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Published On: 1 September 2016
AIG Europe Ltd v OC320301 LLP (formerly The International Lawm Partnership LLP) & The Law Society (Intervener)
Court of Appeal guidance on aggregation clauses
The Court of Appeal has provided key guidance on the aggregation clause in the Solicitors Regulation Authority’s Minimum Terms and Conditions (MTC). This is the first appellate court decision on the construction of the clause.
Aggregation permits two or more claims to be treated as a single claim where they are linked by a unifying factor. The choice of language used to express the unifying factor is of critical importance and the appeal in this case turned on the true construction of the words “a series of related matters or transactions”.
The Court of Appeal concluded that, in order to aggregate, the matters or transactions must have an intrinsic relationship with each other, not an extrinsic relationship with a third factor. The judge at first instance had been wrong to say that the matters or transactions had to be “dependent” on each other before aggregation could occur.
While the wider construction will be welcomed by insurers, the judgment does little to clarify how the aggregation clause is to be applied either to the specific facts of the case or more generally. The new test may prove difficult to apply in practice. The decision will be relevant to professional indemnity insurance, and possibly other classes which include aggregation clauses, and insurers who are not constrained by MTC will need to bear the test in mind.
AXA Versicherung AG v Arab Insurance Group (B.S.C.)
Reinsurer must prove inducement to avoid for non-disclosure
Despite a cedant’s failure to disclose loss statistics relating to its inward book of marine energy construction risks, its facultative-obligatory first loss reinsurer was not entitled to avoid reinsurance treaties covering two years of account.
While the cedant accepted that loss statistics relating to the insurance being written would generally be material, in this case it stated that disclosure of the statistics would not have affected the reinsurer’s decision to write the treaties. This was because the historical poor loss results were not indicative of likely future results as the cedant had adopted a fundamentally more conservative underwriting strategy following the appointment of a new underwriter. The reinsurer’s underwriter could not recall the transaction being carried out and therefore the court considered that a healthy scepticism was appropriate in considering any evidence given as to what the underwriter would have done had the loss statistics been presented.
Ultimately, the court concluded that the underwriter would have been willing to listen to justifications the cedant would have given regarding the previously poor results. Therefore, the non-disclosure had not influenced the decision of the reinsurer’s underwriter and, in this case, the treaties could not be avoided.
Brit UW Ltd v F & B Trenchless Solutions Ltd
Avoidance of policy for material non-disclosure and misrepresentation
The insurer applied for a declaration that it had validly avoided a policy. The insured, a sub-contractor, constructed a micro-tunnel under a railway line. The insured had estimated settlement at 2–4mm. In the following weeks, and immediately prior to taking out a combined liability policy with the insurer, progressive settlement was observed up to 15–18mm and a void opened up. Settlement continued to increase and, shortly after cover was confirmed, sudden severe settlement caused a train derailment. The contractor sought to recover from the insured its losses arising from the insured’s alleged defective work, which were over L3.67 million. The insurer avoided the policy.
The insured argued that the earth movement and void were not material matters to disclose and that the action was brought with impermissible hindsight. The judge disagreed; these were matters which clearly would influence the judgment of a prudent insurer and there was material non-disclosure by the insured. The insured’s own opinion of the significance of the settlement and void did not determine materiality. The test was objective. The material non-disclosure was a substantial cause affecting the insurer’s decision to write the policy on the terms it did. Similarly, the misrepresentation that the insured did not work on active lines was material and also induced the insurer to underwrite the risk on the terms it did. The policy was validly avoided.
Cavendish Square Holding BV v Talal El Makdessi; ParkingEye Ltd v Beavis
Supreme Court rewrites test for penalty clauses
The Supreme Court has reviewed the law on penalty clauses, deciding that there is no justification for abolishing or extending the rule that a contractual penalty clause is unenforceable, and at the same time clarified the test.
