Latest aggregation decision
In what will be a relief both to the victims of dishonest solicitor Linda Box (pictured, and christened by the press the "Gangsta Granny") and to her innocent partners in the former firm of Dixon Coles & Gill, the Court of Appeal handed down judgment today (06.08.21) in this important decision for those involved with solicitors' professional indemnity disputes. The Court of Appeal dismissed the insurer's appeal and instead confirmed the decision below that the various claims, emanating from Mrs Box's numerous thefts from numerous clients, did not arise from "one series of related acts and omissions" and thus did not aggregate. In short, the Court of Appeal held that each client's claim arose from the specific thefts which it had suffered, rather than all of the different clients' claims having arisen from the totality of the thefts. Put another way, a theft from client A did not cause client B's loss and vice-versa.
Adding salt to the insurer's wounds, the Court of Appeal did identify (at para. 82 of its judgment) an ingenious argument which might have worked in the insurer's favour, or at the very least have enabled it to survive what was an application for summary judgment and instead have the argument tested at a trial. However, the argument had formed no part of the insurer's submissions and the Court of Appeal held it was too late for it to be pursued.
The full judgment is here: https://www.bailii.org/ew/cases/EWCA/Civ/2021/1211.html
Jonathan Corman is a partner at Fenchurch Law
Webinar - Waiver, RORs, and “Prudent Uninsureds”: what do they mean?
Agenda
Jonathan Corman, a partner at Fenchurch Law, presented a webinar on 25 February on the above topic.
By reference to an actual case study, the webinar covered:
• when and why insurers reserve their rights;
• the difference between “waiver” and “estoppel”, and why it matters;
• what the policyholder and broker can do when faced with an ROR;
• the effect of an ROR on claim conditions; and
• the implications of a policyholder being told to act as a “prudent uninsured”.
Aggregation decisions - a bit like buses...
Hot on the heels of the High Court's decision last month that numerous defalcations by a dishonest solicitor could not be aggregated (see my post on that at https://lnkd.in/dkN2UY2) comes a further High Court judgment on 10 December 2020, again ruling against aggregation, in Spire Healthcare Ltd v RSA
The dispute arose out of the activities of the rogue surgeon, Ian Paterson, who was ultimately jailed for 15 years (increased to 20 years on appeal) for carrying out unnecessary mastectomies. As well as being a Consultant Breast Surgeon in the NHS, he also maintained a lucrative private practice, working at two Spire hospitals, and it was there that he performed numerous mastectomies on patients whom he had falsely told had breast cancer.
In fact, there were two strands to Mr Paterson's wrongdoing:
First, he had, as described, carried out unnecessary surgery on healthy patients ("over-treating"). It is almost certain that his motive here was financial.
Secondly, he had - in both his NHS practice and his private work - performed partial rather than full mastectomies ("under-treating") on patients who did have breast cancer, thereby exposing them without their consent to the risk of the cancer returning, having adopted this forbidden procedure either to save time or because the result was considered aesthetically preferable.
About 750 of Mr Paterson's victims sued Spire, either for "over-treating" or "under-treating" (and, in a few cases, for both). The claims cost Spire a total of £37m in damages, claimants' costs and defence costs.
Spire was insured for those claims under a policy written by RSA, with a limit of £10m for all claims "...consequent on or attributable to one source or original cause...".
RSA argued that all the claims were "caused" by Mr Paterson and/or to his propensity to negligence or dishonesty. That argument failed, the court (HH Judge Pelling QC, sitting as a Judge of the High Court) instead agreeing with Spire that the cause of the over-treating claims was entirely distinct from the cause of the under-treating claims. In paragraphs 24 & 25 of the judgment, Judge Pelling QC spelt this out:
"If the result was not as I have summarised it, then there would be no effective causative link between what is contended to be the originating cause and the loss in each case that it was sought to aggregate nor would what is alleged to be the originating cause explain adequately or at all why the negligent act or omission leading to the claims had occurred. A hypothetical example may help to explain the point. An orthopaedic surgeon performs both knee replacement and hip replacement procedures. He operates under a mis-appreciation as to the manner in which hip replacements are to be carried out which constitutes negligence applying established principles resulting in multiple claims by patients on whom he performed hip replacement surgery. At the same time in relation to his knee replacement practice he operates under another and different mis-appreciation relevant exclusively to knee replacement surgery which constitutes negligence applying established principles resulting in multiple claims by patients on whom he performed knee replacement surgery. In my judgment each mis-appreciation would constitute a separate originating cause unless for example it could be said that the existence of the mis-appreciations was for example the result of the Insured's failure properly to train the individual concerned.
