Two Acts go to war: can insurers of an insolvent insured join culpable third parties into proceedings?

In an important decision for insurers, the Court has for the first time, in Riedweg v HCC International Insurance PLC and others [2023] EWHC 2805 (Ch), considered the way in which the Civil Liability (Contribution) Act 1978 ("the 1978 Act") and the Third Parties (Rights against Insurers) Act 2010 ("the 2010 Act") interact.

The Court was concerned with whether the professional indemnity insurer of an insolvent insured is to be treated in law as being liable in respect of the same damage as that for which its insured is liable, for the purpose of enabling the insurer to pursue a contribution claim under the 1978 Act.

The issue arose in a professional negligence claim in which the Claimant agreed to buy a property for £8 million relying on allegedly negligent valuation advice from valuers, Goldplaza Berkeley Square Ltd. The seller subsequently re-sold the property for £5,500,000 and the Claimant settled the seller's claim by paying £2,200,000, which she claimed as damages from Goldplaza. As Goldplaza had entered liquidation, the Claimant brought the claim against its insurers, HCC International Insurance plc, under the 2010 Act.

The Insurers alleged that the solicitors who acted for the Claimant had acted in breach of duty and caused the same damage, and applied to join the Solicitors into the action under the 1978 Act. The Solicitors resisted, arguing that the damage suffered by the Claimant was not the same damage as that for which the Insurers were potentially liable.

The Solicitors relied on Bovis Construction Ltd v Commercial Union Assurance Co Ltd [2001] 1 Lloyd's Rep 416, in which the Court held it was "a misconception" to describe an insured's liability for damage and an insurer's liability under a policy as liabilities "in respect of the same damage". They argued that the 2010 Act lets a claimant stand in the place of the insured to bring a claim, but does not make the insurer liable as if it were the insured.

The Court preferred the Solicitors' submissions. It held that the only damage Insurers are capable of inflicting is in refusing to meet their obligations under the policy; the purpose of the 2010 Act is to provide a mechanism for a claimant to pursue an insurer directly in respect of the liability of its insured. The insurer's liability flows from its obligation to indemnify the insured, and the prospect of future subrogation rights did not change the analysis.

Edesia Law comment: this decision may at first sight appear harsh on Insurers, but it is consistent with the purpose of the 2010 Act, the nature of third-party insurance and the authority of Bovis. All is not lost — the Court granted permission to appeal on the basis that the point is of practical importance and not the subject of previous authority, and Insurers retain rights of subrogation after making payment.