Previously, a clause would be enforceable if it was a genuine pre-estimate of the loss that would result from the breach but unenforceable if it was excessive and/or punitive. The Supreme Court held that the concepts of ‘deterrence’ and ‘genuine pre-estimate of loss’ were unhelpful and stated that the true test is “whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation”.
The two cases were very different but the disputed clauses were upheld in both. Cavendish involved a commercial contract relating to the sale of a controlling stake in a business. The disputed clauses applied if the defendant breached a restrictive covenant not to compete, with the effect that the purchase price was reduced. The Supreme Court held that the clauses were in effect price adjustment clauses and, as they were primary obligations, the penalty rule did not come into play.
In ParkingEye, the defendant incurred an L85 parking charge for overstaying a two-hour time limit. The Supreme Court held that the charge was not a penalty. There was a legitimate interest in charging overstaying motorists which extended beyond the recovery of any loss. The charge was not out of all proportion to ParkingEye’s interests and was therefore neither extravagant nor unconscionable.
Eclairs Group Ltd (1) Glengary Overseas Ltd (2) v JKX Oil & Gas Plc and others
Directors must not exercise their powers for an improper purpose
The board of directors (Board) in the respondent company, believing that the appellant minority shareholders were about to undertake a ‘corporate raid’ on the company, issued disclosure notices under section 793 of the Companies Act 2006, seeking information regarding their interests in shares and any acquisition agreements between shareholders. Not satisfied with the appellants’ responses, the Board used Article 42 of the company’s Articles of Association to impose restrictions on their shares, suspending their voting rights at an upcoming Annual General Meeting. The appellants commenced court proceedings contending that the Board’s use of Article 42 breached the ‘proper purpose’ doctrine.
The Supreme Court found that: (1) the ‘proper purpose’ doctrine applied to Article 42 and section 793; and (2) the directors had acted for an improper purpose, since Article 42 was used to influence the outcome of the resolutions at the AGM. While the Board may have believed it was acting in the company’s best interest to prevent a corporate raid, manipulating the outcome of resolutions at shareholder meetings was not the purpose of Article 42 and the presence of an improper purpose vitiated the Board’s actions.
This case is a helpful reminder for directors to consider and record their true motives before exercising a power, to ensure that it cannot be challenged as being used for an improper purpose.
Equity Syndicate Management Ltd v GlaxoSmithKline Plc and AXA Corporate Solutions Assurance SA
Rectification of motor policy allowed
The issue in this case was whether an insurance contract between GlaxoSmithKline (GSK) and its insurer, Equity Red Star (Equity), in relation to an employee car ownership scheme, should be rectified following a claim that unintentionally fell within the terms of the policy.
When the employee car ownership scheme did not apply, GSK would hire cars from National Car Rental which were insured with AXA.
A GSK employee, Ms Ball, was involved in a serious accident while driving a hire vehicle provided through the company. AXA settled the personal injury claim but sought a 50% contribution from Equity. In response, Equity claimed for rectification of the contract.
Following Ms Ball’s accident, GSK and Equity agreed that on interpretation of the policy Equity was still liable. The insurance was wider than had been intended. In the certificate, the description of insured vehicles extended to all vehicles in the custody or control of GSK. A hire vehicle would therefore be covered.
The witnesses were unanimous, however, that the intention was to only cover vehicles in the employee car ownership scheme. The premium was calculated on this basis.
Ultimately, the wide terms of the policy did not reflect the parties’ common intention. AXA would have received a windfall, had rectification not been allowed. Equity’s claim for rectification therefore succeeded and AXA’s claim for contribution was dismissed.
The case demonstrates the importance of careful policy drafting.
Google Inc v Vidal-Hall and others
Google withdraws its appeal on privacy claims
We reported on the appeal court decision last year. It was listed for appeal in the Supreme Court in October 2016 but Google has now withdrawn its appeal.