Characterising the originating or original cause as "… negligent and inappropriate clinical care …" or, alternatively, as deliberate misconduct does not assist because in the hypothetical example set out above, the cause of the negligent hip replacement surgery whilst causative of all the hip claims was not in any sense causative of the knee claims and vice versa. Submitting as [RSA] does that in this case it is a statement of the obvious that all the claims were the result of Mr Paterson and his conduct ignores the need to search for an effective original cause of all the losses it is sought to aggregate..."
The result, in financial terms, was that Spire was entitled to £20m, and not just £10m, from RSA.
It is far too soon to know whether RSA will try to appeal. But my own view (famous last words...) was that this decision - like its predecessor last month - was entirely correct.
The full judgment is here: https://www.bailii.org/ew/cases/EWHC/Comm/2020/3299.html
Jonathan Corman is a partner at Fenchurch Law.
Court declines to re-write existing EL insurance law
Komives v Hick Lane Bedding Ltd & Anor [2020] EWHC 3288 (QB)
This recent High Court decision was on any view a sad case, although the Court appears to have been mindful of the adage that “hard cases make bad law”.
The Claimants were two Hungarian nationals, who had been trafficked to the UK and who then worked for the First Defendant, Hick Lane Bedding Limited (“the Company”), in conditions of modern slavery. Both Claimants suffered psychiatric injuries, and one of them had also suffered a severe accident at work.
The Company went into administration in 2015; and its managing director was sentenced to prison for conspiracy to traffic individuals into the UK with intent to exploit them.
The Company’s employers’ liability insurer at the relevant time was the Second Defendant, AmTrust Europe Limited (“AmTrust”). AmTrust had written the Company's EL policy based, it appears, on relatively limited information, but it had been provided with a glowing survey as to the Company’s working practices.
The Claimants issued proceedings for their injuries against both the Company and AmTrust. AmTrust responded by avoiding the policy - a fairly predictable stance, one might have thought, in light of the Company’s clear non-disclosure of its criminal conduct.
The Claimants’ Counsel, instructed by the Anti-Trafficking and Exploitation Unit, nevertheless sought to challenge AmTrust’s avoidance, on various grounds:
- The Claimants argued that, by writing the policy based on relatively scant information, AmTrust had turned a blind eye to the possibility of the Company’s criminal conduct, or alternatively was not allowed to take this point against the victims of that conduct.
- The legislative scheme, represented by the Employers’ Liability (Compulsory Insurance) Act 1969 and the similarly entitled 1998 Regulations, which restrict which conditions/warranties can be contained in an EL policy, were intended to protect employees like the Claimants and to ensure that insurance was available. Coupled with Rule 8.1.1 of ICOBS, which states that an insurer must “not unreasonably reject a claim (including by terminating or avoiding a policy)”, it followed, submitted the Claimants, that AmTrust’s avoidance was unreasonable.
- The Claimants’ underwriting expert, Mr Flaxman, accepted that, had its involvement with modern slavery been known, the Company would have been “uninsurable” and that, in the scale of non-disclosures or misrepresentations, the Company’s non-disclosure “couldn’t get much worse”. He nevertheless gave evidence that, as a matter of “market practice”, AmTrust should have paid the claims.
The Court rejected these submissions. While understandably sympathetic to the Claimants’ position, the Court predictably recognised that the scheme to mandate insurance for employees was nothing like that afforded to the victims of road accidents, where the Road Traffic Act 1988 severely restricts an insurer’s ability to avoid a motor policy for breach of the duty of fair presentation. The Court concluded that the present framework of EL insurance may well produce very unsatisfactory results, but that it was for Parliament, and not the courts, to put that right.
The full judgment is here: https://www.bailii.org/ew/cases/EWHC/QB/2020/3288.html
Jonathan Corman is a partner at Fenchurch Law
A Christmas Tale: The Latest on Aggregation - Lord Bishop of Leeds v Dixon Coles & Gill [2020] EWHC 2809 (Ch)
Summary
In a judgment handed down on 28 October, the High Court (His Honour Judge Saffman) applied the test in AIG Europe Ltd v OC320301 LLP [2016] EWCA Civ 3 for “interconnectivity or unifying factors” in relation to the aggregation of claims under the SRA Minimum Terms, and clarified that the mere fact that a number of different dishonest acts have been committed by the same individual is unlikely to be a sufficient unifying factor.
Background
Dixon Coles & Gill was a long-established three-partner firm of solicitors. Its senior partner was a Mrs Box. On Christmas Eve 2015, the two other partners discovered that Mrs Box had stolen over £4m from various clients in a series of thefts over a number of years. She ended up being jailed for seven years.
