Issue raised
Insurers frequently pursue subrogated claims against third parties liable to a Claimant for the same damage as their insured once an indemnity has been provided to the insured pursuant to S. 1 of the Civil Liability (Contribution) Act 1978 (the 1978 Act).
In the recent decision in Riedweg v HCC International insurance Plc [2024] EWHC 2805 (Ch), the central question was whether the professional indemnity insurer of an insolvent insured who was being sued directly by a Claimant under the Third Party (Rights against Insurers) Act 2010 (the 2010 Act) could bring a claim against a third party under Section 1 of the 1978 Act. To answer that question, the court was required to consider whether the insurer and the third party were each liable to the Claimant for the “same damage”.
Background
The Claimant alleged that the property which she had contracted to purchase for £8 million had been over-valued by the insured firm of valuers (the Insured). As a result of the overvaluation, she was unable to complete the purchase of the property or assign the contract of sale and was forced to sell the property at £5.5 million. The original vendor sued the Claimant for damages and that claim was settled for £2.2 million.
The Claimant sought to recover the £2.2 million settlement paid to the vendor. As the Insured was insolvent, the Claimant made a claim against the insurer, HCC, pursuant to the Third Parties (Rights against Insurers) Act 2010.
HCC sought to bring a Part 20 contribution claim against the Claimant’s lawyers, Forsters LLP (who allegedly acted as lawyers and business advisors in connection with the purchase), for negligent advice in connection with the proposed purchase under the 1978 Act.
It was accepted that if the insured valuer had been sued by the Claimant, they would have been entitled to pursue a claim for a contribution against Forsters. Both the insured and Forsters were liable to the Claimant for the same damage, namely the financial losses caused by Claimant entering into the contract to purchase the property as a result of the defective valuation and commercial advice. However, Forsters contended that the liability of HCC to indemnify its insured for a loss is not in respect of the same loss suffered by the injured Claimant who makes a claim in reliance on the policy of insurance. That being the case, if HCC paid out on the claim made by the Insured, HCC could not make a claim for a contribution against Forsters.
The Decision
The court held that the ‘damage’ that any liability of HCC was not the same damage within the meaning of s. 1 of the 1978 Act as any potential liability on the part of Forsters.
HCC was allegedly liable to indemnify the Insured under a policy of insurance. The 2010 Act did not make HCC liable to the Claimant for the damage that had been suffered as a result of the Insured’s default. The purpose of the 2010 Act was to provide a mechanism for the Claimant to pursue an insurer directly in respect of its liability to the insured. The court observed that an insurer’s liability under its policy is distinct from an insured’s liability to a claimant (Bovis Construction Ltd v Commercial Union Assurance Co. Ltd [2001] Lloyd’s Rep 416). Consequently, the claim for a contribution against Forsters could not be pursued.
Lessons
This decision places important restrictions on an insurer’s ability to seek a contribution against a third party under the 1978 Act. Whilst an insurer may, having indemnified an insured in respect of its liability to a Claimant, seek a contribution under the 1978 Act against third parties liable to a Claimant for the same damage, this will need to be done in separate proceedings before different judges. The right of insurers to seek a contribution will be limited in lower-value claims.
The decision is currently the subject of an appeal, and court’s further pronouncements on the question will be keenly anticipated.