The case was intrinsically about whether data subjects can claim compensation for their non-financial loss (for example, for distress or moral damage) from companies who infringe their rights under the Data Protection Act 1998 or privacy rights. At each stage of this case, the court has found that data subjects ought to be entitled to bring such claims. In doing so, the court effectively struck through a sub-clause of section 13 of the Data Protection Act which required claimants to show a financial loss first in order to claim distress compensation. With Google’s appeal now withdrawn, it seems that the requirement to show any financial loss for privacy claims has been permanently removed from UK privacy law.
The EU General Data Protection Regulation (GDPR), which will come into effect on 25 May 2018 (see our comments on the impact of Brexit on the GDPR in the Legislation section above), makes no distinction between material and nonmaterial damages. We may therefore see an increase in the number of privacy claims brought in the UK courts.
Hayward v Zurich Insurance Company Plc
Supreme Court considers the effect of fraud discovered post-settlement
On 27 July 2016, the Supreme Court handed down its judgment in the defendant’s appeal in this action to recover damages paid to the claimant in a genuine but exaggerated personal injury claim.
Hayward, who pursued his former employer for damages following an injury in the workplace, was suspected by Zurich to have exaggerated his injuries but no clear evidence was obtained and Hayward persuaded the experts that his injuries were significant.
Following settlement of his claim, Hayward’s neighbours provided his employer (and in turn Zurich) with evidence of his true abilities and Zurich commenced proceedings to recover the damages over and above those which Hayward would have received had he been honest in the first action.
After receiving permission from the Court of Appeal to reopen the Tomlin Order through which the settlement had been recorded, Zurich obtained a judgment at trial which reassessed the value of Hayward’s claim at L14,720 (from L112,500) and ordered him to repay the balance and costs.
Hayward appealed to the Court of Appeal, which decided in March 2015 that, as Zurich did not believe the extent of injuries presented by Hayward to be true, it was prevented from unravelling the settlement even on obtaining conclusive evidence to support its suspicions; it was contrary to the public interest to allow a contract of settlement, entered into when aware of the possibility of fraud, to be set aside when evidence of that fraud came to light.
In contrast with the judgment in Versloot Dredging BV and another v HDI Gerling Industrie Versicherung AG and others, the claim was fraudulently exaggerated and presented in order to seek damages to which the claimant was not entitled rather than a “justified claim supported by collateral lies”.
The Supreme Court’s unanimous decision was that belief in the misrepresentation need not be established. The risk of Hayward’s misrepresentations being accepted by the judge assessing his damages was a material factor in leading Zurich to settle the claim for a value higher than its true value; therefore the misrepresentation was a material cause of the settlement. The judgments confirm that it is difficult for the fraudster to rebut the presumption that a fraudulent misrepresentation is material in such circumstances.
DAC Beachcroft acted on behalf of the insurers.
Heneghan v Manchester Dry Docks Ltd and others
Court of Appeal considers causation in a claim for asbestos-related lung cancer
While a claimant who developed mesothelioma can pursue each employer that exposes him to asbestos for the entirety of his claim pursuant to section 3 of the Compensation Act 2006, this statutory entitlement does not extend to the indivisible condition of lung cancer.
The lead judgment was given by the Master of the Rolls, who concluded that, as all of the defendants had materially contributed to the risk of Mr Heneghan contracting lung cancer, the causation test was satisfied. However, as the evidence did not indicate that any one of the defendants alone had doubled the risk of him developing the condition (and thereby made a material contribution), the defendants should each contribute to the damages based on their proportionate period of exposure. His estate’s recovery was therefore restricted to 35.2% of the value of the claim.
As a result, the common law position remains in claims for the indivisible condition of asbestos-related lung cancer and, in the absence of evidence that an individual defendant has more than doubled the risk of developing the condition, Holtby v Brigham & Cowan (Hull) Ltd discounts for unpursued periods of exposure should remain available to defendants and their insurers.