DCG was quickly faced with claims from a number of those clients. These proceedings were brought by two sets of such clients (collectively, “the Claimants”).
DCG’s professional indemnity insurer was HDI Global Specialty SE (“HDI”). Its policy had an indemnity limit of £2m any one claim.
Pursuant to the SRA Minimum Terms & Conditions (“the MTCs”), HDI was obliged to indemnify the innocent partners of DCG. However, it argued that all of the misappropriations should be classed as a single “claim” under the MTC. That would have meant that that a single indemnity limit, of £2m, would have applied to all the claims which DCG were facing, leaving an uninsured exposure of a further £2m.
The Claimants brought a claim directly against HDI under the Third Parties (Rights against Insurers) Act 1930 for a declaration that each of their claims against DCG should be treated as a separate claim (with a separate £2m limit of indemnity) and that the test for aggregation under the MTCs was not satisfied.
The aggregation provision
The MTCs aggregate all claims arising from:
i. one act or omission;
ii. one series of related acts or omissions
iii. the same act or omission in a series of related matters or transactions; or
iv. similar acts or omissions in a series of related matters or transactions.
This case involved a consideration of limbs (i) and (ii).
HDI’s “one act” argument: limb (i)
The MTCs define a “claim” not just as a demand for, or an assertion of a right to, civil compensation, but also as including any obligation on the part of the insured firm to remedy a breach of the SRA Account Rules
HDI argued that DCG’s obligation to remedy that breach was one indivisible obligation and therefore constituted one “claim” under the MTC. It argued that Mrs Box’s dishonest conduct constituted a single “act”, using the analogy of building a house whereby:
“an individual engages in a single act when he builds a house. That may involve a number of individual steps but at the end of the day there was one act intended.”
The Court rejected that analysis, instead holding, in agreement with the Claimants, that each theft was a separate dishonest act. Using HDI’s own analogy of house-building, the Court stated that the situation of multiple thefts was more akin to a whole housing development:
“There may be a single intention to build a housing estate in the same way that Mrs Box may have had the single intention of stealing as much money as possible but each house, and each theft, must, in my judgment, be a different act although they may be taken with a view to accomplishing one ultimate objective.”
HDI’s “related acts” argument: limb (ii)
HDI’s alternative argument was that the thefts were sufficiently “related” so as to satisfy limb (ii) of the aggregation provision in the MTCs. It argued that Mrs Box’s modus operandi of teeming & lading (using funds from one client to cover up the theft committed in relation to another client) was a “unifying factor” pursuant to the test laid out by the Supreme Court in AIG Europe Ltd v OC320301 LLP [2016] EWCA Civ 3 (“the AIG case”) - albeit that that decision had considered the meaning of the word “related” in the context of limb (iv) (“related matters or transactions”).
HDI’s alternative argument was also rejected by the Court. Based on the AIG case, it held that, in order for matters or transactions (or in this case thefts) to be “related”, there must be sufficient interconnection or unifying factors between them. However, the fact that the thefts that were all committed by the same person and concealed by the same process was not enough.
The teeming & lading did not constitute the acts which had to be related, but were merely a process of concealing the thefts. It was the thefts themselves which had to be related for the purposes of aggregation, and that required a degree of inter-dependence which was entirely absent here. On the contrary, what caused the financial losses to the two sets of Claimants were separate thefts from each of them.
Conclusion
This case thus provides considerable reassurance for solicitors seeking an indemnity from their insurers (or Claimants ultimately seeking recovery from those insurers), where those insurers might otherwise have attempted to aggregate a raft of thefts committed by one person by one method. More generally, it emphasises the high bar for insurers in demonstrating that discrete acts or omissions are nevertheless sufficiently “related” so that multiple claims, arising from those acts, can be aggregated.
The Good, the Bad & the Ugly: 100 cases every policyholder needs to know. #8 (The Good). Thornton Springer v NEM Insurance Co Limited
Welcome to the latest in the series of blogs from Fenchurch Law: 100 Cases Every Policyholder Needs to Know. An opinionated and practical guide to the most important insurance decisions relating to the London / English insurance markets, all looked at from a pro-policyholder perspective.
Some cases are correctly decided and positive for policyholders. We celebrate those cases as The Good.
Some cases are, in our view, bad for policyholders, wrongly decided, and in need of being overturned. We highlight those decisions as The Bad.
Other cases are bad for policyholders but seem (even to our policyholder-tinted eyes) to be correctly decided. Those cases can trip up even the most honest policyholder with the most genuine claim. We put the hazard lights on those cases as The Ugly.
