AMLIN UK LIMITED AGAINST GEO-ROPE LIMITED
OUTER HOUSE, COURT OF SESSION
[2016] CSOH 165
A450/14
OPINION OF LORD TURNBULL
In the cause
AMLIN UK LIMITED
Pursuer
against
GEO-ROPE LIMITED
Defender
Pursuer: Middleton; Clyde & Co.
Defender: Pugh; Beveridge & Kellas SSC
29 November 2016
Introduction
[1] In 2012, Mr Gregg Farrell intimated a claim for damages against his then employers, the defenders in the present action. He claimed to have developed Hand-Arm Vibration Syndrome as a consequence of exposure to excessive levels of vibration through his use of vibrating tools. In around November 2012 Mr Farrell raised an action in the Court of Session against the defenders claiming damages in the sum of £40,000. No appearance was lodged and decree in absence was granted on 4 March 2013. Decree was extracted on 13 March 2013.
[2] At the time of the alleged wrong the defenders had in force an employers’ liability insurance policy, as required by the Employers’ Liability (Compulsory Insurance) Act 1969. The insurers were the pursuers in the present action. Mr Farrell’s claim was intimated to the pursuers in May 2012. The pursuers aver that thereafter the defenders repeatedly failed to provide relevant information concerning the claim to them.
[3] A copy of the summons served on the defenders was intimated to the pursuers by Mr Farrell’s agents on 12 December 2012. As a consequence of perceived ongoing failures to provide information the pursuers warned the defenders in writing that indemnity might be withdrawn. Finally, they wrote to them on 9 January 2013 informing them that they were in breach of their contract of insurance with the pursuers and that they were unable to provide indemnity to them.
[4] On 29 August 2013, the pursuers paid Mr Farrell the sum of £44,835 in satisfaction of the decree in absence, being the principal sum sued for and judicial expenses. In the present action they claim to be entitled to recover this sum from the defenders.
[5] The case called before me on the preliminary pleas of both parties. The pursuers contended that no relevant or sufficiently specific defence to the case had been pled and that they were entitled to decree de plano, failing which the irrelevant or insufficiently specified aspects of the defenders’ case ought to be deleted. The defenders contended that there was no relevant cause of action pled against them and that they were entitled to decree of dismissal.
The Basis of the Claim Advanced by the Pursuers
[6] The pursuers claim that the defenders were in breach of the contract of insurance entered into between them and that in consequence they would have been entitled to withdraw indemnity cover. They argue that the combined effect of section 1 of the Employers’ Liability (Compulsory Insurance) Act 1969 (“the 1969 Act”) and regulation 2 of the Employers’ Liability (Compulsory Insurance) Regulations 1998 (“the 1998 Regulations”), denied them the ability to do so and that they were bound to satisfy the decree in absence granted in favour of Mr Farrell. They argue that in terms of the contract entered into, and regulation 2(3) of the 1998 Regulations, they are entitled to recover the sum paid from the defenders.
[7] On behalf of the pursuers, Mr Middleton drew attention to General condition 7 in the policy setting out the contract between the pursuers and the defenders. It imposed a requirement on the defenders, as the insured party, to give notice of an occurrence giving rise to a claim under the policy and requiring them to forward any summons and documents relating thereto to the pursuers immediately. It also required them to provide such information to the insurer as they required. He submitted that the averments as set out in article 5 of condescendence demonstrated that the defenders failed to comply with these obligations and were in breach of this policy condition.
[8] He submitted that as a matter of the ordinary law of contract an insurer would be entitled to withdraw indemnity if such a term was breached but the statutory prohibition of policy avoidance contained within regulation 2(1) of the 1998 Regulations meant that the insurer was obliged to make payment to an employee if liability was established. As it was put in summary, section 1(1) of the 1969 Act imposed an obligation upon employers to insure against employee injury and regulation 2(1) of the 1998 Regulations imposed an obligation on insurers to satisfy any legal liability to pay damages incurred in respect of such injuries, notwithstanding a breach of the insurance contract. Regulation 2(3) enabled the insurer to reclaim that payment from the employer on the basis of that breach of contract. Mr Middleton also submitted that it would be quite wrong to suggest that an insured worker required to enforce a decree against his employers in the first instance. He drew attention to the Operative clause of the policy which provides that the insurer would indemnify their insured against all sums which they became legally liable to pay as damages.