Knauer v Ministry of Justice
Supreme Court rules on claims for special damages in fatal accidents
As predicted in our report last year, February 2016 saw the Supreme Court unanimously overturn 37 years of established law to hold that, when calculating the dependency in fatal accident claims, multipliers should be calculated from the date of trial, in line with the date used in non-fatal personal injury claims.
The methodology for the calculation of multipliers is not that applied in non-fatal claims, and the sum calculated should reflect the risk that, had there been no tort, the deceased might have died between the actual date of death and the date of trial.
The impact of the judgment will result in multipliers increasing by a small but not insignificant amount in nearly every fatal accident case. The judgment has retrospective effect and therefore affects all outstanding fatal accident claims.
Mayor’s Office for Policing and Crime v Mitsui Sumitomo Insurance Co (Europe) Ltd (1) Tokio Marine Europe Insurance Ltd (2) and others
Supreme Court decision on the recoverability of consequential losses under the Riot (Damages) Act 1886
Insurers and the Mayor’s Office for Policing and Crime (MOPC) have been embroiled in litigation since 2012, after the MOPC refused Mitsui Sumitomo and Tokio Marine’s claims for compensation arising out of the total destruction of the Sony DADC Distribution Centre in Enfield during the August 2011 riots. Overturning the Court of Appeal’s unanimous decision, the Supreme Court ruled in April that the compensation recoverable under the Riot (Damages) Act 1886 does not include consequential losses.
Unlike the Court of Appeal, who were influenced by the developments in tort law, Lord Hodge’s judgment focused on the legislative history. Referring to medieval applications of the surety principle as evidencing that the community did not always stand in the shoes of the offender, as well as the legislation which developed the notion of a self-contained statutory compensation scheme, the starting point in his view was that compensation was confined to physical damage to property. In the absence of a provision expanding this, and thereby extending the statutory scheme, there could be no recovery for consequential losses under the 1886 Act.
This decision came just weeks after the Riot Compensation Act 2016 received Royal Assent (see Legislation section above).
DAC Beachcroft acted on behalf of the insurers.
McBride v UK Insurance Ltd
Credit hire rates evidence reconsidered
Challenging Stevens v Equity Syndicate Management Ltd (Stevens) on which we reported last year, the claimant proceeded to the Court of Appeal on 21 January 2016 for an oral application for leave to appeal after it was refused leave on paper. In the original matter, which was heard shortly after Stevens, the judge awarded hire charges based on the Stevens test.
The application for leave to appeal was lodged by Accident Exchange on three grounds. The first was the question of whether the claimant is entitled to hire with a zero excess via a collision damage waiver (CDW) product. At first instance, a rate had been awarded which did not come with the option to waive the excess. Lord Justice Underhill surmised that this could not be the only case with CDW and excess as an issue, so highlighted it would be useful for the Court of Appeal to give some guidance on the area. Permission was therefore granted.
The second issue was the difference between ‘mainstream’ and ‘local reputable’ companies and the respective hire rates. At first instance, the judge awarded a rate from a local company, rather than a mainstream one where the rates were higher. The appellant argued that the judge should have awarded a rate from a mainstream provider. Underhill LJ described the claimant’s drafting as ‘dodgy’ and asked if it wanted to amend. Permission to amend was granted, with the permission to appeal hearing being relisted for the same time as the full appeal on the above issue.
The most important of the three grounds for appeal was that Stevens is inconsistent with previous Court of Appeal decisions, so the court was wrong to follow Stevens in this matter. In essence, this was an attempt by Accident Exchange to undermine Stevens.
At the hearing, Underhill LJ was clear that he did not believe the claimant had grounds to appeal. He expressed the view that there was no inconsistency between Stevens and previous Court of Appeal decisions. Stevens had been fully argued and the decision made and as such this ground of appeal had no merit. Nevertheless, he allowed the claimant to argue the point in front of a full court at the same time as the appeal hearing of the above. Therefore, the claimant does have another opportunity to argue for leave to appeal. Underhill LJ did, however, want it noted that Stevens remains good law.