At Fenchurch Law we love the insurance market. But we love policyholders just a little bit more.
#8 (The Good)
The next case selected for consideration from our collection of 100 Cases Every Policyholder Needs to Know is Thornton Springer.
Issues
This case covered the issue of Defence Costs, and more particularly an insurer's liability for Defence Costs which relate to both insured and non-insured claims, and which are incurred in successfully defending those claims.
Factual background
Thornton Springer was a firm of accountants which sought a declaration that its professional indemnity insurer was liable to indemnify it in defending a claim by a client, who alleged that one of Thornton Springer’s partners had given negligent advice in relation to a company in which that partner had an interest. The client sued both Thornton Springer and the partner. The claim against Thornton Springer was dismissed on the basis that the partner had advised in a private capacity, and not as a partner in Thorton Springer. The issue in the subsequent coverage dispute was whether Thornton Springer could recover the costs it had incurred in defending the claim from its professional indemnity insurer NEM.
Insurance dispute
The relevant clauses in the NEM Policy were:
• The Insuring Clause, which provided that NEM agreed:
“To indemnify the Assured against any claim or claims first made against the Assured during the period of insurance as shown in the Schedule in respect of any Civil liability whatsoever or whensoever arising (including liability for claimants’ costs) incurred in connection with the conduct of any Professional Business carried on by or on behalf of the Assured …” (our emphasis);
• Special Condition 1 which provided that:
“Underwriters shall, in addition, indemnify the Assured in respect of all costs and expenses incurred with their written consent in the defence or settlement of any claim made against the Assured which falls to be dealt with under this certificate …”.
NEM contended that, as the claim against Thornton Springer had been dismissed, it did not fall within the Insuring Clause and therefore Thornton Springer was not entitled to recover Defence Costs (i.e. the obligation to pay Defence Costs, said NEM, only applied to successful claims, not to ones which failed).
Thornton Springer disagreed. It argued that Speical Condition 1 extended to the costs of successfully defending a claim, provided that the claim was one which in substance could fall within the Insuring Clause.
In addition, even if Thornton Springer’s argument were upheld there remained a dispute over the apportionment of defence costs between the claims against the partner (which were not covered under the Policy) and the claims against Thornton Springer (which it alleged were covered under the Policy).
The decision, and the implications for policyholders
The Court found that, while the Insuring Clause itself was not engaged given the dismissal of the claim against Thornton Springer, Special Condition 1 did not require any actual liability on behalf of Thornton Springer. All that was required was for the claim against it to be one which in substance was capable of falling within the Insuring Clause.
In addition, the Court held that, if the work by Thornton Springer’s solicitors had a dual purpose (i.e. it related both to the claim against Thornton Springer and the claim against the partner), the indemnity for defence costs extended to the dual purpose work, and not just to the work which was exclusively for the defence of the claim against Thornton Springer. This followed the principle in New Zealand Products Limited v New Zealand Insurance Co [1997]. Therefore, Thornton Springer was entitled to an indemnity for all the Defence Costs, save where NEM was able to identify work which related exclusively to the claim against the partner.
The Court’s finding in respect of the Defence Costs for a claim which was ultimately unsuccessful is very helpful for policyholders. However, whether or not it applies in a particular case, will depend on the wording of the specific policy in question.
Perhaps of more significance is the Court’s comments regarding the apportionment of defence costs for insured and non-insured claims, and in particular the burden it places on an insurer to show that any costs which it does not wish to pay must relate exclusively to the non-insured claims.
Court of Appeal plunges into notification issues
In a Judgment handed down yesterday, the Court of Appeal considered for the first time in over ten years issues regarding the effect of a notification of a “circumstance” to a professional indemnity policy: Euro Pools plc v RSA [2019] EWCA Civ 808 [1].
Introduction
The commercial background to the dispute was unusual. Typically, a policyholder will argue that its notification was wide in scope, so that in due course its notification will “catch” any ensuing claims. By contrast, the insurer to whom the notification was made will typically argue that the scope of the notification was narrow (or, sometimes, wholly ineffective), so that it is in a position to resist indemnifying the policyholder for the later claim(s).
Here the position was reversed. The insurer (RSA) argued that the notification in question was sufficiently wide to catch the later claims; and the policyholder argued that its original notification was very narrow, so that accordingly the claims in question could be said to arise from the (unquestionably wider) notification which it had made to its successive policy.
The reason for this apparent role reversal was the simple fact that the indemnity limit under the original policy (which was on an aggregate basis, not “per claim”) was exhausted, so that the policyholder needed to establish that the later policy (also written, as it happens, by RSA) would respond.
