LEGAL UPDATE : CII REGIONAL FORUM

11 June 2014

Name: Terry Renouf and Roy Woollard

Position, Partners, BLM

T: 0207 865 3310 / 0113 261 5563

E: terry.renouf@blmlaw.com and roy.woollard@blmlaw.com

INTRODUCTION

‣ Commercial Insurance Law Reform

‣ LASPO / Jackson / MoJ update

‣ Liability – narrowed: ERRA 2012

‣ Liability – broadened: Woodland

MARINE INSURANCE ACT 1906

http://cdn.londonreconnections.com/assets/olbill.jpg

THIRD PARTIES (RIGHTS AGAINST INSURERS) 2010 CIDRA 2012 AND INSURANCE CONTRACTS 2015?

BUSINESS INSURANCE LAW REFORM

‣ where we are now & how we got here?

‣ 1906 Act (marine) & 2012 Act (consumer)

‣ where are we heading & why?

‣ a 2015 Act for business insurance?

‣ one size fits all

‣ two obvious critical phases

‣ before the policy starts

‣ and after it is in place

PRE-CONTRACT ISSUES (PLACEMENT)

“a fair presentation of the risk” and proportionate remedies

‣ retained duty of disclosure (insured and agent)

‣ effect of (mis)representations (insured and agent)

‣ notice and questions (underwriter)

‣ knowledge of parties (all concerned)

Agree

80%

Disagree

16%

Other

4%

responses on reform of

disclosure in business

insurance law

Agree

73%

Disagree

9%

Other

18%

responses to “proportionate

remedies” as the default

legal regime

Agree 81%

Disagree 11%

Other 8%

ONCE COVER IS IN PLACE (WARRANTIES & CLAIMS)

warranties

‣ abolition of ‘basis’ clauses – already there for consumers

‣ breaches to suspend cover – they can be rectified

‣ specified perils/types of loss – causation by the back door?

claims

‣ damages for late payment – a statutory duty to pay valid claims within a “reasonable time”

‣ remedies for fraud

support for warranty reforms

Draft Insurance Contracts Bill 2014 (s9)

“a representation is not capable of being converted into a

warranty by means of any provision of the non-consumer insurance

contract … or of any other contract (and whether by declaring the

representation to form the basis of the contract or otherwise).”

Agree

88%

Other

7%

Disagree

5%

should damages be available for

late payment of claims?

4. THE FUTURE

a new statutory default (ie opt out) regime for business insurance?

‣ indications reform will happen?

‣ likely processes and timing of change?

‣ effects, implications and reactions? [what might we need to do differently and why?]

‣ market dynamics and tiered responses?

PROCEDURAL REFORMS UPDATE- MOJ, LASPO AND JACKSON- EARLY LESSONS

TODAY’S AGENDA: REVIEW OF PROCEDURAL REFORMS ONE YEAR ON

1. Key Components in the package of civil justice reforms implemented from April 2013 by way of the Legal Aid Sentencing & Punishment of Offenders Act 2012 (LASPO) include:

‣ Abolition of Success Fees

‣ Abolition of ATEs

‣ Introduction of DBAs

‣ Prohibition of Referral Fees

2. CHANGES BY WAY OF THE CIVIL PROCEDURE RULES

‣ Proportionality: Amendment to the Overriding Objective

‣ Relief from Sanctions

‣ Case/Costs Management & Budgeting

‣ QOCS

‣ Part 36

OTHER CHANGES

‣ 10% increase in General Damages

‣ Extension of RTA Portal cases up to £25k and EL/PL Cases

‣ The FRCS Regime

FUNDING: CFAS AND ATES

‣ CFAs- due to influx of claims pre April 2013 not yet seen full impact

‣ Still a market for ATE

‣ 10% uplift in general damages

CASE MANAGEMENT:

‣ Active judicial case management

‣ Strict enforcement of the rules

‣ Lead case is Mitchell: non-compliance with the CPR will no longer be tolerated

MITCHELL V NEW GROUP NEWSPAPERS LIMITED (2013) EWCA CIV 1537:

“Justice Means Something Different Now” (Lord Dyson MR)

‣ Relief from sanctions will rarely be granted when a party fails to comply with court directions, rules and orders

‣ Problem caused by two rule changes since 1 April 2013:

‣ New CPR 3.9- application for relief from sanctions: Court will consider need for: (a) litigation to be conducted efficiently and at proportionate cost and (b) to enforce compliance with rules, practice directions and orders

‣ Amended Overriding Objective at CPR 1.1 dealing with cases justly and at proportionate costs includes enforcing compliance with rules, PDs and Orders

CONSEQUENCES OF MITCHELL- OPPOSITE EFFECT OF INTENTIONS OF REFORMS?

