Loss of Chance in broker’s negligence claim - Norman Hay PLC v Marsh Ltd

In a judgment dated 8 May 2024 the Commercial Court has held that where a broker’s negligence has resulted in no insurance policy being available, a claimant is not required to prove on the balance of probabilities that a putative insurer would in fact have indemnified the claimant. Rather, the Court’s assessment of causation and loss needs to involve consideration of the ‘loss of chance’ aspect including whether the putative insurer would have engaged in dealing with the underlying claim against the claimant and whether it would have provided an indemnity of some sort.

Background

Norman Hay Plc (“Norman Hay”), whose group companies were located in different jurisdictions throughout the world requiring employees to frequently travel for business purposes, retained Marsh Ltd (“Marsh”) to place non-owned auto insurance cover, on a country-by-country basis for policy year 2017/2018 and under a global liability programme for the policy years 2018/2019 and 2019/2020. Non-owned auto cover is motor liability insurance cover in the event of cars being hired.

On 22 November 2018, Mr Nigel Kelsall - said by Norman Hay to be an employee of its subsidiary, Internationale Metall IMPragneier GmbH (“IMP”) - was tragically killed in a road traffic accident in Ohio in the USA whilst driving a hire car without insurance. The driver of the other car involved in the accident, Ms Sage, was seriously injured.

Ms Sage subsequently issued proceedings against various defendants including Norman Hay and IMP, alleging that the accident was caused entirely by Mr Kelsall's negligence whilst operating a hire car in the course of his employment or as agent for IMP and consequently Norman Hay and IMP, were jointly and severally liable to Ms Sage. Those proceedings were subsequently settled on terms that Norman Hay would pay Ms Sage US$5.5m.

The claim against Marsh

Norman Hay subsequently issued proceedings against Marsh claiming an indemnity or damages in respect of the liabilities arising from and in relation to the accident, including the settlement sum paid to Ms Sage. The key allegations against Marsh are that when advising Norman Hay in relation to the placement and renewal of its worldwide insurance cover Marsh failed to: (1) identify that senior employees of both Norman Hay and companies in its group made frequent business trips on which they hired cars, for which adequate liability insurance was required; and (2) failed to consider an existing policy that IMP had, which would have provided an indemnity, and recommended cancelling and replacing it with a global policy with narrower cover.

Norman Hay also alleged that, but for Marsh’s breach of duty: Norman Hay and/or IMP would have had in place valid and effective insurance cover that would have provided an indemnity in respect of liabilities arising from the accident, such that Norman Hay would not itself have had to fund the settlement with Ms Sage; alternatively, Norman Hay lost the opportunity of obtaining insurance cover that would have responded to the liabilities arising out of the accident.

Marsh’s application

Marsh applied to strike out the claim or alternatively for summary judgment on three grounds:

1. the claim as put was defective as a matter of law, since Norman Hay’s settlement with Ms Sage did not establish a liability to her for which it would have been entitled to an indemnity, and Norman Hay had failed to plead that in the hypothetical counter-factual it would have been indemnified by insurance (the 'Liability Issue');
    
2. because Norman Hay did not pay the settlement sum to Ms Sage (which was paid by an entity that had acquired Norman Hay) it had not suffered the loss for which it is claiming (the 'Loss Issue');
    
3. because Norman Hay had refused to provide disclosure of the privileged legal advice on which it relied when agreeing the settlement with Ms Sage and so could not, and would not be able to, prove that the amount of the settlement was reasonable (the 'Evidence Issue').

In response, Norman Hay submitted that:

1. in respect of the Liability Issue, it is not necessary for Norman Hay to show that it was liable in law to Ms Sage and that the putative insurer would have been legally bound to indemnify Norman Hay as the court will assess the likelihood that the putative insurer would have provided an indemnity, and any uncertainty as to the indemnity that results from the broker's negligence will be resolved in favour of the claimant;
    
2. in respect of the Loss Issue, the fact that the loss - in the form of the settlement sum paid to Ms Sage - manifested as reduced purchase consideration does not change the fundamental nature of the loss claimed from Marsh, which is the amount of liability in respect of which Norman Hay was uninsured as a result of Marsh's negligence;
    
3. in respect of the Evidence Issue, Norman Hay would seek to establish that the settlement with Ms Sage was entered into upon legal advice and it would be premature to dismiss the claim in circumstances where disclosure had not yet been given, witness statements had not yet been exchanged and expert evidence (if any) had not yet been served.

Judgment

Mr Justice Picken found that it would not be appropriate either to strike out Norman Hay's claim or to give summary judgment dismissing it. In relation to the Evidence Issue, he found that it would be wrong to stop Norman Hay's claim at an early stage on the basis that documents which Marsh says should be disclosed have yet to be disclosed, when the disclosure stage has not yet been reached. The Loss Issue stood or fell on the Liability Issue. In relation to the Liability Issue Mr Justice Picken found that:

• As was made clear on appeal in Astrazeneca v XL Insurance (Bermuda) [2013] EWCA Civ 1660 at [16] to [22], if an insured is to recover under a liability insurance policy, it is necessary that the insured establishes a liability to the third party which has alleged that the insured is liable. The position is not the same, where the claim is against an insurance broker in negligence. In such a claim, there is scope for a broader inquiry as to what, had the broker not been negligent, would have happened in the event that the claimant had presented a claim to its putative insurer. This requires an assessment of the chance that the claim under the putative policy would have been met.
   
• Where, as in the present case, there is no liability insurance policy in base, the Court needs to consider the counterfactual and ask itself whether, realistically, the putative insurer would have told Norman Hay to deal with Ms Sage's claim as a prudent uninsured or whether the putative insurer would have engaged with Norman Hay in dealing with the claim and provided an indemnity.
   
• Dalamd Ltd v Butterworth Spengler Commercial Ltd [2018] EWHC 2558 (Comm) should not be treated as authority that the only way in which a claim against an insurance broker can succeed is if the Court is persuaded, on a balance of probabilities, that the claimant would have recovered under the putative policy of insurance but for the broker's negligence. It is also open to the Court to assess the likely value of the claim against the insurer on a lost chance basis, which takes into account the prospect of the insurer taking the position that it is not obliged to meet the claim.
   
• Since Norman Hay’s case involved consideration of a counterfactual that entails asking what would have been the position had there been a policy of insurance in place it would necessarily involve looking at loss of chance-type aspects: what type of policy would have been obtained; what conditions would that policy have contained; and what was the likely attitude of the putative insurer to being notified by Norman Hay of Ms Sage's claim. This involves, in turn, a weighing of contingencies which Dalamd did not require because in that case there was an actual insurer and an actual policy of insurance.
   
• As Norman Hay had put forward a loss of a chance case it was not appropriate, in the circumstances, either to strike out or to give summary judgment dismissing the claim.

Comment

The decision that Norman Hay had an arguable case on causation suggests that the impact of the decision in Dalamd may be restricted to cases where a claimant has a choice as to whether to pursue a claim for its loss against its insurer or its broker and only pursues its broker. In that scenario, the assessment of causation depends on facts which existed at the time and not on a hypothetical counterfactual that entails asking what would have been the position had there been a policy of insurance in place. It maybe that in some instances re-litigating past facts to determine what the insurer would have done may be inappropriate. Brokers may consider in such circumstances that the loss of chance analysis may help combat a particularly credible claim.