How to Annoy Judges
There wasn’t much law in the Court of Appeal’s recent decision in Friends Life v Miley [2019] EWCA Civ 261, other than a reiteration of the principle derived from Economides v Commercial Union [1998] QB 587 that a declaration in a proposal, that information is true to the best of the proponent’s knowledge and belief, connotes only a test of honesty, and not accuracy.
However, the decision (which is reported at https://www.bailii.org/ew/cases/EWCA/Civ/2019/261.html) struck me as a textbook example of how to alienate the tribunal.
Background
Mr Miley has a high-powered, high-pressure job at an investment bank. He became (he said) to unwell too work, and for four years he received payments under a Permanent Health Insurance policy written by Friends Life (“FL”). FL then ceased making payments, contending that Mr Miley was exaggerating his condition.
Mr Miley sued Friends Life. The Trial Judge (Turner J) had been unimpressed by an application by FL that he should recuse himself because (or so FL submitted) some questions he had emailed to their QC apparently demonstrated bias. He dismissed the recusal application, and in a subsequent judgment held in favour of Mr Miley
FL appealed to the Court of Appeal, and again pursued a forensic course which seems not to have endeared them to the Lord Justices.
FL’s appeal rested on essentially two grounds.
First, they contended, as I have said, that Mr Miley had exaggerated his condition. Secondly, they contended that he had under-declared his income in the years he was receiving payments under the policy. Both grounds failed.
Exaggeration
As to the first ground, FL did not have permission to challenge the Trial Judge’s finding that Mr Miley jad not been dishonest. Despite that, FL saw fit to describe in the appeal papers a schedule of alleged misrepresentations (which of course might have been made by My Miley, if at all, merely carelessly) as “Lies”. The Court of Appeal didn’t like that.
FL also produced a separate 25-page of "Schedule of Factual Inconsistencies", picking out further alleged inaccuracies in Mr Miley's presentation of his condition, on which the Court of Appeal commented drily that “we were not invited to consider any of these items individually, either in the written or oral arguments presented on behalf of FL, and have not done so.”
Having managed seemingly to alienate the Court in this way, it transpired that much of FL’s case turned on the fact that Mr Miley, while contending that he was too ill to do his job, had nevertheless gone to the pub on various occasions and had been on a number of holidays.
The Court of Appeal was quick to conclude that being too ill to carry out a high-level, high-pressure job didn’t mean that one was likewise incapable of going on holiday.
It was also unimpressed by FL’s complaint that, while claiming under the policy, Mr Miley had attended a “beer festival”, instead preferring to quote this from the first instance judgment:
" … In so far as the notion of a beer festival might, to the uninitiated, conjure up images of the participants cavorting in lederhosen whilst brandishing overflowing beer steins in scenes of infectious Bavarian gaiety, they must be dispelled. In reality, this was a rather understated affair in which patrons of the local public house were given the leisurely opportunity to sample a range of craft beers."
It was hardly a surprise that this ground of the appeal failed. Instead, the Court of Appeal held that Mr Miley’s account of the severity of his illness, in his periodic communications with FL, had been entirely accurate.
Under-declaration of Income
FL’s second ground seemed, from a “black letter” perspective, more promising. In two years in which he claimed on the policy, Mr Miley hadn’t disclosed very substantial sums represented by the vesting of shares, which he had received as part of his annual bonus while still working at his investment bank.
Mr Miley relied on the fact that the relevant forms which he supplied to FL each year while claiming on the policy didn’t require him to disclose “income from investments”.
One might have questioned - as FL certainly did - whether that was an apt description for Mr Miley’s receipt of these shares. However, the Court of Appeal was in no mood to accept that argument. Indeed, in the form of McCombe LJ, who gave the only judgement, it was highly critical of how the point had emerged at the trial in the first place:
“I have mentioned what I see as the unsatisfactory manner in which this issue arose at trial. There was no specific indication made anywhere in the pleadings or written arguments before trial that FL were relying upon a misstatement of income by Mr Miley…. The matter only arose when the subject was sprung upon Mr Miley in cross-examination. ..
