Is the defendant worth suing?

Litigation clichés

“You can’t get blood out of a stone”. “There’s no point in throwing good money after bad”. Many will have found themselves using clichés when advising a claimant where the defendant’s ability to meet any future award is very much in doubt. In professional negligence claims the normal expectation is that the defendant will have professional indemnity insurance cover that will meet any claim, but how can one be sure? And even if there is cover can one find out the level of that cover?

In many professional negligence cases the insurer may well have played an active role in the pre-action protocol, which would obviously indicate that there is a policy in place and that the defendant has notified the insurer of the claim. Even if the insurer has not played a direct role in the pre-action protocol the identity of the defendant’s solicitors may indicate that the defendant is insured and has notified the insurer of the claim. However there will be occasions when the existence of insurance is unknown.

The Provision of Services Regulations 2009

The Provision of Services Regulations 2009 implemented European Directive 2006/123 which imposed various obligations on service providers including most professionals. There are a number of service providers who are excluded, such as providers of financial services (although such providers are subject to other regulatory requirements). Regulation 8(1)(m) states that a service provider must make the following information available to the recipient of that service:

“ where the provider is subject to a requirement to hold any professional liability insurance or guarantee, information about the insurance or guarantee and in particular—
(i) the contact details of the insurer or guarantor, and
(ii) the territorial coverage of the insurance or guarantee.”

Where therefore the professional, such as a solicitor or a barrister, is required to hold professional liability insurance then the client must be provided with information about that insurance. That information must be provided in a clear and unambiguous manner. However it will be noted that the only information specifically referred to are the details of the insurer and the territorial coverage of the insurance. It must also be noted that the requirement to provide this information only exists where the professional is obliged to hold professional liability insurance. If there is no such obligation then this regulation has no effect.

Most importantly, there is no requirement to provide details as to the level of cover, which is the information a claimant will want to know in order to consider how much of the claim the defendant is good for. For a number of professions where professional liability insurance is compulsory there is also a minimum level of cover. For solicitors the minimum level of cover for some practices remains at £2m (although there have been recommendations that this be reduced to only £500,000). Whilst for defendant solicitors this obligation is in addition to rule 18.1 of the Solicitors' Indemnity Insurance Rules, which require the disclosure of similar information, those rules likewise do not entitle the client or former client to details as to the level of cover. 

The claimant should have been provided with this limited information when they were a client of the professional although that may have only been via a website. If the information was not provided a claim limited to the provision of that information could be made or that could be a claim within the wider claim for damages.

Obtaining details of cover – An advance then a retreat

So if the Regulations do not assist as to the level of cover is there any other means of obtaining the information?

The question whether there is an obligation on a defendant in proceedings to provide details of their insurance cover has been the subject of a limited number of decisions. Whilst none of these decisions have considered the impact of the Regulations it would seem unlikely that the Regulations will alter the way in which the courts appear to be approaching the issue. The long established position in relation to insurance used to be expressed by the Latin phrase “res inter alios acta” – meaning a thing that operates between others. An insurance policy is a private matter between the insured and the insurer and in general is not something that has to be disclosed to the other party. The claimant has to take the defendant as he finds him. Whilst one can understand the reluctance of the courts to allow claimants to go searching for defendants with deep insurance lined pockets, there is also the concern that proceedings should not take up the court’s resources and result in significant costs being incurred by the claimant for no benefit whatsoever.

In Harcourt v Griffin [2007] EWHC 1500, a large personal injury claim, the claimant made a request under Part 18 to elicit the extent of any insurance cover held by the defendants. Irwin J made an order that information concerning the extent of cover be provided:

“the nature and extent of the defendant's insurance cover is not in itself ‘a matter … in dispute in the proceedings’ between the parties, in the sense that proper quantum of damages payable to the claimant could be determined without determining whether the defendant can actually pay those damages. However, it appears to me that the wording of CPR rule 18 requires to be interpreted reasonably liberally. The purpose of the jurisdiction must be taken to be to ensure that the parties have all the information they need to deal efficiently and justly with the matters which are in dispute between them. Moreover the wording need not be taken to imply that there must be a live disagreement about the relevant issue, since on very many occasions parties are properly required to furnish information pursuant to CPR rule 18 precisely to discover whether there is or is not a live disagreement between the parties on a given point. The whole thrust of the new approach to civil litigation enshrined in the CPR is to avoid waste of time and cost and to ensure swift and as far as possible, proportionate and economical litigation. Therefore, I have no hesitation in finding that if there is no rule of law or significant rule of practice to the contrary then the wording of CPR rule 18 is broad enough to cover information of this kind.”

Irwin J’s decision was subsequently considered at length by Steel J in West London Pipeline and Storage v Total (UK) Ltd and TAV and Others [2008] EWHC 1296, a case arising out of the massive Buncefield explosion. The defendant in that case was seeking information concerning the third party’s insurance in a claim totalling over £700m. Steel J’s approach and decision was more orthodox and he refused to order such information to be provided. Steel J said [21]:

“in my judgment, TAV is correct in its submission that the court has no jurisdiction to require disclosure of their insurance position. It appeared to be common ground that the insurance policies were not disclosable under Part 31, whether as part of standard disclosure or otherwise. They do not support or adversely affect any parties' case, they are not relevant to the issues nor do they constitute documents which may lead to a trail of enquiry enabling a party to advance his own case or damage his opponents.”

And at [22]:

“by the same token it is difficult to see how information furnished under CPR Part 18 would relate to any matter which is in dispute in the proceedings. Such was the position in Harcourt as well.”