The appellant asked to expedite the matter but the court refused. Due to the current backlog in the Court of Appeal we do not expect a hearing before spring 2017. The matter will be heard alongside Clayton v EUI Ltd, another Accident Exchange appeal dealing with excess waivers and the calculation of rates. As such, Stevens should be applied on all cases for at least another year, and of course longer if the full courts agree with Underhill LJ.
Thwaites v Aviva Assurances had been listed for hearing in the Court of Appeal in April 2016. However, this case, querying whether basic hire rates are applicable on subrogated claims, has been discontinued by Accident Exchange.
Minister Finansow v Aspiro SA
European Court of Justice decision on the VAT treatment of claims handling
Aspiro is a Polish company providing claims handling services to insurance companies in Poland. The Polish tax authority did not want Aspiro to be able to exempt its claims handling services to its customers and wanted the insurance companies to have to pay VAT. Interestingly the UK government tried to intervene, supporting the use of the VAT exemption, but its input was dismissed.
The European Court of Justice (ECJ) held that for the exemption to apply the service provider must “have a relationship with both the insurer and the insured party” and in addition “its activities must cover the essential aspects of the work of an insurance agent, such as the finding of prospective clients and their introduction to the insurer”. On the facts, Aspiro lost and will have to start charging VAT to its customers.
So, unless a claims handling organisation actually introduces insureds to insurers with a view to concluding contracts for insurance, the availability of the exemption is currently under question. The strong implication from the judgment is that UK law does not comply with EU law and our opinion was that the UK may have had to change its legislation at a future date, the change likely to be prospective rather than retrospective. This is not the first time HM Revenue & Customs’ (HMRC) implementation of a VAT directive has been deficient and we would have expected HMRC to issue a consultation followed by new legislation in the Finance Act.
The UK government will not be obliged to make this change post-Brexit and our view is that it will not seek to do so in the meantime. We will no longer be bound by the VAT rulings of the ECJ unless our trade agreement with the EU says something to the contrary. The UK government can of course choose to make this change independently (increasing the tax take in this area) but bearing in mind that the UK government made representations to the ECJ supporting the wide use of the exemption to promote the UK insurance industry, we now think that this is less likely than prior to the referendum.
MT Hojgaard A/S v E.ON Climate & Renewables UK Robin Rigg East Ltd and another
Contract terms may not guarantee quality
This case concerned liability following the failure of foundations of an offshore wind farm. As design and build contractor, MT Hojgaard (MTH) sought declarations of non-liability to E.ON as employer for the remedial costs to the foundations of the Robin Rigg wind farm.
The judge specifically found that the design and build contract required MTH to achieve a result, namely foundations with a service life of 20 years. MTH produced its
design in accordance with an international standard for the design of offshore wind turbines, known as J101. The judge found that this contained a significant error and although MTH was not negligent in failing to supply a structure with a service life of 20 years, MTH was in breach of contract.
The Court of Appeal disagreed. Viewing the contractual documents as a whole, MTH had not given an absolute guarantee that the structure would have a service life of 20 years.
This case underlines the need for clarity in contracts, in this case drawing a sharp distinction between achieving a reasonable design life and guaranteeing the actual operational life of the structure.
Ocean Finance & Mortgages Ltd and another v Oval Insurance Broking Ltd
Brokers’ duty to advise on block notification
Normally a placing broker will not owe duties to the insured but only to its client, the producing broker. However, in this case it was argued that the placing broker owed direct duties, in tort, to the insured.
The insured sold secured loans and payment protection insurance (PPI). When PPI complaints started to be upheld in 2009, the placing broker voluntarily made a limited notification of circumstances prior to renewal without any instruction to do so. The following year, a block notification was made. Cover was rejected on the basis that notification should have been made in the previous year.
