Dealing with Coy Insurers
If you have a good claim for a substantial sum which your opponent would not be able to pay themselves if judgment was obtained, but in relation to which they are insured, can you obtain a copy of their insurance policy at an early stage? That would have the obvious benefit of preventing costs being wasted if ultimately there was no prospect of recovery. Avoiding costs being wasted is usually something which the court is very concerned about. A recent case gives the answer to this question.
When a building warehouse at Sheerness Docks in Kent, was damaged by fire, the owners had a substantial claim (in excess of £1 million) against a company involved in some flame cutting work near flammable insulation material. The potential defendant was solvent, but it was feared that they could not afford to pay a substantial judgment against them. Although the company was insured, the insurance company denied that the claim was covered on the basis that certain policy terms had not been complied with. An insurance company denying liability for a claim – whatever next!
Before proceedings were issued, the warehouse owners sought disclosure of the insurance policy so that they could judge whether the insurer’s argument was valid. It is possible in certain circumstances to make an application for disclosure of documents before the main proceedings have begun. However the documents requested must be of a type which would become disclosable if the main proceedings were issued, and the court thinks it necessary to give early disclosure to dispose fairly of the anticipated proceedings (or indeed to assist the dispute to be resolved without proceedings) or to save costs.
Unfortunately, within the main proceedings, the insurance policy itself would not be a disclosable document because it is not actually relevant to any issues in the case, i.e. who or what caused the fire and what loss and damage was caused by that. Therefore, the application for ‘pre-action disclosure’ was refused. The insurance company accepted that if judgment was obtained and the defendant company then went into liquidation, the insurers were likely to be the subject of a second claim under the Third Parties (Rights against Insurers) Act 2010, which belatedly came into force in August 2016. Instead of ordering early disclosure of the policy document itself, the court took the view that the warehouse owners should rely on their rights under the 2010 Act to serve a notice on the insurers requesting information as to whether the insurance contract did cover the supposed liability and what the terms of the insurance contract were.
Since, in terms of seeking to deny responsibility, the insurers were relying on an endorsement on the policy, it may of course have been that, just by disclosing that information under the 2010 Act, it would not actually provide the full answer they were seeking.
Although the decision is probably correct under the rules as they are currently drafted, perhaps the rules/law needs to be changed so as to avoid wasting costs unnecessarily which the court is supposed to be concerned about and usually is.
This is not legal advice; it is intended to provide information of general interest about current legal issues.