Steel J referred back to dicta of Sir Thomas Bingham MR in Bekhor v Bilton [1981] QB 923 where he said:

“the underwriters claim to be entitled to cover up the financial particulars in the relevant policies (the limit of the cover, the excess, the premium) these particulars, they contend, do not relate to any matter in question in the cause since none of them can affect in any way the answers which the court will give to the legal questions raised. In this context as in many litigious contexts, it is highly advantageous for a litigant to know what his opponent is worth, and this knowledge may be very relevant to enforcement. But the ease or difficulty of enforcement cannot bear on the matters of legal principle in question in the cause.”

A limited extension

Knowing what an opponent is worth is indeed very important, but it is surely relevant to the resources that the parties and the court should allocate to a particular case?

Steel J fundamentally disagreed with Irwin J in Harcourt. As Steel J had considered Irwin J’s decision any judge of coordinate jurisdiction should follow Steel J’s decision. The issue arose again before Thirlwall J in the more recent decision of XYZ v Various [2013] EWHC 3643 (QB) [2014] 2 Costs L.O. 197.

Thirlwall J followed Steel J’s decision and found that such information could not be provided pursuant to a Part 18 request, but went on to consider the extent to which such information could be made available as part of case management pursuant to CPR3.1(2)(m). This provides:

“except where these rules provide otherwise, the court may … take any … step or make any … order for the purpose of managing the case and furthering the overriding objective.”

She went on to refer to the new definition of the overriding objective and the need to deal with cases justly and at a cost proportionate to the financial position of each party. The issue therefore was whether it was possible to deal with case management in a manner that was proportionate to the financial position of each party if one did not know what their respective financial positions were. Thirlwall J’s conclusion was:

“CPR 3.1(2)(m) is a case management rule. Whether or not the claimants will be able to enforce judgment is not a matter which affects case management. I am satisfied therefore that I should not make any order which requires Transform to provide the answers to the questions (ii) [whether sufficient insurance to meet any award of damages] and (iii) [whether sufficient insurance to meet any order for costs] of para 6. Whether or not Transform can fund this litigation to trial (and any appeal) does affect case management… dealing with a case justly includes (see CPR 1.1(2)(e) ) allotting to it an appropriate share of the court's resources. Were I to revise the directions now and it later transpired that Transform had been adequately insured all along, the litigation would plainly have consumed (indeed wasted) more than its appropriate share of the court's resources for no good reason. That could not adequately be remedied in costs.

I am satisfied that CPR 3.1(2)(m) gives me the power to order Transform to provide to the court a witness statement (or statements) setting out whether Transform has insurance adequate to fund its participation in this litigation to the completion of the trial and the conclusion of any appeal. That knowledge will permit me to case manage this litigation now on the basis of adequate information. I am sure that is also in accordance with the overriding objective.”

The effect of Thirlwall J’s decision is that it is possible to obtain information concerning the other side’s insurance but only to the limited extent of finding out whether the other side is in a position to fund the litigation through to trial. Whilst the decision concerned the insurance position of the other side it is difficult to see why the same rationale would not apply to the funding arrangements of parties where it is known or believed that third parties or interested parties are funding the litigation. Knowing that the other side can afford to go to trial may not provide any real comfort as to the ability of the other side to meet any award of damages or costs. If a party cannot afford to go to trial that may improve the prospects of settlement, although presumably there will be little by way of money to fund the settlement. The claimant’s hope will be that the defendant with limited resources will be persuaded that it is better to pay over those limited resources to the claimant rather than send them on the lawyers.

Dowling v Bennett Griffin

Late last year the Court of Appeal in a professional negligence claim had an opportunity to consider the issue and did so in a somewhat oblique manner.  In Dowling v Bennett Griffin [2014] EWCA Civ 1545 the issue was whether a firm of solicitors had been negligent in the conduct of litigation by failing to apply to the court for a direction that evidence of insurance cover be provided to them. The defendant architect in the original claim was insured but had deliberately not notified his insurer, who therefore did not provide any cover. In deciding whether the solicitors had been negligent in not making an application the Court of Appeal had to consider whether such an application could have been made at all with any real prospect of success and in doing so therefore had to consider the decisions of Irwin J, Steel J and Thirlwall J referred to above.

The Court of Appeal considered Thirlwall J’s decision to be a very limited extension to the position set out by Steel J. The Court of Appeal did not call into question the correctness of the Steel J or Thirlwall J decisions. In the circumstances it is hardly surprising that the solicitors were not negligent in failing to obtain evidence of the insurance cover.

Conclusion

So where does this leave us? Sadly in pretty much the same position we have always been but with a little scope for improvement.  The insurance arrangements generally remain irrelevant to the issues between the parties. However the court can require a party to provide evidence of the extent to which it is in a position to meet its own costs of the proceedings through to trial and any appeal? A party remains unable to make any application that would reveal the full extent of insurance cover in order to decide whether the defendant is worth suing or whether it is in a position to meet the whole of the claim.

Postscript – Third party costs?

There is however a point to consider that has not yet been decided by a court. Insurers can be liable for third party costs orders. The insurer is not obliged to reveal the extent of the cover provided to its insured but clearly the insurer could provide such information should it choose to do so. There could be circumstances in which it would be perfectly lawful not to disclose such information but nevertheless unreasonable not to do so and where such voluntary disclosure of the level of cover would have avoided significant legal costs being incurred.  Would not such circumstances add weight to a third party costs order against insurers?