Complications in contribution claims

In Riedweg v HCC International Insurance plc & Ors [2024] EWHC 2805 the High Court has been asked to determine the unusual point of whether an insurer defendant to a Third Parties (Rights Against Insurers) Act 2010 claim could pursue contribution claims against third parties otherwise available to its insolvent policyholder.

Giving judgment on the insurer’s application for permission to pursue contribution claims, Master Brightwell determined that the potential liability of insurers was not in respect of the ‘same damage’ for which the intended Part 20 defendants could also be liable. The Civil Liability (Contribution) Act 1978 did not therefore permit a contribution claim in these circumstances.

Background

The case is part of a long-running dispute arising from the claimant’s agreement in 2017 to acquire property on Camden High Street from The David Roberts Art Foundation, a registered charity. Having contracted to purchase for a little over £8 million, the claimant failed to complete and was pursued for some £2.5 million, the charity having in the meantime sold to another purchaser for a substantially reduced price. In proceedings brought by the charity in 2019 (The David Roberts Art Foundation Limited v Nicole Marlene Riedweg [2019] EWHC 1358 (Ch)), the claimant had sought unsuccessfully to challenge the validity of the sale contract for alleged non-compliance with the provisions of the Charities Act 2011. The claimant then compromised the charity’s claim for some £2.2 million.

Looking to recoup the loss, the claimant pursued Goldplaza Berkely Square Ltd (‘Goldplaza’) for its allegedly negligent overvaluation of the Camden property, without which it was asserted she would never have agreed to buy. After Goldplaza entered members’ voluntary liquidation in 2021, the claimant was left to pursue its professional indemnity insurers under the Third Parties (Rights Against Insurers) Act 2010 (‘2010 Act’).

Goldplaza’s insurers in turn looked to share their potential liability, identifying two further defendants, including Forsters LLP, the claimant’s solicitors in her professional negligence action (and in the underlying purchase transaction). Goldplaza’s insurers sought permission to pursue claims under the Civil Liability (Contribution) Act 1978 (‘Contribution Act’), alleging that Forsters had acted in breach of contract, in breach of fiduciary duty and negligently towards the claimant in the underlying purchase transaction. Such conduct, it was asserted, had caused the claimant the ‘same damage’ as was said to have been caused by Goldplaza/its insurers.

The Decision

The Contribution Act provides as follows:

“(1) Subject to the following provisions of this section, any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise).”

Accordingly, Goldplaza’s insurers had to demonstrate that their intended Part 20 defendants were potentially liable to the claimant for the same damage for which they, as insurers, were also potentially liable.

The Master undertook a review of the authorities concerning ‘same damage’ for the purposes of the Contribution Act, including Birse Construction Ltd v Haiste Ltd [1996] 1 WLR 675, Bovis Construction Ltd v Commercial Union Assurance Co Ltd [2001] 1 Lloyd’s Rep 416 and Royal Brompton Hospital NHS Trust v Hammond [2002] 1 WLR 1397, which established the following propositions:

• ‘damage’ can be considered as “loss” or “harm”, but does not mean “damages”.
• for damage to be the ‘same damage’, it must be suffered by the person to whom the party seeking contribution was liable;
• the defendant to the contribution claim must be liable to the claimant for the same damage (or some part of it) as the party seeking contribution.

It was not disputed that, if Goldplaza were the defendant to the claim rather than its insurers, Goldplaza would be entitled to pursue the intended contribution claims (the same damage caused to the claimant being the financial consequences of entering the purchase transaction as a result of the breaches of duty by both the valuer and the solicitors).

However, considering the interaction between the Contribution Act and the 2010 Act, the court found it was necessary to look beyond the role of the policyholder and to focus on the role of the insurer. Following Bovis Construction, the court observed that in fact, “an insurer does not inflict damage on anyone, and that the only damage it is capable of inflicting is in refusing to meet its obligations under the policy of insurance”.

The 2010 Act provides a mechanism for a claimant to pursue insurers directly in respect of the liability of their policyholder and to stand in the insured’s place for that purpose, the court found. Defendant insurers do not, however, stand in their insured’s shoes in terms of its liability for the harm it has caused to the claimant. On this point, subsection 2(11) of the 2010 Act provides that references to an insurer’s potential liability to the claimant are references to “the insurer’s liability in respect of the insured’s liability to [the claimant], if established” (emphasis added). The liability of insurers to their insured pursuant to the terms of the policy is distinct from the insured’s liability in respect of the underlying harm which it has caused to the claimant. It follows that insurers cannot be liable to a claimant in respect of the ‘same damage’ said to have been caused by their insured and are, accordingly, unable to bring contribution proceedings against other third parties who are.

Comment

This is a further decision, following some others over recent weeks, concerning claims under the 2010 Act (following the Sottish case of Scotland Gas Network PLC v QBE UK Ltd and others [2024] CSIH 36) and highlights the additional difficulties faced by insurer defendants where their policyholder has become insolvent. The intention behind the Contribution Act of widening the classes of person between whom claims for contribution would lie appears to be hindered by its particular interaction with the provisions of the 2010 Act.

The decision does not, however, operate as a bar to insurers being able to apportion loss with third parties. Insurers in this case signalled their intention to join their policyholder to proceedings in the event their application for permission to pursue a contribution claim directly failed (although the court expressed some reservation as to the effectiveness of such a strategy). Moreover, insurers could recover through pursuit of subrogated contribution rights after settling a 2010 Act claim. Far preferable, however, to be able to seek apportionment within the same proceedings.

Pending the outcome of any appeal, whilst policy wordings might afford a solution (by providing, for example, for the assignment of the insured’s contribution rights when insurers become defendants to a 2010 Act claim), the decision currently presents complications for insurers seeking to apportion the liability of their insolvent policyholder.