[9] In advancing his submissions on the import of the provisions comprising the statutory scheme for compulsory employers’ liability insurance, Mr Middleton referred me to The Modern Law of Insurance by Professor Andrew McGee at paragraph 48.3 and to Colinvaux’s Law of Insurance at paragraphs 20-116 and 20-117. He also sought to draw assistance from the decision of Lord MacFadyen in Aitken v Independent Insurance Co. Ltd 2001 SLT 376.
[10] In addition to these arguments Mr Middleton suggested that an analogy could be drawn from the provisions of the Road Traffic Act 1988. That legislation required the users of motor vehicles to have in force a policy of insurance, made it an offence to keep a vehicle which was not insured, set out certain requirements in respect of policies of insurance, provided for the avoidance of certain conditions within any such policy and provided for a duty on the part of insurers to satisfy the terms of a judgement against an insured policyholder by making payment directly to the person entitled to the benefit of the judgement.
[11] Separately, Mr Middleton submitted that the defenders’ averments disputing that they were in breach of contract were not pled with sufficient relevance and specification to permit a proof to be ordered. He moved me to uphold the pursuers’ preliminary pleas and grant decree in their favour.
The Defenders’ Response
[12] On behalf of the defenders, Mr Pugh submitted that the statutory provisions relied upon did not bear the interpretation argued for by the pursuers and that they did not create a statutory obligation requiring the pursuer to make payment to Mr Farrell. Properly understood, the 1998 Regulations did nothing more than define the content of an approved policy, such a policy being required by the 1969 Act. There was no parallel in the language used with that found in the Road Traffic legislation referred to by the pursuers. Mr Pugh submitted that decree had been obtained against the defenders and Mr Farrell was not entitled to enforce it against the pursuers. He contended that there was no foundation for the present action and it must therefore fail. He moved me to uphold the first plea-in-law for the defenders and to grant decree of dismissal.
[13] In developing his submissions, Mr Pugh argued that Mr Farrell’s only right to enforce the decree lay against the defenders. He pointed out, under reference to Ivamy, General Principles of Insurance Law at page 462, that in terms of the ordinary law of insurance payment must be made to the insured party. In this case the insured party was the defender employers. He submitted that this rule was in keeping with the terms of the contract of insurance entered into which speaks of the insurers indemnifying the insured. It was argued that the only relevant exception to the ordinary law was the statutory exception provided for by the Third Parties (Rights against Insurers) Act 1930, which provides that the rights of the insured in his policy, so far as it covers liability to third parties, vest on his bankruptcy in the third party, thus allowing payment to be claimed by the third party. This was the context in which the decision in Aitken v Independent Insurance Co. Ltd. was made and the case had no wider application than that.
[14] Having examined the statutory provisions upon which the pursuers relied, Mr Pugh focussed on the terms of the pleadings in the action. He drew attention to the opening sentence of condescendence 7 and argued that no such statutory obligation to make payment to Mr Farrell as there relied upon was imposed on the defenders. He drew attention to the statement at condescendence 7 letters C to D to the effect that but for the statutory provisions relied upon by the pursuers they would not have required to make payment to Mr Farrell.
Discussion
The Basis Of The Claim
[15] Section 1(1) of the 1969 Act provides:
“Except as otherwise provided by this Act, every employer carrying on business in Great Britain shall insure, and maintain insurance, under one or more approved policies with an authorised insurer or insurers against liability for bodily injury or disease sustained by his employees, and arising out of and in the course of their employment in Great Britain in that business …..”
