Court of Appeal decides hirer not liable to indemnify owner for consequences of owner’s negligence - Jose v MacSalvors Plant Hire Ltd & Brush Transformers Ltd [15.12.09]

Those familiar with the CPA Model Conditions (the provisions under which cranes are usually hired out in the UK) will need little introduction to clauses 8 and 13. Clause 8 provides, in effect, that where an operator competent in operating the plant is supplied with it, they will be regarded as the employee/agent of the hirer, who will be responsible for claims arising from their negligence. Clause 8 was considered by the House of Lords in Arthur White (Contractors) Ltd v Tarmac Civil Engineering Ltd [1967], and held to achieve just that.

Clause 13 provides, essentially, that the hirer is to indemnify the owner in respect of all claims “… by any person whatsoever for injury to person or property caused by … use of the plant”.

In this case, MacSalvors hired an 80 tonne crane and operator to Brush. The operator had set up the crane and was completing some adjustments when he stepped backwards, believing he had left the crane slewed in line with the chassis so the deck would be below him. It was not, and he fell to the ground and was injured.

The operator pursued a claim for damages for negligence and breach of statutory duty under reg. 6 of the Construction (Health, Safety and Welfare) Regulations 1996, which was settled by MacSalvors for £50,000. MacSalvors then sued Brush for an indemnity under clauses 8 and 13.

Decision
The claim based on clause 8 was dealt with swiftly by the Court of Appeal: it was clear from Arthur White that it applied only to cases concerning which of the hirer and owner was to be vicariously liable to third parties for the operator’s negligence. This was a claim by the operator, not a third party, so it did not apply.

As for clause 13, the court began by dealing with MacSalvors’ assertion it was not an indemnity clause, which would require strict construction, but an allocation of risk clause, which would not. Interesting aspects of this debate included rejection of the views expressed in Hewden Tower Cranes Ltd v Yarm Road Ltd [2003], on which MacSalvors’ assertion was based, and the Court of Appeal regarding itself as bound by its unreported decision in E Scott (Plant Hire) Ltd v British Waterways Board, where it was held:

1. Clause 13 was an indemnity clause.
2. On a strict construction, it did not oblige the hirer to indemnify the owner in respect of liabilities arising from the negligence of the owner’s employees.

Accordingly, MacSalvors’ appeal was dismissed.

Comment
This is a commonsense decision based on sound legal principle and one which further defines the scope of the provisions of the CPA Model Conditions. Such definition can only help the efficient handling of cases involving hired plant.

For further information contact Geoff Lord, Kennedys, 0207 667 9185.

Court of Appeal rules that causes of action against solicitors alleged to have negligently assessed the merits of claims under ATE policies arose when policy issued - Axa Insurance Ltd (formerly known as Winterthur Swiss Insurance Company) v Akther & Darby Solicitors & others [12.11.09]

Axa (as successor to NIG) brought a claim against 89 firms of solicitors alleging negligence and breach of contract in respect of their initial vetting and subsequent handling of some 26,500 claims supported by after-the-event (ATE) policies underwritten by NIG. The solicitors challenged Axa’s entitlement to bring a substantial number of the claims, on the basis they were time-barred - the ATE policies having been incepted over six years prior to the issue of Axa’s claim. Axa contended the limitation period commenced when a call was first made on the ATE policy, being the date damage accrued.

In March 2009, the Commercial Court found in favour of the defendant solicitors, holding that Axa suffered actual damage on the inception of the individual ATE policies.

On appeal, the case centred on what represented a purely contingent liability and whether the House of Lords’ decision in Law Society v Sephton [2006], which concerned the accrual of a cause of action when the breach of duty resulted in a party being subject to a contingent liability, could be distinguished. The Lords held that the cause of action in tort did not accrue until the contingency was met.

Decision
By a 2:1 majority, the Court of Appeal upheld the first instance decision that Axa’s cause of action in tort accrued when NIG wrote the ATE policy on the basis of the allegedly negligent vetting by the solicitor, that being the point at which damage occurred.

In the leading judgment, Lady Justice Arden concluded that the insurer incurred “additional loss” by entering into the ATE policies, as the liabilities under those policies were more burdensome, and the package of rights they acquired less valuable, than they should have been if the vetting breaches had not occurred. This was measurable loss, additional to the incurring of purely contingent liabilities under the policies of insurance.

Lord Justice Longmore agreed, concluding that the damage the insurer suffered occurred at the inception of the policies as a consequence of a vetting breach, meaning a loss arising from a future claim on the policies was, in the natural order of things, bound to occur.

However, in a dissenting judgment, Lord Justice Lloyd felt unable to hold that the inception of an ATE policy was other than a “pure contingent liability” within the meaning of Sephton and, accordingly, found in favour of Axa.

Comment
Permission to appeal this decision was given, all the Judges being of the view that clarification of Sephton would be helpful. However, following the subsequent settlement of the claim, Axa has agreed to withdraw its appeal and this complex area of law is likely to remain uncertain for some time further.

Kennedys acted for a large number of the successful defendants. For further information contact Laura Hurst, Kennedys, 0207 667 9159.

Amendments to the Third Party (Rights against Insurers) Act 1930 are long overdue, so the reforming Bill currently being fast-tracked through Parliament, the Third Party (Rights against Insurers) Bill, should be welcomed by the insurance industry. In the words of the Ministry of Justice, it is intended to make it “… easier and less expensive to claim compensation from insolvent defendants”.

Current law
The 1930 Act was originally introduced to deal with insurance issues relating to motor claims in the 1920s. It introduced a cumbersome procedure to circumvent the common law requirement that any liability insurance payment made following a judgment against an insolvent insured had to be paid into the general pot of assets - for distribution to all creditors, not directly to the successful claimant. It required the third party to obtain judgment against the insolvent insured and then pursue the insurer, transferring the insolvent insured’s rights to the third party, to the exclusion of other creditors.

The new Bill streamlines this process, enabling third parties to sue insolvent defendants’ insurers directly, rather than first having to obtain judgment.

Under the present legislation, assuming there is no issue on coverage, insurers will deal with third party claims whether or not the insured is insolvent. Difficulties arise, however, where there are questions about coverage, a claim is repudiated or a policy avoided. An insolvent insured is unlikely to challenge the repudiation/avoidance, leaving the third party to make the running. The end result can be a full liability judgment against the insolvent insured and, subsequently, a claim from the third party for indemnity under the liability policy. Where the repudiation/avoidance is not upheld, insurers have little prospect of setting aside/varying the underlying judgment.

Proposed reform
Assuming the Bill becomes law, insurers (and claimants) will benefit from the streamlined procedure. They will be able to involve themselves in the underlying liability directly with third parties, who will be able to issue proceedings in the normal way but also name insurers as defendants. Where there are policy issues to be resolved, these can be dealt with in the same proceedings, before liability judgment.

Prudent insurers already exploit existing procedural rules to be joined as an additional defendant and seek a declaration on coverage, as well as protecting their position in the underlying liability action. Under the reforms, an insurer will be routinely named as a defendant where its insured is insolvent.

The Bill also gives third parties rights to information about the insurance policy. Under the 1930 Act, this is not required until the insured is insolvent and judgment obtained. Early disclosure will promote the resolution of any contentious coverage issues direct between third party and insurer. Similarly, if the insolvent insured has been struck off the company register, it will no longer be necessary to restore the company, as third parties will have a direct right against insurers, without having to sue the insured.

For further information contact Tim Wilson, Kennedys, 020 7667 9331.