Causation: recovery by insurers from loss adjusters

United Kingdom

A recent case in the Technology and Construction Court provides a warning to insurers who are dealing with a troublesome insured under a household policy, to make sure that reinstatement works covered by the policy are clearly defined.

The case concerned an insured’s attempt to make the Insurer, Axa, pay for extensive remedial work to their house, whilst the Insurer carried out reinstatement work under the policy to deal with subsidence.

Following the settlement of a dispute between the Insurer and the Insured, the Insurer tried to recover its losses (which it said amounted to £1.5 million) from a firm of loss adjusters on the claim. The Insurer alleged that the loss adjuster’s extensive breaches of contract led to a situation in which the only way out for the Insurer was to do whatever was necessary to make the Insured’s house habitable.

The Judge held that in spite of several breaches of contract by the loss adjuster, the Insurer had not established the loss adjuster’s breaches had caused the Insurer’s loss, and therefore the Insurer’s entitlement to damages was limited to the sum of approximately £283,000.

The judgement involves a consideration of the principles of remoteness, causation and reasonable settlement.

The Insurer’s claim against the loss adjuster

The Insurer alleged it would not have incurred very substantial expenditure but for the loss adjuster’s breaches of contract. The Insurer claimed it incurred expenditure of £1.5m, against the £72,000 which it said would have been incurred if there had been no breaches by the loss adjuster.

The Judge found the loss adjuster had committed 13 of the alleged breaches of contract (of which there were 21 in total). The breaches included the use of lintels for crack repairs and poor plasterwork. However it was necessary for the Judge to consider the principles of remoteness; causation; reasonable settlement and general damages in order to determine the extent of the adjuster’s liability.

· Remoteness

Following existing case law, the Judge noted a claimant has to show it is reasonable to recover the damages claimed; and provided the claimant can be shown not to have acted unreasonably, it will not have failed to mitigate its loss. By way of illustration the Judge quoted from another case:

“[the claimant] is fully entitled to be as extravagant as he pleases but not at the expense of the defendant”.

The Judge found the Insurer spent considerably more in resolving the problems at the house than was necessary. Examples included a new kitchen, new bathrooms and new heating system, which were of a much higher quality than existed previously.

· Causation

The Judge held that judges should apply common sense and basic objective logic in the application of the law to the facts. Where reinstatement is the appropriate measure of damage, it will be recoverable when ‘reasonably necessary’ as a result of the physical damage caused by the defect.

The Judge formed the view that substantial elements of loss were incurred by the Insurer’s brief to the firm of loss adjusters who replaced the defendant loss adjuster on the project (‘CDC’) i.e. to do what was necessary to make the house habitable. In addition the Judge found that losses were incurred because of the generous interpretation put on the Insurer’s brief by CDC (with the Insurer’s approval), as opposed to putting right those things for which the Insurer and the original loss adjuster were responsible. The Judge was satisfied that it was this instruction and its interpretation that led ultimately to major expenditure which was not related effectively to the breaches he had found.

However the Judge did find the adjuster’s breaches were responsible for a 12 month delay to completion of the project.

· Reasonable settlement

It is necessary for a claimant always to establish a causative link between the breaches of contract and the settlement reached. The onus of proof in establishing the reasonableness of the settlement is upon a claimant, and there must be some reliable evidence for the court to conclude that it was a reasonable settlement.

The Judge found that the Insurer settled with the Insured by way of compromise because it believed it best suited its commercial interests. No evidence was adduced as to the reasonableness of that settlement either generally or in relation to the loss adjuster, which the Judge would have expected.

· General damages

The Judge reviewed the case law on general damages for distress, inconvenience and discomfort caused by breaches of contract and held that an award will be modest, and in the absence of particular physical symptoms or illnesses caused by the breaches, the maximum would not generally exceed £2,500 per person per year. Applying these principles the Judge awarded £1,800 per person per year, which could be attributed to and caused by the loss adjuster’s breaches.

· Quantum

In determining quantum the Judge considered each head of loss claimed on the basis that 12 months delay was attributable to the loss adjuster’s breaches of contract. In total, the Judge awarded damages to the Insurer in the sum of approximately £283,000.


It will be difficult for an insurer to prove that losses were caused by a third party’s breach of contract if the insurer spends considerably more to resolve a claim than might be deemed necessary. Insurers should carefully identify reinstatement works for which it is responsible under a policy, and not be drawn into paying for additional works.

Further reading: Axa Insurance UK Plc v Cunningham Lindsey United Kingdom [2007] EWHC 3023 (TCC).