‣ Satellite litigation and inconsistency by the courts- Durrant v Chief Constable of Avon & Somerset Constabulary (2013) and Chartwell Estate Agents Ltd v (1) Fergies Properties SA (2) Hyam Legrer (2014)

‣ To “Mitchell” someone

‣ “Parties still expected to conduct litigation in a reasonable and realistic manner”- Lakatamia Shipping v Nobu Su & Others (2014)

‣ Males J: “parties are firmly discouraged from taking futile and time wasting procedural points” (Rattan v UBS (2014)

‣ New “buffer orders”- 28 day extension without making an application

PROPORTIONALITY

Definition of Proportionality:

“Costs are proportionate if they bear a reasonable relationship to”:

(a) the sums in issue in any proceedings;

(b) the value of any non-monetary relief in issue in the proceedings;

(c) the complexity of the litigation;

(d) the additional work generated by the conduct of the paying party;

(e) any wider factors involved in the proceedings

COSTS BUDGETING

‣ Front loading of costs

‣ Inconsistent judicial application

‣ Set, Share (file on time) and Agree

‣ Amending budgets- get it right first time!

‣ Unless there is a significant change in the course of litigation

‣ Coulson J in Murray v Neil Dowlman Architecture Ltd (2013)

‣ Apply to revise as soon as you know that you will exceed: Elanvite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd (2013)

‣ Application not always necessary required but must bring it to the court’s attention: National Museums & Galleries on Merseyside (Trustees) v AEW Architects & Designers Ltd (2013)

QOCS

‣ Costs will not be payable by an unsuccessful claimant in certain circumstances

‣ A defendant will be allowed to claim costs against an unsuccessful claimant, with no permission being required to recover full costs where a claim has failed because:

‣ (i) There was no reasonable grounds to bringing the proceedings;

‣ (ii) The claim was struck out for abuse of process;

‣ (iii) conduct of the claimant is likely to obstruct the just disposal of proceedings

QOCS CONTINUED

‣ There are two further situations where defence costs are recoverable without the limitation but the defendant must seek permission to enforce:

‣ (i) where there is a finding on the balance of probabilities of “fundamental dishonesty”

‣ (ii) in “mixed claims” where part of the claim is brought for the benefits of a non-party or where part falls outside the definition of PI

GOSLING V SCREWFIX DIRECT LTD AND ANOR (2014)

‣ BLM Case and first finding of “fundamental dishonesty” under QOCS

‣ Claimant found to have significantly exaggerated his symptoms

‣ Eight weeks prior to trial C notified D2 (Screwfix) of BTE Insurance and that QOCS applied

‣ One week prior to trial, C settled the claim with D1 and served Notice of Discontinuance on D2

‣ Question for the court: Did the claimant deserve the costs protection afforded to him by QOCS?

‣ Substantial exaggeration of 50%

‣ Claimant was order to pay D2’s costs of the action on an indemnity basis

PART 36

‣ To encourage settlement offers a successful claimant Part 36 offer will trigger an additional payment of 10% of the damages awarded

‣ Claimant’s offer has to be made after 1 April 2013 to qualify

‣ The additional payment is 10% of damages to £500,000 plus a tapered 5% of damages between £500,000 and £1 million (capped at £75,000)

DBAs

‣ Limited evidence of use

‣ Hybrid DBAs being favoured

‣ Announcement due soon

PRE ACTION PROTOCOLS

‣ Value of PI claims under RTA Protocol extended to £25k

‣ Extended to EL & PL up to the same value

‣ FRCS- BLM Fixed Recoverable Costs Calculator

‣ New incentives for cost building

BLM FIXED RECOVERABLE COSTS CALCULATOR

CONCLUSIONS: THE AFTER SHOCKS

‣ Too early to tell

‣ Rules are here to stay

‣ Major review planned between 2016 and 2018

‣ MOJ extension and FRC regime- year of significance will be 31/07/14

LIABILITY - LEGAL UPDATE 2014 1 VICARIOUS LIABILITY (VL) 2 NON-DELEGABLE DUTY OF CARE (NDDC) 3 H&S, (ERRA S69 AND NEGLIGENCE)

VICARIOUS LIABILITY

‣ This is the doctrine which holds an employer or principal responsible for the acts of their employee or agent.

