Litigation is full of uncertainty. Even the strongest case carries risks and a primary consideration when embarking on any litigation is whether the proposed defendant is able to pay.
If your business is being pressed to disclose details of your insurance coverage prior to a claim being brought against it are you obliged to do so?
The recent case of Peel Port Shareholder Finance Company Ltd. v Dornoch Ltd gave the High Court the opportunity to consider whether a public liability insurance policy is something that should be disclosed pre litigation.
Peel Port were the owners of a warehouse that was damaged by a fire allegedly caused by the activities carried out by a company insured by Dornoch.
The claim was highly likely to succeed but Peel Port were concerned that the defendant company would not have the means to pay the judgement, likely to be over £1 million. If the company were wound up, the Claimant could still bring the claim against the defendant's insurers under The Third Parties (Rights Against the Insurers) Act 2010 ("2010 Act"). However, in this case the insurers refused to indemnify the defendant - relying on a 'hot working' endorsement within the policy.
The Claimant sought disclosure of the public liability insurance policy in order to review the legitimacy of that refusal. Clearly, if they could argue that Dornoch should indemnify the defendant their appetite to pursue the litigation would be far greater.
Dornoch gave details of the endorsement but refused to disclose the entire policy.
Peel Port issued an application for Pre-action Disclosure under CPR 31.16. This gives the Court a discretion to make a Disclosure Order against a party that is likely to be a party to subsequent proceedings.
Peel Port argued that if the policy was disclosed, and careful scrutiny confirmed that the claim was not covered, then the litigation would not proceed and legal costs could be avoided.
The 2010 Act sets out a regime for the provision of information relating to available insurance cover, but only where the insured is insolvent. Dornoch argued that this regime would not have been necessary if CPR 31.16 provided a suitable route to disclosure of insurance policies.
Furthermore, the 2010 Act provides for the provision of information, but not the disclosure of the policy itself and as such an order for disclosure would be inconsistent with the regime set out in the 2010 Act.
Mrs Justice Jefford agreed with the argument put forward by Dornoch. She noted that there has never been an express statutory provision entitling a litigant to obtain a copy of the insurance policy of a solvent insured. Furthermore, Parliament cannot have envisaged that CPR 31.16 would be used to obtain insurance policies bearing in mind the provisions of the 2010 Act.
When an insured is insolvent the 2010 Act places a statutory duty on insurers, brokers and former directors to provide a potential Claimant with certain information relating to the policy, and whilst the Act does not specify that the entire policy must be provided in practice, it often is.
But if a business is threatened with litigation and remains solvent, the Claimant has no right to see the policy and must take their chances, even though the terms of the policy may be highly relevant to any dispute over coverage and consequent enforcement of any judgement obtained.
The Court on this occasion was not prepared to give Peel Port the reassurance they were seeking that their claim would be paid, if successful.
If you are being pressed to disclose details of your insurance coverage prior to a claim being brought against you, this case confirms that you are not obliged to do so.
This article was written by Flora Wood.