I note that no objection was taken to the unexpected line of questioning. However, I question whether the failure to make any mention of this subject in the pre-trial materials was consistent with the "cards on the table" approach encouraged by the Civil Procedure Rules. More particularly, the material deployed was being used to found a case based on alleged fraud. Such allegations are customarily required to be "distinctly alleged and as distinctly proved”. That principle was not applied in relation to this matter in FL's pleading in the present case.”
With that as the backdrop, not only did the Court of Appeal hold that Mr Miley genuinely didn’t think his receipt of the shares needed to be disclosed, it went further and held that he was correct in that regard. It was prepared to accept that in common parlance the shares might have been described as “investments”. And it also said their vesting could be categorised as “income” since, under the relevant tax legislation, they were deemed to constitute income and were taxed accordingly.
Coda
One doesn’t know, given how unimpressed was the Court of Appeal with FL’s appeal, Mr Miley has sought his costs on the indemnity basis. But the moral – don’t try bolstering a difficult case with tactics which just annoy the Judges.
Jonathan Corman is partner at Fenchurch Law
No on-going obligation to assess if a claim is likely: Zurich -v- Maccaferri
In a (predictably?) pro-policyholder decision, the Court of Appeal (Black and Christopher Clark LJJ) yesterday dismissed Insurers’ appeal. Instead it agreed with the trial judge that the policyholder (Maccaferri) had not breached a condition in its public liability policy requiring it to notify insurers “as soon as possible after the occurrence of any event likely to give rise to a claim”.
Maccaferri’s business involved the hiring out of “Spenax Guns” (pictured - in effect, giant staplers used to tie steel mesh gabions together) to builders’ merchants, who in turn hired them out to building contractors. In this case, an employee of one such building contractor was badly injured by a Spenax Gun. Maccaferri quickly found out that there had been an incident involving one of its Guns, but did not know either that there had been a serious injury or that the Gun might have been faulty - as opposed to its having been mis-used or the accident having happened without anyone’s fault.
Zurich argued, however, that further information about the incident which Maccaferri subsequently discovered meant that many months after the incident Maccaferri knew or should have known that a claim was likely, and thus should have - but failed - to notify them, thereby disentitling it from cover.
The Court of Appeal disagreed. Instead, it agreed with the trial judge that the clause in question required a reasonable assessment by the insured at the time of the “event” as to whether it was likely to give rise to a claim and did not, as Zurich had submitted, impose an obligation on the insured to “carry out something of a rolling assessment, as circumstances develop, as to whether a past event is likely to give rise to a claim”. The Court of Appeal held that:
“This is a condition introduced by Zurich into its policy which has the potential effect of completely excluding liability in respect of an otherwise valid claim for indemnity. If Zurich wished to exclude liability it was for it to ensure that clear wording was used to secure that result. It has not done so. It is possible to construe the use of the phrase “as soon as possible” as meaning that even if, when the event occurred, it was not likely to give rise to a claim, the obligation to notify would arise whenever thereafter the insured knew or should have known that an event which had occurred in the past was likely to give rise to a claim. But I regard this as a strange interpretation and erroneous.
It is, in any event, far from clear that that is the right interpretation and, given the nature of the clause, the ambiguity must be resolved in favour of Maccaferri.”
Putting the boot in (or kicking an insurer when it’s down), the Court of Appeal went on to find that, even if Zurich’s construction of the clause had been correct, nothing in fact had subsequently occurred which meant that Maccaferri ever knew or should have known that a claim was in the offing, until it had eventually received (and promptly notified) civil proceedings against it.
The Court of Appeal’s decision is yet another instance of the courts deciding coverage disputes in the policyholder’s favour when that outcome is open to it on the relevant policy wording and when there is no evidence of any real culpable conduct by the policyholder.
