Broker’s negligence claims relating to liability policies do not require actual liability (Norman Hay Marsh Ltd)

Norman Hay v Marsh Ltd [2025] EWCA Civ 58

What are the practical implications of this case?

This case serves as a reminder of the important distinction between a claim under a liability policy and a claim against a broker for negligently failing to place such cover. It also reinforces two key procedural principles:  (a) where there are factual issues of causation that must be determined at trial, the court will not grant summary disposal; and (b) allegations of negligence and causation must be pleaded with sufficient particularity.

What was the background?

The underlying facts of the case were tragic. Mr Kelsall was an employee of a company called IMP, a subsidiary of Norman Hay. In November 2018, he took a business trip to the US. He hired a car and chose not to take out insurance. On the journey back to the airport, he was involved in an accident while driving on the wrong side of the road, killing himself and severely injuring a third party, Ms Sage. Ms Sage brought a claim in Ohio against Norman Hay and IMP, which Norman Hay settled for US$5.5m. Norman Hay brought a claim against Marsh for negligently failing to assess its needs and place cover that would indemnity it against liabilities arising from use of hire cars by employees in the US. Marsh denied liability on the basis that it was not required to carry out a risk assessment and that the cover in question was non-standard cover which Marsh had no obligation to place or advise on.

Marsh had two further lines of defence, which formed the basis of its strike out application. First, there is no allegation that Norman Hay or IMP were actually liable to Ms Sage. That was said to be fatal to the claim, because a liability policy will only respond if the insured is actually liable to a third party. It is not enough that the third party’s claim has been reasonably settled. Second, Norman Hay suffered no loss, as the loss claimed is a reduction in the value of its shareholding in its subsidiaries, which is irrecoverable.

What did the court decide?

Mr Justice Picken at first instance acknowledged the rule that cover under a liability policy requires actual liability, but held that the position is different in a claim against an insurance broker, which requires an assessment of what would actually have happened under the putative policy—would the insurer have taken ‘a pragmatic and commercial stance’ and provided cover even if there was no actual liability. This was a factual question requiring trial.

The Court of Appeal upheld that decision. The court decried the poor particularisation of what type of policy it was alleged would have been placed and the details of how loss would have been caused, noting that some policies do respond to reasonable settlement. Nonetheless Lord Justice Males held that even on a conventional liability policy which will only respond to an actual liability, a claim against a broker is different from a claim under the policy, citing Dalamd v Butterworth Spengler [2018] EWHC 2258 (Comm) and Fraser v B N Furnam [1967] 1 WLR 898. In a broker’s negligence case, it was necessary to consider whether the insurer in possession of a good defence would, as a matter of business, rely upon it. This was a question of fact, to be assessed on loss of a chance principles.

This was not to say that the insurer’s liability will be totally irrelevant—if it were clear that there was a valid claim under the putative policy, there would be no need to apply any discount to reflect uncertainty of recovery. Conversely, if it were clear that there was no valid claim, the case would not reach the standard of a real and distinct, rather than merely negligible, prospect of success which must be shown before assessment of loss of a chance can arise.

This factual enquiry extended to any defence founded on the identity of the claimant. There was likely no basis that Norman Hay could have been found liable to Ms Sage, as it was not Mr Kelsall’s employer. It would be IMP who would be potentially liable and indemnified under a putative policy. The question then was whether an insurer would have taken the point that the only valid claimant was IMP, in circumstances where IMP would in any event have been separately indemnified. All of this was a matter for trial, not summary disposal.

As to the question of reflective loss, this was dealt with briefly—had the putative insurer for some reason insisted that its only liability was to IMP and not Norman Hay, it should have been a simple matter for the latter to take an assignment of IMP’s claim. The court further held that Norman Hay may well have suffered direct loss itself in circumstances in which March 2025 may have owed a duty to Norman Hay to arrange cover for IMP, on the basis that Norman Hay wished to protect the value of its shareholdings.

Article by Louis Zvesper. First published for LexisNexis UK.