An after-the-event insurer (ATE) has escaped liability to pay out £320,000 after the High Court found that its insured had breached four conditions precedent in the policy.
Great Lakes Reinsurance was sued as the statutory assignee of Mploy Group (in liquidation) under section 1 of the Third Parties (Rights Against Insurers) Act 1930.
The policy was issued in March 2013 to Mploy, an employment agency which had brought substantial and myriad claims in the Commercial Court alleging breach of contract and fraud against Denso Manufacturing and claiming over £630,000.
The deferred premium was calculated at 73% of Denso’s costs, payable in the event of success.
According to the ruling of Ms Sara Cockerill QC, sitting as a deputy judge of the High Court, at around the time the insurance was taken out, Denso made a part 36 offer for £110,000, which was not accepted by Mploy. This offer was not disclosed to Great Lakes at the time, and the insurer only became aware of it two months later, agreeing to endorse the decision taken to reject the offer.
Mploy entered into a creditors voluntary arrangement in January 2014. Great Lakes could have withdrawn support at this stage, but did not.
The bulk of the claims were dismissed at trial in July 2014. A single breach of contract claim succeeded and damages in the amount of £34,410 were ordered.
Denso was ordered to pay Mploy’s costs until 3 April 2013, when the part 36 offer expired, with Mploy ordered to pay Denso’s costs on the standard basis thereafter. Mploy soon after went into liquidation and Denso has not recovered anything from it.
Great Lakes argued that the claims co-operation, information provision and associated clauses in the ATE policy were conditions precedent to its liability to make any payment, and that Mploy was in “repeated and wholesale breach” of them.
The judge agreed. She found that in the light of the wording and context of the policy, the terms were apt to be conditions precedent “in circumstances where insurers are exposed to the risk of adverse costs as the central plank of their liability”.
She explained: “In this context, particularly in relation to mitigating the costs risk at the centre of the insurance, it is also very important that the insured assist by providing all relevant documents. The policy cannot work without the input of the insured because the insurer is not a party to the litigation, and is entirely reliant on the insured cooperating with it and giving it information.
“Once the litigation is over there are still important steps to be taken in minimising the quantum of recovery, which the assured may feel little incentive to do once the case is lost without such firm requirements.”
Specifically, Great Lakes said Mploy or its agents (in the form of its solicitors or liquidators) did not pass on promptly an offer from Denso to settle the costs at £210,000, as well as two chasers which first indicated an intention to commence detailed assessment proceedings in the absence of a response, and then said that Denso had instructed a costs lawyer to prepare a detailed bill of costs.
Finally, Great Lakes complained that the notice of commencement of detailed assessment proceedings was also not passed on promptly.
It took more than two months for the offer to be passed on to Great Lakes and this breached the requirement that such information be passed on without delay.
Ms Cockerill said: “This is a form of wording which would denote passing on within days or at most well under a month (14 days used to be considered an acceptable turnaround time for business correspondence, but even this may be regarded as unacceptably slow in the modern world).
“Quite where one draws the line is not of any moment as regards this item, as I consider that it would certainly be drawn earlier than two months.
“Denso pray in aid the fact that the offer remained open, but there was no guarantee it would remain so even for the period of the delay. Nor does it matter that the insurers did not accept the offer; they were entitled to be in a position to assess it and enter discussions ‘without delay’.”
She held similarly about the other breaches, adding: “I have concluded that… Great Lakes was discharged from liability under the policy by four separate breaches of conditions precedent on the part of Mploy and their agents. This occurred without the involvement or fault of Denso, who did not themselves owe obligations, but that is nothing to the point.
“Claiming through Mploy, Denso take subject to the defences which are available to insurers as against Mploy and cannot be in any better position.”
The judge rejected a separate argument that payment of the premium was a condition precedent, because there was nothing in the policy’s language to indicate this – there was no time limit stated by when the premium was payable. “The insurer could have used specific time language but did not,” she said.