‣ The leading authority was Lister v Hesley Hall Ltd (HL) 2001.

‣ However, VL has undergone a step change by having its scope dramatically extended in two recent cases.

‣ And in three directions!

1 JGE v The Trustees of the Portsmouth RC Diocesan Trust [2012] (CA) (“JGE”)

2 Catholic Child Welfare Society v Various Claimants and Institute of the Brothers of the Christian Schools [2012] (SC)

(“Various Claimants”)

VL

Employment

If not,

no VL

1

2

House Master

Not Groundsman

“mere opportunity

not enough”

VL in 2001

Lister v Hesley Hall Ltd (HL) 2001

VL - LIMITS SET BY LISTER (2001)

The house-parent was

caught because he was the

dormitory superintendent

and ‘the torts were so

closely connected with his

employment’ that VL would

apply.

The groundsman would

not be caught because the

work was not so closely

connected that VL would

apply – the groundsman

would only have ‘mere

opportunity’ and that would

not be enough. The position today is not so clear at all.

New in

2001

VL – (UNCERTAIN) LIMITS AT 2014

VL 1

2

House master

Boundaries have

expanded but the

extent of expansion

is still unclear

VL in 2014

Employ

ment

Now: ‘Akin’ to

employment ?

Groundsman?

?

Now sufficient to show that

the relationship is one that is

‘akin to employment’

The court will look at the

“overall character and context

of the relationship between a

tortfeasor and the

organisation” “so closely connected” reduced to

“strong connection”

SC – ‘strong connection’ between ... (task) … and

wrongful act, so that … employer significantly increased

the risk of harm by putting the person in that position,

vicarious liability attaches.

1

2

Volunteers? Agency staff?

Supply teacher,

agency staff,

groundsman?

THE THIRD DIRECTION? MORE THAN ONE EMPLOYER!

Additionally: the Supreme Court in Various Claimants ruled that

VL can apply to more than one ‘principal’

for the same tortious act

(perhaps in an outsourcing situation or

agency workers/ volunteers?)

‣ Therefore, careful consideration should be given to the relationship between the person and all potential defendants

‣ in order that consideration can be given to bringing contribution proceedings against a second principal.

LIABILITY - LEGAL UPDATE 2014 2 NON- DELEGABLE DUTY OF CARE (NDDC)

Annie Woodland v Essex CC (SC) 2013

Supreme Court 23 October 2013

“The girl in the swimming pool” case

,

ANNIE WOODLAND V ESSEX CC

‣ A modern story of Outsourcing of Services

‣ And a tragedy.

‣ Annie was a ten year old schoolgirl (in 2000) attending a swimming lesson as part of the national curriculum

‣ She got into difficulties and was seen ‘hanging in the water’. Lack of oxygen caused brain damage.

‣ The swimming lessons had been outsourced by Essex County Council to a private company, ‘Direct Swimming Services’ – and the pool was run by the District Council, Basildon.

OUTSOURCING ARRANGEMENTS:

Essex CC run the school

Outsource

swimming

lessons

Direct Swimming

Services

Beryl Stopford

(insured as sole

practitioner)

Sub-contractor

Burlinson

(not insured)

Lifeguard

Maxwell

(not insured)

Basildon DC run the Baths No problems,

not liable

A NON-DELEGABLE DUTY OF CARE?

Essex CC sought a strike out as a preliminary step as it said there was no cause of action against it.

Annie’s solicitors claimed there was a non-delegable duty of care owed by Essex CC to the child.

There is a non-delegable duty of care owed by Essex CC to Annie Woodland, (and by extension, to all of its school children).

A duty not just to take care, but to ensure that care is taken by whomsoever may be delivering that service.

On 23 October 2013,

the Supreme Court agreed, unanimously, 5 – 0.