The judge held that by making a voluntary notification, the placing broker had assumed duties to the producing broker and potentially assumed a duty to the insured itself in relation to making appropriate notification to the earlier year insurers. The judge held that both the producing and placing brokers were in breach of their duties in failing to deal with the need to make a block notification in respect of PPI complaints. The downsides of making a block notification were outweighed by the risks of failing to notify such circumstances to insurers. On apportionment of liability between the two brokers, the producing broker was held liable for 70% of the loss as it had greater knowledge of the systematic failures in the insured’s sales processes.
Schrems v Data Protection Commissioner
Privacy Shield to replace US-EU Safe Harbor framework
In October, the European Court of Justice ruled that the Safe Harbor regime was no longer considered to provide adequate protection for personal data transfers from the European Economic Area to the US due to the unfettered access that US authorities have to European data once it reaches US shores. Consequently, the insurance market was forced to carry out an audit of all existing contracts involving the transfer of personal data from the EU to the US under Safe Harbor and put in place the European Commission’s standard contractual clauses, referred to as ‘Model Clauses’.
Meanwhile, the US and Europe rushed into trying to agree an alternative to Safe Harbor, in the form of the ‘Privacy Shield’. On 12 July 2016, the European Commission adopted the Privacy Shield as an adequate means of transferring personal data to the US. The US Department of Commerce started accepting applications for certification on 1 August 2016. Throughout the negotiations, much scepticism was expressed regarding its similarities to the Safe Harbor scheme and at the time of writing, its future is by no means certain. The Article 29 Working Party, the European Parliament and the European Data Protection Supervisor have all published negative opinions on the Privacy Shield, expressing ‘strong concerns’ on issues such as data retention, onward data transfers and the new right of redress for EU individuals, and the access by public authorities to data transferred under the Privacy Shield. Essentially, these are the main issues that the Privacy Shield was meant to address after the demise of Safe Harbor. Meanwhile Schrems and the Irish Data Protection Commissioner have asked the European Court of Justice to assess the adequacy of Model Clauses. If these are declared inadequate, the future of many transfers of personal data from Europe to the US is uncertain.
Serious Fraud Office v Standard Bank Plc (now ICBC Standard Bank Plc)
First Deferred Prosecution Agreement
Standard Bank’s indictment for an alleged failure to prevent bribery contrary to section 7 of the Bribery Act 2010 was suspended upon the Serious Fraud Office (SFO) agreeing its first Deferred Prosecution Agreement (DPA) with Standard Bank.
The suspension related to a US$6 million cash payment by Standard Bank’s subsidiary, Stanbic Bank, to Enterprise Growth Market Advisors Ltd (EGMA), a Tanzanian company. Two of EGMA’s directors and shareholders were members of the Tanzanian Revenue Authority (that is, the Tanzanian government) and the SFO alleged that the payment was intended to induce the Tanzanian government to favour Stanbic Bank and Standard Bank’s proposal for a US$600 million private placement sought by the Tanzanian government. The placement generated fees of US$8.4 million shared by the banks.
Standard Bank self-reported the matter to the SFO, which investigated and found that Standard Bank had failed to adopt adequate compliance procedures to prevent bribery and had failed to recognise the inherent risks of the transaction.
The SFO considered that the public interest would be met by a DPA. This required Standard Bank to pay a penalty of US$16.8 million to the SFO, disgorge profits of US$8.4 million, pay the SFO’s costs of L330,000 and pay compensation of US$7.05 million to the Tanzanian government. It must co-operate fully with the SFO and be the subject of an independent review of its existing antibribery and corruption controls, policies and procedures. These obligations remain for a period of three years.
SSE Generation Ltd v Hochtief Solutions AG and another (Scottish decision)
Contractual liability not displaced by joint names Construction All Risks policy
The Outer House held that an employer was not barred from bringing proceedings against a contractor with whom it was jointly insured.
The defendant was employed to design and build a hydro-electric plant under an NEC 2 contract. Shortly after completion, a major tunnel collapsed causing losses of over L100 million which the employer sought to recover from the defendant. The defendant argued that the parties intended that the Construction All Risks (CAR) policy (taken out in joint names as required under the contract) should take the place of liability and that the employer should have made a claim under the policy.
