v Weddall (2011) EWHC 2945 (QB) are still of importance and are also examples of the courts making orders for non-party disclosure. The appellant defendants had both successfully defended claims brought against them by the claimant respondents and obtained costs orders. There was no real prospect of recovering those costs as the claimants were without funds. They were represented by the same solicitors under a conditional fee agreement, but without after the event insurance. If the claimant Flatman's claim had succeeded the solicitors would have claimed costs of over 41,000 when the outlay on disbursements was only 2,035. The defendants, who had the same insurers, suspected that the claims were funded by the solicitors to some extent and applied for disclosure orders regarding each claimant s funding arrangements to enable consideration of whether to apply for a third party costs order. Those applications were refused by the judge on the basis that such an application could undermine or destroy the workings of the CFA system, and because arguments of policy and principle were so strongly against the application that it was wholly improbable that the defendants would succeed in obtaining a third party costs order. The appellant Barchester Healthcare submitted that the judge had misdirected himself and set too high a threshold by requiring the defendants to show that a third party costs order would be made In allowing the appeal, the High Court judge hearing it held that there was a power under S51 Senior Courts Act 1981 to determine by whom the costs of litigation should be paid. Such an order could be extended to non-parties, such as solicitors, in appropriate circumstances. What was required was evidence to show that the solicitor had gone beyond the scope of a solicitor's ordinary role and had acted as a funder of litigation. Although orders against non-parties were to be regarded as exceptional, that meant outside the ordinary run of cases where parties pursued claims for their own benefit and at their own expense. The ultimate test was whether it was just in all the circumstances to make the order. A third party costs order could be made in circumstances where the funder was "a real party" not just "the real party". A solicitor would become a funder if he paid out sums on the basis that they would be recovered from the other side in the event of success, or not at all in the event of failure. A solicitor would then be providing funds in the way of business. Any funding role by a solicitor would only be countenanced if it carried with it the risk of having to pay the defendant's costs if he was ultimately successful. A disclosure order was necessary to establish what exactly had passed between a claimant and his solicitor. The judge had misdirected himself in over-estimating the consequences of the defendants applications for the daily workings of the CFA regime as a whole. He was unduly influenced by a public policy consideration that did not arise. The defendants were not seeking to establish that an order for third party costs should become the norm in CFA cases. They only sought to make the application if the solicitors were shown to have become a funder of litigation in the way of business. The appeals turned on their facts. There was sufficient material to justify ordering the disclosure of the information sought. Any future application for a third party costs order as a result would have to be considered on its merits. DATES FOR YOUR DIARY 24 January 2012 An audience with Professor Graham Beaumont Neuropsychologist, London 15 March 2012 Major Bodily Injury Group Spring Seminar 13.30-17.30 - The Wellcome Collection, London To express interest in attending any of these events please mail crm@greenwoods-solicitors.com Further information For further information on any of the issues dealt with in this Alert, other than where a contact has been provided, please contact Geoff Owen on T. 01908 298216 or E. gro@greenwoods-solicitors.com To subscribe or unsubscribe from this Alert, please email crm@greenwoods-solicitors.com
Page 5 of 5 Seminars Greenwoods holds a series of training events for both our lawyers and interested clients. Below are those events being held in the next few months. If you would like to attend any of the following seminars please email crm@greenwoods-solicitors.com, indicating which you are interested in attending. CONSTRUING & INTERPRETING INSURANCE POLICIES Date Time Location Speaker(s) 23 November 2011 08.30-09.30 77 Gracechurch Street Marion Smith London EC3V 0AS 39 Essex Street WITHOUT PREJUDICE NEGOTIATION OF SOLICITORS COSTS - DO S & DON TS Date Time Location Speaker(s) 8 December 2011 08.30-09.30 77 Gracechurch Street Peter Kirby London EC3V 0AS Hardwicke Other Greenwoods publications Greenwoods produces a number of regular publications on various topics, namely: PROPERTY, CONSTRUCTION & INSURANCE REVIEW (Monthly) MOTOR CRIME FOCUS (Quarterly) FRAUD REVIEW (Quarterly) H & S REVIEW (Quarterly) MARINE INSURANCE REVIEW (Quarterly) If you would like to subscribe to any of the above publications, please email crm@greenwoods-solicitors.com, indicating which you would like to receive. The information and opinions contained in this document are not intended to be a comprehensive study, nor to provide legal advice, and should not be relied on or treated as a substitute for specific advice concerning individual situations. This document speaks as of its date and does not reflect any changes in law or practice after that date. Greenwoods is a firm of solicitors regulated by the Solicitors Regulation Authority in England and Wales. You can access the rules which regulate our professional conduct at: www.rules.sra.org.uk Greenwoods Solicitors 2011