FIVE CHARACTERISTICS MUST BE PRESENT:

1. [vulnerable group] The claimant is a patient or child or … “is especially vulnerable or dependant on the protection of the defendant against the risk of injury”;

2. [antecedent relationship] There is a pre-existing relationship between the claimant and the defendant … “which puts the claimant in the actual custody, charge or care of the defendant, and which puts the defendant under a positive duty to protect the claimant from harm”;

3. [no choice or control] The claimant has no control over how the defendant performs those obligations;

4. [core function] The defendant has delegated some function which is an integral part of the duty;

5. [provider failure] The third party has been negligent in the performance of the very function delegated by the defendant to him.

SCOPE AND BOUNDARIES …

‣ Lord Sumption, in his lead ruling, was careful to limit the scope of its decision. The liability is not open ended, and will only cover functions which meet the five criteria …

‣ However, Lady Hale comments, rather ominously: "The boundaries of what the … school has undertaken to provide may not always be as clear cut as in this case … but will have to be worked out on a case by case basis as they arise.“

‣ It is the scope and boundaries in all areas of "vulnerable groups who attract to themselves a non-delegable duty of care" that will concentrate our minds in the future.

HOW FAR WILL IT REACH?

1 Foster Care?

Overruling Sergeant v Walsall, CA, 1985?

“Wait and See!” – the Foster Care point is in the courts as we speak!

2 Academy children … ?

Mr Gove will say categorically “NO!” But will he be right?

3 Will it reach all ‘Emanations of the State’ eventually?

4 And far more significantly, what implications does it have for Outsourcing and procurement by public bodies with private companies with respect to indemnities and insurance arrangements?

Make no mistake, this is effectively NEW law and the extent of its implications are yet to be seen.

LIABILITY - LEGAL UPDATE 2014 3 HEALTH AND SAFETY CLAIMS REFORM ERRA (‘the enterprise act’) s69 and s47(2) HSWA 74

Strict liability v Negligence

Reasonable practicability v Negligence defences

And the EU directives …

1 H&S CIVIL LIABILITY REFORM

‣ THE CHANGE:

‣ Section 69 of the Enterprise and Regulatory Reform Act, 2013, (ERRA 13)

‣ Reverses

‣ Section 47(2) of the Health and Safety at Work Act 1974

(HSWA 74)

‣ From 1st October 2013

THE CHANGE:

‣ Before:

‣ s47(2) Breach of a duty imposed by H&S regulations shall, so far as it causes damage, be actionable except in so far as the regulations provide otherwise.

‣ Now:

‣ Breach of a duty imposed by a statutory instrument containing … H&S regulations shall not be actionable except to the extent that regulations under this section so provide.

‣ i.e. the word ‘not’ has been added to the wording of the Act –

‣ (such a small word!)

POLICY PAPER (JUNE 2013) EXPLAINED THAT S69:

‣ “amends the law so that in future compensation claims can only be made where negligence or fault on the part of the employer can be proved.”

‣ “This change will help redress the balance of the civil litigation system in respect of health and safety at work legislation.

‣ It will help employers’ confidence, allowing them to focus on a sensible and practical approach to health and safety and keep costs down by avoiding over-compliance.”

SECTION 69 IS NOT RETROSPECTIVE:

‣ (i) for claims where the alleged breach of duty occurred prior to 1 October 2013, the claimant will be able to plead both breach of statutory duty in respect of health and safety regulations and common law negligence; but

‣ (ii) for claims where the alleged breach of duty occurred after 1 October, the claimant will only be able to plead common law negligence.

STRICT LIABILITY – GONE?

Stark v Post Office, CA 2000 The case where Mr Stark’s front brake snapped and threw him from the bicycle - a fault which the rigorous maintenance systems the Post Office had in place could not have discovered.

Strict liability was imposed on the Post Office on the CA’s interpretation of the regulations. (It was a case arguing breach of regulation only.)

Above all, this is the case that the H&S changes are designed to

override as it is ‘disliked’, to say the least, by employers – and insurers! (and government).

Stark does not succeed in the Common Law of negligence – Stark arguments therefore become obsolete …

And this changes the civil law by removing strict liability.

NEGLIGENCE

‣ COMMON LAW TORT OF NEGLIGENCE

‣ Blyth v Birmingham Waterworks Co(1856)

‣ “Negligence is the omission to do something which a

reasonable man, guided upon those considerations which

ordinarily regulate the conduct of human affairs, would do,

or

‣ doing something which a prudent and reasonable man

would not do.”