The judge acknowledged that this was a difficult area of law and that the thrust of the authorities was in favour of joint names insurance displacing contractual liability. However, care had to be taken not to merge the law of insurance with the law of contractual interpretation and the primary focus should be on the words used by the parties set in their context.
The contract expressly stipulated that each party was liable to the other. There was no justification for giving primacy to the insurance provision. The contract had limited the parties’ liability with the inference that they recognised that each was obliged to the other in respect of loss and did not intend the CAR policy to supplant liability. Subrogation rights against the directors and employees had been expressly waived in the contract. There was no irrefutable presumption that the parties had no liability to one another simply because a joint names policy was in place.
Versloot Dredging BV and another v HDI Gerling Industrie Versicherung AG and others (the DC Merwestone)
Supreme Court rewrites fraudulent devices rule
The Supreme Court handed down its judgment on the extent of the fraudulent claims rule on 20 July 2016.
The claim concerned the replacement of a vessel’s engine due to water ingress. The policy covered perils of the seas and loss or damage caused by the negligence of masters, officers, crew or pilots provided the loss or damage had not resulted from want of due diligence by the assured, owners or managers (the Inchmaree clause).
The owners, concerned that the failure of the bilge alarm to sound might give rise to questions of maintenance (that is, want of due diligence), stated that the alarm had sounded but the crew had attributed it to the rolling of the sea and had not responded.
The first instance court held that the cause of the loss was a peril of the sea, and so the issue of want of due diligence was irrelevant. However, as the owners had put forward evidence with regard to the bilge alarm the court was bound to consider whether or not it was true. The court held that the owners’ evidence on the point was false, intended to distance themselves from any fault. This therefore amounted to an untruth told recklessly in support of the claim (that is, a fraudulent device). The effect was to defeat the claim entirely. The Court of Appeal agreed.
The Supreme Court, however, allowed the appeal (Lord Mance dissenting), ruling that a fraudulent device (renamed in the judgment as a ‘collateral lie’) will not defeat an otherwise legitimate claim unless it is material to the recoverability of the claim on the true facts. The legitimate aim of discouraging dishonesty was not sufficient to limit insurers’ liability where the dishonesty was not material to that liability.
Williams v The Bermuda Hospitals Board / Sido John v Central Manchester & Manchester Children’s University Hospitals NHS Foundation Trust
Causation in medical negligence cases
In 2016, there have been two important cases on causation in medical negligence within a few months of each other. They each deal with the complex situation where a claimant cannot establish causation on a ‘but-for’ basis, but where the claimant seeks to establish that a defendant’s negligent treatment made a ‘material contribution’ to their injury.
In Williams, the Privy Council had to consider a negligent delay in obtaining a CT scan and treating abdominal sepsis, in the case of ruptured appendicitis. The claimant lost at first instance, as she could not establish that an earlier operation would have avoided the subsequent post-operative course of complications (including myocardial ischaemia and treatment in the Intensive Care Unit). However, the Privy Council held that she could succeed on a ‘material contribution’ basis. It did not matter if two combining causes were sequential (a non-negligent period of sepsis followed by a negligent period of sepsis) rather than simultaneous.
In Sido John, the claimant (a GP himself) suffered a significant head injury in a fall, and subsequent negligent treatment in the delay in arranging necessary neurosurgery. Again, on a strict but-for basis, he could not establish causation. However, the court, in applying Williams, allowed the claimant to recover, even where the medical evidence could merely show that there were multiple possible causes for his overall outcome. So long as the negligent cause materially contributed to the injury, the claimant will recover damages in clinical negligence.
These cases show the importance of careful evaluation, through expert evidence, of a claimant’s injuries. Even where a claimant can establish material contribution, insurers should still seek to assess the likely care needs from the pre-existing injury: even where this assessment is a complex and difficult exercise, it will continue to be worth it.