On the Eighth Day of Christmas…Insurers, Contribution and Damage – The Current Position
Today we consider the interplay between the Civil Liability (Contribution) Act 1978 (the “1978 Act”) and the Third Parties (Rights Against Insurers) Act 2010 (the “2010 Act”).
The recent case of Riedweg v HCC International Insurance Plc (“HCC”), Mike Sheridan, Forsters LLP and Victoria Kate Johns [2024] EWHC 2805 (Ch) contemplated whether an insurer could step into the shoes of its insured and claim a contribution from third parties in respect of the claimant’s claim against it pursuant to the 1978 Act.
The Legislation
The 1978 Act enables defendants to recover a contribution towards their liability to a third party from any other person, provided that both are liable to the third party for the “same damage”.
The 2010 Act allows claimants to bring claims directly against the insurers of insolvent defendants.
Factual Background
The case involved a professional negligence claim between Ms Riedweg and her valuers, Goldplaza. Ms Riedweg instructed Goldplaza to value a property she had contracted to purchase but Goldplaza overvalued the property. Ms Riedweg argued that she would not have contracted to purchase the property but for Goldplaza’s overvaluation and she sought damages for sums she paid to the sellers in separate proceedings.
Goldplaza later entered voluntary liquidation, and Ms Riedweg issued the claim against Goldplaza’s insurer, HCC, in accordance with the 2010 Act.
During the proceedings, HCC asked for the Court’s permission to issue an additional claim against Ms Riedweg’s solicitors for a contribution towards its liability to Ms Riedweg pursuant to the 1978 Act.
Key Issues and Decision
The key question in this case was whether the damage which the insurer was liable for was classed as the “same damage” as that caused the solicitors for the purposes of the 1978 Act.
The Court held that the only damage an insurer could inflict was to its insured by refusing to meet its obligations under a policy of insurance. Had that been the case, HCC would have only inflicted damage on Goldplaza, and Goldplaza would still be liable to Ms Riedweg for the losses caused by its overvaluation of the property. This was held not to be the same damage as that which the solicitors may have caused Ms Riedwig if they had acted in breach of contract or were negligent.
The Court also considered whether the 2010 Act allows an insurer to step into the shoes of its insured in order to claim a contribution towards a liability that its insured would be able to claim.
The Court ruled against this, confirming that the 2010 Act enables claimants to step into the shoes of an insured defendant for the purposes of pursuing claims against the insurer when the defendant is insolvent. The 2010 Act does not allow the insurer to step into its insured’s shoes and pursue claims in contribution as the main aim of the 2010 Act is to provide a mechanism for claimants to pursue insurers directly. Similarly, the 2010 Act does not make the insurer liable as if it were the insured defendant.
As a result, it was held that HCC could not claim a contribution from the solicitors under the 1978 Act as its own damage could not be classed as the “same damage” caused by the solicitors.
Implications
The case is an important reminder of how the 1978 and 2010 Acts work in practice and interact with each other and what constitutes the “same damage” for the purposes of the 1978 Act.
The decision is unfortunate for insurers in some respects as it confirms that the 2010 Act does not give an insurer the right to step into the insured’s shoes when defending a claim and benefit from a contribution that their insured may have been able to claim if it were the defendant in the overall proceedings.
However, the case emphasises the role of insurers in claims issued pursuant to the 2010 Act. It is a reminder that insurers cannot be held liable for damage caused by their insured to third parties and their liability is limited to meeting their obligations under the policy.
Expert Comment
Stephanie Reeves, Senior Associate, Commercial Dispute Resolution, comments:
“The factual situation in Reidweg is one which often arises in contribution claims where there is an insolvent defendant, so it is helpful to have some clarity from the Court.
"It is worth noting that the case is being appealed and therefore these issues are still very much live and the decision could be overturned.
"Alternatively, if the appeal is unsuccessful, the case could result in more solutions for insurers in other similar cases via their rights of subrogation, or we might see a legislative solution to give insurers a specific right to a contribution claim in these types of claims.
"Watch this space”