THE ELEMENTS OF NEGLIGENCE:

1. The defendant has a Duty of Care to the claimant

2. The defendant has Breached that duty

3. Where there is loss or injury

4. And the breach of the duty has caused the harm

5. a Which is reasonably foreseeable/

b not too remote

For there to be Liability in Negligence

all five elements must be made out.

And, crucially, there is a potential defence argument against liability at each of the five stages …

HSWA 74 DEFENCE – REASONABLE PRACTICABILITY

‣ (CAME FROM) - EDWARDS V NCB (1949)

‣ whether it was "reasonably practicable" to prevent even the smallest possibility of a rock fall in a coal mine

“... it is the risk that has to be weighed against the measures necessary to eliminate the risk. The greater the risk ... the less will be the weight … given to the … cost.

“… a computation must be made … in which risk is on one scale and the sacrifice (whether in money, time or trouble) is on the other,

“… and that, if … there is a gross disproportion between them - the risk being insignificant in relation to the sacrifice - the defendants discharge the onus on them.”

‣ Cost v Duty …

NEGLIGENCE V ‘REASONABLE PRACTICABILITY’

‣ If we are rid of Stark and strict liability, the next question is:

‣ What is the difference between a defence in ‘negligence’ and a HSWA defence of ‘reasonable practicability’ in law?

‣ They are clearly similar –

‣ the reasonable practicability standard may be lower, so employers may have an increased chance of defending their position on a negligence argument …

‣ and the reasonable practicability defence has resource implications - a (Cost v Duty) aspect of which the courts tend to disapprove.

‣ In all probability it will need the Supreme Court to finally settle this comparison argument; and therefore set the future standard.

THE EUROPEAN DIMENSION, IS THERE ONE?

THE CONTENTION (BY SOME!)

‣ Some observers are contending that:

these H&S liability changes have resulted in the

European Union Directive on Health and Safety

no longer being properly implemented in the UK –

and can be challenged through the European Court of Justice (ECJ).

‣ The contention relies on ‘Francovich’* principles – a case where the member state (Italy) had not brought a EU Directive into Italian law – so the claimants relied on the original EU directive itself as the basis of their claim, sued and won.

‣ This established the right of an individual to sue the State if it failed to implement a directive (or improperly implement it).

‣ *Francovich & Bonifaci v Italy ECJ (1990)

EFFECT OF THIS CONTENTION

‣ European Union (EU) Law: a (very) short lesson!

‣ EU law can have ‘indirect’ and ‘direct’ effects.

Francovich claims need direct effect. And this EU Directive has ‘direct effect’.

BUT: there are two types of direct effect –

Horizontal (for individuals or private companies) and

Vertical (for individuals and ‘emanations of the state’

(which are ‘public bodies’ very widely defined).

Francovich claims can have vertical but they cannot have horizontal direct effect.

Therefore if a member state does not bring in a particular law, there is a two tier effect if this is employment related – public sector workers are covered but private sector workers are not.

‣ Some have contended that this s69 ERRA change in civil liability for HSWA regulations will have this effect

THE THREE HURDLES …

‣ 1 The government thinks not!

VISCOUNT YOUNGER’S STATEMENT IN HL ...“However, to be clear and to avoid any misunderstanding … the codified framework of requirements, responsibilities and duties … are (sic) unchanged.”

‣ 2 The UK properly implemented the H&S Directive

In 2005 the EU took the UK to court (ECJ) - lawyers wanted strict liability for all breaches. In 2007 they lost. Also in 2007 the Advocate General opinion made it clear that none of the EU Directives impose strict liability

(which means that Stark was probably wrongly decided in 2000 !)

‣ 3 Francovich requirements to present a case are quite stringent: – and they may not be met in the current circumstances:

‣ claimants must prove that the directive:

‣ “conferred specific rights on them; identifiable in its wording”

EUROPEAN DIMENSION – IS THERE ONE?

Finally - Gordon Exall, barrister – see his excellent blog

“I find it difficult to assert, as others have, that the answer to a claimant’s problems lies in the Directives and an action based on vertical and horizontal effect of European legislation.”

‣ Why?

1. The Directives do not impose duties on government to impose civil liability for breach.

2. Nor any requirement to impose strict liability.

We agree and go further:

Critically, the Directives have been properly implemented into UK law and so pleading a case in the Francovich manner using the Directive should not alter the outcome.

Another one for the courts!