[16] Subsection (3) gives the definition of the terms “approved policy” and “authorised insurer”. Subparagraph (a) is in the following terms:
“‘approved policy’ means a policy of insurance not subject to any conditions or exceptions prohibited for those purposes by regulations;”
[17] So far as relevant, regulation 2 of the 1998 Regulations provides:
“(1) For the purposes of the 1969 Act, there is prohibited in any contract of insurance any condition which provides (in whatever terms) that no liability (either generally or in respect of a particular claim) shall arise under the policy, or that any such liability so arising shall cease, if –
(a) some specified thing is done or omitted to be done after the happening of the event giving rise to a claim under the policy;
(b) the policy holder does not take reasonable care to protect his employees against the risk of bodily injury or disease in the course of their employment;
(c) the policy holder fails to comply with the requirements of any enactment for the protection of employees against the risk of bodily injury or disease in the course of their employment; or
(d) the policy holder does not keep specified records or fails to provide the insurer with or make available to him information from such records.
(3) Paragraphs (1) and (2) above do not prohibit for the purposes of the 1969 Act a condition in a policy of insurance which requires the employer to pay or contribute any sum to the insurer in respect of the satisfaction of any claim made under the contract of insurance by a relevant employee or any costs and expenses incurred in relation to any such claim.”
[18] The policy of insurance entered into between the pursuers and the defenders contained certain conditions of importance for present purposes. General conditions 1 and 7 provide as follows:
“1. The due observance and fulfilment of the terms conditions and endorsements of this policy insofar (sic) they relate to anything to be done or complied with by you shall be a condition precedent to our liability to make any payment under this policy.
7. You shall give immediate notice in writing to us of any occurrence that may give rise to a claim under this policy and shall give all such additional information as we may require. Every impending prosecution, inquest or fatal accident enquiry claim, writ, summons or process and all documents relating thereto shall be forwarded to us immediately they are received.”
[19] In “Section A – Employers’ liability” the following condition appears:
“Employers’ liability compulsory insurance
The indemnity granted by this section is deemed to be in accordance with the provisions of any law enacted in the United Kingdom relating to compulsory insurance of liability to employees.
If however we pay any sum which would not have been paid but for the provisions of such law then you shall repay such sum to us.”
[20] It was in light of what the pursuers considered to be a material breach of General condition 7 that they wrote to the defenders intimating that they would no longer provide them with indemnity. Breach of this condition is founded upon in the pleadings in the present case. It is the condition under the heading “Employers’ liability compulsory insurance” which the pursuers contend permits them to seek recovery of the sums paid to Mr Farrell.
[21] I recognise the general rule that payment must be made to the insured party. I also agree that the legislation founded upon in the present case does not vest an employee, such as Mr Farrell, with the rights of the insured against the insurance company in the way that the Third Parties (Rights against Insurers) Act 1930 does. Nor does it provide for the same express duty to pay as can be found in section 151 of the Road Traffic Act 1988, or for the right to bring an action directly against an insurer, such as is given by The European Communities (Rights against Insurers) Regulations 2002.
[22] The Third Parties (Rights against Insurers) Act 1930 gives employees rights and protection under the policy taken out by their employers in the event of the employers’ bankruptcy. The impact of the 1998 Regulations is not linked to bankruptcy. I therefore agree that in considering the analysis in Aitken v Independent Insurance Co Ltd it is important to bear in mind that Lord MacFadyen was dealing with the application of the 1930 Act.
[23] However, in that case, in order to understand the extent of the rights possessed by the bankrupt insured which became vested in the employee, it was important to understand the content of the policy and whether or not the statutory scheme in existence at that time permitted the inclusion of certain excess clauses. At paragraph [26] Lord MacFadyen explained that he did not consider the question of the proper construction of the policy and the question of the effect of the statutory scheme were wholly separable. In the present case the pursuers contend that their claim arises out of a combination of the terms of the policy document and the import of the current statutory scheme. It seems to me that the two are inseparable.
[24] In my view the import of the 1969 Act is straightforward. It requires employers to take out an “approved policy” against liability for injury or disease sustained by an employee. It seems to me that the effect of the 1998 Regulations is twofold. First, it is to prohibit the inclusion in an approved policy of certain conditions which would otherwise permit an insurance company to avoid liability. Second, subject to the inclusion of a contractual condition to this effect, it is to permit the insurer to recover from the insured the cost of satisfying a claim in circumstances where liability would otherwise have been repudiated on the basis of a condition of the sort prohibited.