The facts
Euro Pools plc (“Euro Pools”) designed and installed swimming pools. One particular feature which it offered was the inclusion of vertical “booms”, which could be raised and lowered in order to compartmentalise the pool.
Initially, the booms were powered by an air drive system, whereby air would be pumped into and out of stainless steel tanks housed within the booms.
In February 2007, Euro Pools notified its 2006/07 policy (“the First Policy”) that the booms weren’t working. This was, it said, because of a perceived problem with the stainless-steel tanks. Euro Pools proposed an inexpensive solution whereby inflatable bags would be used instead of the steel tanks.
In June 2007, just before expiry of the First Policy, Euro Pools supplemented its original notification by informing RSA that, while it was continuing to replace the tanks with inflatable bags, the cost of which it expected would fall within its excess, it nevertheless wished “to ensure the matter [was] logged on a precautionary basis should there be any future problems”. [2]
Thereafter, during the course of its 2007/08 policy (“the Second Policy”, also written, as I have said, by RSA), it became apparent to Euro Pools that the inflatable bags were no more successful than the stainless steels tanks had been, and that the air drive system would need to be replaced with a hydraulic system - which would be far more expensive. Indeed, it appears that, with a view to preventing its customers from making claims against it, ultimately Euro Pools spent about £2m replacing the air drive system with a hydraulic system.
By this time, the limit under the First Policy was exhausted. The issue was therefore whether the £2m of mitigation costs had been spent in avoiding putative claims which, had they been made, would have arisen out of the circumstance(s) notified to the First Policy.
The Court of Appeal’s Judgment
Euro Pools argued that its notifications in February and June 2007 to the First Policy had been confined to a problem with the stainless-steel tanks. Relying on the principle that one cannot notify a circumstance of which one is not aware, Euro Pools submitted that when notifying the First Policy it had not been aware of a possible problem with the inflatable bags, let alone with any inherent defect in the air drive system generally, and thus could not have been notifying either of those as a “circumstance”.
That argument was accepted at first instance by Moulder J, who thus held, to RSA’s disappointment, that the Second Policy did respond. However, some commentators had criticised this decision on the basis that the Judge had confused the ability to notify a problem (here, that that the booms were not working) with the cause of that problem. As earlier cases such as Kidsons [3] and Kajima had had held, it is open to a policyholder to make a “hornets’ nest” notification - ie, a general notification of a problem, even where the cause of the problem and/or its potential consequences are not yet known.
The Court of Appeal (Hamblen LJ, Males LJ, and Dame Elizabeth Gloster) largely echoed those criticisms, and held that the notification to the First Policy had not been confined to the failure of the steel tanks and the consequential need to replace them with inflatable bags. Instead, the Court of Appeal agreed with RSA that the circumstances notified in February 2007 were that “multiple failures had taken place in relation to the [booms] and….[Euro Pools] was not sure what was causing the failures” and that the circumstances notified in June 2007 were that “in the face of continuing boom failures, Euro Pools had developed a potential solution involving the use of inflatable bags, but that it nevertheless wished to make a notification in case of ‘any future problems’ giving rise to possible third party Claims”.
“In other words,” said the Court of Appeal, “Euro Pools appreciated that it might not have got to the bottom of the problem in the sense of understanding what the root cause of the booms’ failure was. Thus, although Euro Pools hoped that it could make the boom design work by using bags in place of tanks, and that solution would fall within the deductible, it nonetheless wanted to make a general precautionary notification.”
Conclusion
In allowing the appeal, the Court of Appeal has re-stated the orthodox approach, as set out in previous cases such as Kidsons, Kajima and McManus [5]. Although the Court of Appeal’s decision was undoubtedly disappointing to this particular policyholder, in the long run its approach is likely to be beneficial to policyholders since it will assist them when, as is often the case, they wish to make a precautionary notification of a problem when the cause of that problem and/or its potential consequences are as yet unknown.
Notes:
[1] The full Judgement is here: https://www.bailii.org/ew/cases/EWCA/Civ/2019/808.html
[2] This request seems to have been prompted by a realisation on the part of Euro Pools’ broker that, owing to an administrative error, RSA had not opened a claims file following the original notification in February 2007.
[3] HLB Kidsons (a firm) v Lloyd’s Underwriters [2008] Lloyd’s Rep IR 237.
[4] Kajima UK Engineering Limited v The Underwriter Insurance Company Limited[2008] EWHC 83.
[5] McManus v European Risk Insurance Co [2013] Lloyd’s Rep IR 533.
Jonathan Corman is a partner at Fenchurch Law.
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