Contribution claims by insurers in respect of third party liabilities

Master Brightwell handed down a judgment considering the interaction between the Civil Liability (Contribution) Act 1978 (1978 Act) and the Third Parties (Rights Against Insurers) Act 2010 (2010 Act): Riedweg v HCC International Insurance plc [2024] EWHC 2805 (Ch).  The decision considers whether an insurer, faced with a liability to a third party under the 2010 Act, is able to reduce that liability by seeking a contribution from other liable persons under the 1978 Act.

BACKGROUND

The case concerned an alleged overvaluation by Ms Riedweg's valuers (Goldplaza Berkley Square) of a property which she contracted to purchase.  Ms Riedweg said that she would not have purchased the property but for the overvaluation and that she could not complete or assign the contract for the sale of the property as a result.  She subsequently entered into a settlement with the seller, which required her to pay damages of £2.2 million.

Ms Riedweg sought to recover that sum in these proceedings.  Ordinarily, she would have pursued a negligence claim against Goldplaza.  However, by the time she came to issue proceedings, Goldplaza had entered liquidation.  As such, she pursued a claim directly against its insurers (HCC) under the 2010 Act.

This matter was complicated by the fact that Ms Riedweg had instructed solicitors in relation to the purchase: Forsters.  HCC applied for permission to join Forsters to the proceedings, in an attempt to pursue a contribution claim against them under the 1978 Act, in order to reduce their net potential liability to Ms Riedweg. HCC alleged that Forsters were liable to Ms Riedweg in respect of the same damage as HCC. 

The 2010 Act 

In overview, the 2010 Act protects claimants who have claims against insolvent parties.  Where a claimant has a claim against a party in a relevant insolvency process (e.g. a liquidation) or which has been dissolved, and that party's liability is (or is potentially) insured under a liability insurance policy, the Act operates to allow the claimant to sue the insolvent party's insurer, and resolve in those proceedings both the question of the insured's liability to the claimant, and the obligation of the insurer to the insured.  In this case, it meant that Ms Riedweg could seek to pursue a claim directly against HCC. 

The 1978 Act 

In brief, the 1978 Act applies where multiple parties are liable to the same claimant in relation to the "same damage."  Where that is the case, the Act permits a party to bring a claim in contribution against another party which is liable in respect of the same damage suffered by the claimant. In this case, if the Act applied, it would mean that the Court would determine the "just and equitable" contribution which Forsters should make towards Ms Riedweg's liability, which would operate to reduce HCC's total net exposure.

The issue in this case was whether HCC's and Forsters' potential liabilities to Ms Riedweg were for the "same damage", such that the 1978 Act permitted HCC to seek a contribution from Forsters.  It was accepted that Goldplaza would have had such a claim available to it, i.e. that, if the relevant arguments were made out, they would have been liable to Ms Riedweg in respect of the same damage.  The question was whether a contribution claim was available to HCC, in their capacity as Goldplaza's insurers, and where Ms Riedweg was suing them under the 2010 Act. 

DECISION

Master Brightwell decided that HCC was not permitted to pursue Forsters for a contribution under the 1978 Act because, if Forsters and HCC were both liable to Ms Riedweg, it was not for the "same damage." He held that the fact that "damages as against different defendants may be referable to the same loss does not without more mean that they constitute the same damage," and that an insurer does not inflict damage on anyone: the only damage it is capable of inflicting is refusing the meet its policy obligations (which is damaged caused to the insured, not to the third party claimant). 

He commented that:

"I consider that 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, and for the claimant to stand in the insured’s place for that purpose. The insurer’s liability is still that which flows from its obligations to the insured, which can only be to indemnify the insured against its liability to a third party. The insurer does not become liable to the third party for the damage caused or allegedly caused by its insured, which it did not inflict."

HCC's application was dismissed.

COMMENT

It is surprising that this issue does not appear to have arisen in previous cases and, whilst it is a favourable outcome for professional firms – which are common targets for contribution claims – it could present significant issues for insurers facing claims under the 2010 Act.

In similar scenarios, it may be possible for insurers to conclude proceedings under the 2010 Act, and then seek to exercise rights of subrogation, by pursuing a contribution claim against the third party in the name of the insolvent insured.  This potential was noted by Master Brightwell, but was not relevant to the issue in that case and so he did not reach a view on it: "I do not consider the fact that an insurer may in the future acquire rights through subrogation affects the analysis of whether that insurer is presently liable for the same damage as a third party." However, subrogation would not necessarily be straightforward.  For instance, the nature of the 2010 Act is that it applies to insureds which are in a relevant insolvency process or have been dissolved.  There are obvious practical difficulties which may arise in seeking to pursue a subrogated action in the name of a dissolved insured (such as needing to apply for the insured's restoration to the Company Register). 

It might be said that there is no clear policy for preventing insurers from pursuing claims under the 1978 Act in relation to liabilities which they have under the 2010 Act.  If insurers would have rights of subrogation against their insured following conclusion of proceedings under the 2010 Act, it would seem unfortunate to require the insurer and the third party to incur the potentially significant costs of relitigating the matter in a subsequent subrogated contribution claim. 

A more senior judge would not be bound by Master Brightwell's decision but, like Master Brightwell, they would be constrained by the terms of the Acts, and so it may be that this apparent lacuna will subsist without statutory intervention.