[25] The import of the regulations is described in The Modern Law of Insurance at page 605 in this way:
“However, reg 2(3) goes on to say that these prohibitions do not prevent the inclusion in the policy of terms requiring the policyholder to pay to the insurer sums applied in making good the claims of employees (including associated costs and expenses) in respect of risks insured under such policies. Thus, the insurer cannot escape having to compensate the injured employee, but it is legitimate to require the policyholder to repay the insurer on the basis of any of the circumstances listed in reg 2(1).”
[26] The policy of the statutory scheme beginning with the 1969 Act is to ensure that compensation is available to an employee injured in the course of his employment. Consistent with this policy, the invariable practice where a claim is accepted or established is that payment is made by the insurance company direct to the injured employee. This practice is underpinned by the normal contractual provision which permits insurers to conduct or settle actions brought against their insured. In the present case General condition 8 of the policy entered into provides:
“You shall make no admission, offer, promise or payment without our written consent and we shall be entitled to take over and conduct in your name the defence or settlement of any claim or to prosecute in your name for your own benefit any claim for indemnity or damages or otherwise and shall have full discretion in the conduct of any proceedings and in the settlement of any claim and you shall give all such information and assistance as we may reasonably require.”
[27] The effect of the 1998 Regulations has to be seen in the context of policy and practice. It is implicitly recognised in the language of regulation 2(3) that the insurance company may already have made payment in satisfaction of the claim raised by the employee against the insured employer and that any such payment will have been made directly to the employee.
THE APPLICATION OF THIS ANALYSIS TO THE PRESENT CASE
[28] The opening sentence of Condescendence 7 reads as follows:
“In terms of Section 1 of the Employers’ Liability (Compulsory Insurance) Act 1969 and Regulation 2 of the Employers’ Liability (Compulsory Insurance) Regulations 1998, the pursuers were obliged to satisfy the decree in absence in favour of Mr Farrell.”
If read as a strict statement of law arising out of nothing other than the provisions identified this statement might be open to challenge. However, it seems to me that the pursuers’ case is a little more subtle than that. As Mr Middleton explained it, the pursuers’ case arose out of the interplay between the law of contract and the statutory scheme for compulsory insurance of liability to employees. As I would understand it, their case is this. A claim was made against their insured arising out of an eventuality covered by the policy of insurance, namely injury to an employee in the course of his employment. That claim was intimated to the pursuers and, in due course, they were given intimation of the raising of an action. The pursuers sought to obtain relevant information from their insured about the employee’s duties in order to enable them to investigate his claim. This is an ordinary step on the part of an insurer, and it is consistent with the terms of General conditions 7 and 8 in the policy. The pursuers were unable to obtain the information they required to enable them to assess the claim made by Mr Farrell. Decree passed against the insured and the insurers became liable to satisfy that decree in terms of the Operative clause of the policy which provides that:
“Subject to the exclusions, conditions and definitions of this policy, we will indemnify you under this section against
a) all sums which you shall become legally liable to pay as damages;”
[29] Although the pursuers do not say so directly in their pleadings, and nor was it said in the hearing before me, it seems plain that General condition 7 (as read in light of General condition 1) in the policy of insurance between the pursuer and defender must be a condition of the sort prohibited by the 1998 Regulations. This seems to be the implication of the last two sentences of Condescendence 7 as pled by the pursuer. If this is correct, then in order to give effect to the condition that the indemnity granted is deemed to be in accordance with the provisions of the law relating to compulsory insurance of liability to employees, General condition 7 falls to be seen as unenforceable as against the insured party. Or to put the matter another way, the insurers cannot avoid liability on account of a breach by their insured of General condition 7.
[30] In this context I would understand the pursuers’ intimation of withdrawal of indemnity to mean that they were giving notice of their entitlement to reclaim payment under the provisions specified in Section A – Employers liability.
[31] In my view, Mr Middleton was correct in submitting that if they could establish a breach of General condition 7 then, as a matter of contract, the pursuers would have been entitled to repudiate liability on the basis of the failure of their insured to co-operate. I also agree that he was correct in submitting that the terms of the 1998 Regulations prohibited the pursuers from doing so as a matter of law. In these circumstances I agree that they would remain bound to provide indemnity.