However, one should sound a note of caution. As the Court of Appeal mentioned in passing (see paragraph 33 of the judgment), while the above might apply to a typical clause in a public liability policy requiring the policyholder to notify “an event likely to give rise to a claim”, the position will be different in professional indemnity policies, where the obligation is to notify a circumstance which is likely to (or, depending on the wording, which might) give rise to a claim. Whereas an event is a one-off occurrence, whose likelihood to give rise to a claim is (as we now know) to be assessed then and there, circumstances can and do evolve during the currency of a professional indemnity policy. Thus, whereas a client’s failure to pay a professional's invoice would, in isolation, almost always fall short of a notifiable “circumstance”, the position would change if, a few months later, the client explained that his failure to pay was the result of his dissatisfaction with the services which he had received.
See: Zurich Insurance plc -v- Maccaferri Ltd [2016] EWCA Civ 1302(12/01/2017)
http://www.bailii.org/ew/cases/EWCA/Civ/2016/1302.html
Jonathan Corman is a partner at Fenchurch Law.
“The Worst of Both Worlds”: Spire Healthcare Ltd v RSA
2016 was a bumper year for aficionados of aggregation cases. (One might say that it saw a series of related cases…) In April the Court of Appeal in AIG v Law Society considered aggregation under the Solicitors’ Minimum Terms, with the outcome of AIG’s expedited appeal to the Supreme Court expected this month or next. In October, the Commercial Court in MIC Simmonds v AJ Gammell had to decide whether claims for respiratory injuries suffered by thousands of rescue workers after 9/11 arose out of one event. And just before Christmas the Commercial Court, in Spire Healthcare Ltd v RSA, again considered aggregation, this time in the context of a private healthcare company facing claims from over 700 patients alleging that one particular surgeon had carried out unnecessary and/or negligent procedures.
The case involved a combined liability policy taken out by Spire, which included cover for medical negligence. Put crudely, the intention of the policy seems to have been to confer an indemnity limit of £10m for any one claim together with an annual aggregate cap of £20m. There was also a badly drafted clause, whereby all claims attributable to one source or original cause would attract only one “Limit of Indemnity”.
Thus, if that clause operated as a conventional aggregation clause, the policyholder could only recover £10m from insurers, since all 700 claims would be treated a single claim. If the clause didn’t have that effect, it could recover £20m.
In addition, the policyholder and insurers disagreed about whether aggregation applied to the £25,000 each-and-every-claim excess. The policyholder argued that it did, and that it only had to pay the £25,000 once. The insurers disagreed, arguing that the excess was payable in respect of each claim (albeit, as it happened, capped at £750,000 in all).
The case involved some interesting comments by the Judge (HHJ Waksman QC) about principles of policy construction. He confirmed, as had the Court of Appeal in the AIG case, that aggregation clauses should be construed neutrally, without any preconceptions that they should work in one or other of the parties’ favour. He also held that, just because a particular phrase or clause was redundant or duplicative in one part of the policy, that didn’t mean that it had no function or effect elsewhere in the policy.
Desperately interesting though this might all be to insurance lawyers, brokers and underwriters, the outcome of the case was disastrous from the policyholder’s perspective. The Judge held that the clause in question did mean that there was indeed only £10m of cover available. To rub salt into the policyholder’s wounds, the Judge also rejected its fall-back contention that, in that case, there should be “parity of aggregation” and that it should be implied - in the absence of an express provision to that effect - that the 700 claims, unquestionably linked as they were, should attract only one excess. So the policyholder, which had fought the case arguing that there was £20m of cover and just one £25,000 excess due, was held to be entitled to just £10m of cover and liable to pay £750,000-worth of excesses.
I understand that, predictably enough, the policyholder is applying to the Court of Appeal for permission to appeal.
See: Spire Healthcare Limited v Royal & Sun Alliance Insurance plc [2016] EWHC 3278 (Comm) http://www.bailii.org/ew/cases/EWHC/Comm/2016/3278.html
Jonathan Corman is a partner at Fenchurch Law.
