What are the chances? Loss of chance in insurance brokers' negligence claims

The Court of Appeal (CofA) has confirmed that in claims against an insurance broker, where it's asserted that a hypothetical insurer would have acted in a certain way in response to an underlying claim, the assessment of that counter-factual should be considered according to loss of chance principles. It's not a binary ‘yes or no’ assessment of whether the policy would have responded on the balance of probabilities.

The CofA has rejected Marsh’s appeal following the High Court’s refusal of its application for strike out in the case of Norman Hay Plc v Marsh Ltd. Marsh considered that its causation defence was sufficiently strong to merit early determination in its favour now, without a trial. The CofA disagreed and the claim will now proceed.

The facts

Norman Hay Plc is a holding company (now in liquidation) whose subsidiaries operate globally in the specialist chemicals industry. The dispute arose after a tragic incident in 2018, where an employee of one of its subsidiaries was involved in a fatal road traffic accident in Ohio while driving an uninsured hire car and another driver (Heather Sage) was seriously injured. The accident led to a claim by Ms Sage against Norman Hay, which was settled for USD $5.5 million. 

Norman Hay subsequently initiated legal action against Marsh in the English High Court. It's alleged that Marsh had failed to adequately advise and secure the necessary insurance to cover the risk associated with employees driving hired vehicles abroad (worldwide non-owned auto cover). Norman Hay contended that had Marsh fulfilled its obligations, the company wouldn't have had to bear the financial burden of the settlement because insurance cover would have indemnified the settlement to Ms Sage.

Marsh responded with a strike-out application, arguing that Norman Hay couldn't establish that they would have been indemnified under the hypothetical policy if appropriate cover had been secured (in other words, the breach of duty could not be shown to have been the cause of the uninsured loss). Marsh's defence was based on the assertion that Norman Hay's claim lacked a real prospect of success because it couldn't prove that the insurance market at the time would have provided the specific cover required.

The Court of Appeal’s decision

Marsh’s application was 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 insurance policy would respond (ie on the balance of probabilities, a binary ‘yes’ or ‘no’). In this case, Marsh asserted that the policy would have been an indemnity policy and asserted 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 Norman Hay had not pleaded that it or its subsidiary was liable to Ms Sage, Norman Hay would be unable to prove that it was liable and therefore the hypothetical insurance policy would not have responded.

The Court agreed that would be the case were Norman Hay suing its insurer under a liability policy. However, they agreed with the analysis of the High Court, that a claim against a broker for negligently failing to arrange a policy is different. Mr Justice Picken had held in his High Court Judgment that in a claim against a broker 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 hypothetical 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. Commercial considerations and coverage issues are all in play.

The CofA held, in line with the leading authority of the Supreme Court in Perry v Raleys Solicitors [2019], that a 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 (such as an insurer) would have done, that depends on a loss of a chance evaluation.

So, the fact Norman Hay did not plead that it 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 Norman Hay 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 counter-factual analysis of what the hypothetical insurer would have done when notified of the claim. 

Norman Hay's claim against Marsh continues. 

Discussion

This is not new law as the CofA was keen to emphasise but earlier first instance decisions such as Dalamd Ltd v Butterworth Spengler Commercial Ltd [High Court, 2018] now appear to have been cast aside. In practice, the application of a loss of chance analysis means that rather than achieve a binary (win or lose) finding on the question (of whether an insurer would have underwritten the risk and on what terms), it will be the subject of an assessment of (first) whether the lost chance was “real and substantial” and (secondly) what the percentage prospects of that lost chance were. So, some claims that would have failed a balance of probabilities test (which requires a 51% likelihood of insurers having provided the indemnity) may pass the “real and substantial” test, meaning that some loss will follow under the loss of chance test test. However, very few claimants will be able to demonstrate that the percentage prospects of achieving the indemnity sought was 100%. So, it is possible that some claims will now have a lower value than would have otherwise been the case.

In our view, the breadth of counter factual debate required in these cases, will mean that obtaining credible expert evidence at an early stage (which many claimants appear reluctant to do) will take on increased significance. Claims pursued without that evidence will face an uphill struggle.

If you'd like to discuss this case or any issues facing insurance brokers, intermediaries or their insurers, please contact our broker team.

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