[32] The question then comes to be what is meant by indemnity. I do not accept that the employee was required to enforce his decree in the first place against the insured. The pursuers’ conduct in satisfying the decree was consistent with the spirit of the legislative provisions and with the language of regulation 2(3) of the 1998 Regulations. The pursuers were bound in terms of the Operative clause of the policy to indemnify their insured on them becoming legally liable to satisfy the decree extracted by Mr Farrell. That provision contemplates an obligation arising on the part of the insurer before any payment has been made by the insured and in particular before any decree is enforced against them. The pursuers were also entitled to settle or satisfy the claim raised against their insured on whatever terms they wished in terms of General condition 8. At the very least the pursuers were entitled to act as they did.
[33] It follows from this, that in terms of regulation 2(3) and the corresponding contractual term within the policy, the pursuers have a right of action to recover from their insured. Whether they are successful in this action will depend upon establishing a material breach of General condition 7 and demonstrating that in those circumstances, and but for the prohibition provided for in terms of regulation 2, they would have repudiated the claim. For these reasons I am satisfied that the defenders’ general plea to the relevance of the pursuers’ pleadings should be repelled. It also follows that the defenders’ averments attacking the basis of the claim fall to be seen as irrelevant.
The Relevance And Specification Of The Pleadings
[34] The pursuers contended that the defenders’ pleadings failed to provide sufficient by way of specification to vouch the basis of their claim to have provided information as requested and therefore their denial of being in breach of contract. They also challenged the relevance and specification of the defenders’ averments to the effect that the pursuers were in a position to defend the action brought by Mr Farrell, the averments relating to recall or reduction of the decree and the averments relating to mitigation of loss.
[35] These issues can be disposed of straightforwardly. In Answer 5 the defenders explain how they responded to the requests which they say were made of them. They identify by example the types of documents which were provided. They aver that they provided all such additional information as required and that no request for further specific information was made following specified events. The averments in the same answer to the effect that the pursuers were in a position to defend the action seemed to me to be in support of the contention that they complied with the requests made of them. The averments at Answer 6 letter D are also capable of being seen in this fashion. I therefore reject the criticism of the relevance and specification of these aspects of the defenders’ pleadings.
[36] I do though see force in certain of the other submissions advanced on behalf of the pursuers. Their case depends upon establishing that the defenders were in breach of General condition 7. They would have to establish a material breach of that condition. If they cannot do so their case fails. However, if they do establish such a breach, and establish that but for the statutory scheme they would have repudiated liability in light of that breach, then I agree that the defenders’ averments concerning recall or reduction of the decree and mitigation of loss are irrelevant. If the defenders failed to supply the pursuers with adequate information then they would have had no basis upon which to move for recall or reduction. The defenders do not plead any basis upon which the pursuers would be capable of making any such motion. Accordingly there is no basis upon which it can be said that the pursuers failed to mitigate their loss. The contention that sums sued for in personal injuries actions are over estimates would not provide sufficient by way of a general statement to permit the pursuers to move for recall or reduction. In any event, the whole contention upon which the pursuers rely is that they were not in a position to act in place of the defenders as they ordinarily would have in light of the terms of General condition 8. The loss suffered by the pursuers comprises the sums paid to Mr Farrell in the circumstances upon which the pursuers rely.
Disposal
[37] In light of the decisions which I have reached I will repel the pursuers’ first plea-in-law. I will sustain the pursuers’ second plea-in-law to the extent that the averments in Answer 6 at page 18 letter C from the words: “Sums concluded for” to the end of the Answer are deleted, to the extent that all of the averments in Answer 7, with the exception of the first two sentences, are deleted and to the extent that the second sentence in Answer 8 is deleted, along with the content of each of subparagraphs (c) and (d) in the same answer. I will repel the first and fifth pleas-in-law for the defenders.
[38] I will appoint the case to call at a By Order hearing to identify appropriate further procedure and to address the question of expenses.