INDIRECT CAUSATION MUST STILL BE REAL CAUSATION
In the recent decision of Arc Capital Partners Limited v Brit Syndicates Limited [2016] EWHC 141, the courts have yet again had to grapple with causation issues in the insurance context.
The case concerned a claim on a professional indemnity policy by a Fund Manager, which was facing a very substantial negligence claim from a former client.
The Commercial Court (Cooke J) was required to construe a Retroactive Exclusion, which excluded:
“… any claim … arising from or in any way involving any act, error or omission committed or alleged to have been committed prior to 5th June 2009”.
One of the key issues was how the phrase “in any way involving” should be construed, as compared with the phrase “arising from”.
The Insured contended that the two phrases in question were near identical, with both in effect equating to “proximately caused by”.
By contrast, the Insurers, while agreeing that “arising from” did indeed mean “proximately caused by”, argued that “in any way involving” meant only that there had to be “a broad or loose connection” between the claim and the act/error/omission which had occurred prior to 5 June 2009.
Ironically, in the event that their respective primary arguments failed, both the Insured and the Insurers had identical fall-back positions - namely that, while “arising from” meant “proximately or directly caused by”, the phrase “in any way involving” was to be construed as meaning “indirectly caused by”.
Perhaps unsurprisingly, the court held that this unintended compromise between the parties was indeed the correct construction, a construction which resulted in the two phrases being given recognisably distinct meanings and the clause hanging together as whole.
The court then went on to consider what was meant by “indirectly caused by”. It stated that it derived considerable assistance from the decision of Scrutton J (as he then was) in Coxe v Employers’ Liability Assurance Corporation Limited [1916] 2 KB 629, which involved a life insurance policy taken out by an Army Captain who had been fatally hit by a train while inspecting sentries guarding a railway line. The question was whether the insurers could rely upon an exclusion for death or injury “directly or indirectly caused by, arising from or traceable to … war”.
Scrutton J held, and nowadays this might be thought obvious, that:
“…A line must be drawn somewhere. For instance, the birth of Captain Ewing, even though it may be said to have led in the chain of causation to his being in the position in which he was killed, could not be considered as causing his death…”
Thus, stated Scrutton J, if for example Captain Ewing had been struck by lightning while he happened to be at a military camp, it could not be said that his death was indirectly caused by the war. In this case, however, he had been killed by the train while undertaking military duties, and thus his death was indeed indirectly caused by the war, so that the claim by his estate on the life policy failed.
Against that background, the court in Arc Capital held that the “act, error or omission” referred to in the Retroactive Exclusion had to have causative effect, and thus must have been the type of act, error or omission which could in principle give rise to liability on the part of the insured. Thus:
“It is not enough that circumstances arise prior to 5th June 2009 in which a wrongful act takes place thereafter. That would merely represent the historical context or background against which wrongful acts occurred. There must be some act, error or omission which could give rise to liability which occurs prior to the Retroactive Date which is genuinely part of a chain of causation which leads to liability for the claim in question.”
So, whereas “arising from” (or any other phrase connoting direct causation) requires an immediate causal connection between an event and an outcome, “in any way involving” (or any other such phrase connoting indirect causation) still requires a genuine causal connection between the two albeit not an immediate one. It is sufficient that the two are connected by a “chain of causation”, however many links apart they may be in that chain.
About the author
Jonathan Corman Partner
T: 020 3058 3077
E: jonathan.corman@fenchurchlaw.co.uk
Jonathan is a partner specialising in insurance disputes, with a particular focus on Professional, Financial and Construction risks. Jonathan has been an insurance specialist for over 20 years, concentrating primarily on professional indemnity claims, as well construction, EL/PL and D&O. He has litigated at all levels of the court system, is familiar with the arbitration process and a strong believer in mediation whenever it is appropriate.