The interaction between the Third Parties (Rights Against Insurers) Act 2010 and the Civil Liability (Contribution) Act 1978

Introduction

In a judgment handed down on 11 November 2024, the High Court (Master Brightwell) has provided some clarification as to whether an insurer of an insolvent insured is, pursuant to the Civil Liability (Contribution) Act 1978 (the “1978 Act”), liable for the “same damage” for the purposes of pursuing a recovery claim against a third party.

For now, the answer is no.

Background summary

The claimant contracted to purchase a property valued by Goldplaza Berkeley Square Ltd (Goldplaza) for the sum of £8 million in 2016. The claimant contended that the property was negligently overvalued, and as a result she was unable to complete on the purchase, or assign the sale contract. The property eventually sold for £5.5 million. The claimant was sued by the seller of the property but agreed terms of settlement giving rise to a liability to the tune of £2.2 million.

Goldplaza entered into voluntary liquidation in November 2021. The claimant accordingly pursued a claim to recover the £2.2 million against Goldplaza’s professional indemnity insurers, HCC International Plc (HCC) by operation of the Third Parties (Rights Against Insurers) Act 2010 (the 2010 Act).

In the immediate run up to the costs and case management conference, HCC applied for permission to bring a Part 20 contribution claim (pursuant to the 1978 Act) against the claimant’s solicitors in the underlying transaction – Forsters LLP and Ms Victoria Kate Johns (together Forsters). It is in the context of this application that the court was asked to decide whether the damage allegedly caused by Forsters was the “same damage” (which is the requirement for a contribution under the 1978 Act) for which insurers, HCC, were potentially liable to the claimant.

The arguments

Forsters opposed HCC’s application.

The main thrust of Forsters’ argument was that an insurer’s liability to indemnify under a policy of insurance does not constitute the “same damage” as that suffered by the claimant, and therefore HCC had no right to claim a contribution from Forsters pursuant to the 1978 Act. Earlier authority on this point in Bovis Construction Ltd v Commercial Union Assurance Co Ltd [2000], had concluded that this was not the same damage, albeit that case was decided within the framework of the Third Parties (Rights Against Insurers) Act 1930 (the 1930 Act).

Under the 2010 Act, a claimant is not required to establish the liability of the insured before pursuing insurers directly. The court therefore had to consider whether this made any difference. Forsters contended that the effect of the 2010 Act was to provide a mechanism by which the claimant steps into the shoes of the insured, not the insurer and as such, HCC’s liability is limited to its liability to its insured under the policy. Therefore, as Forsters submitted, an insurer is “not liable in law to a third party for the same damage for which its insured is liable, and that the implementation of the procedural scheme provided by the 2010 Act has not changed that”.

Relying upon the Court of Appeal Judgment in Friends’ Provident v Hillier Parker May & Rowden [1995] (Friends Provident), HCC sought to argue that the 1978 Act provided for a sufficiently “broad formulation” for entitlement to a contribution. In Friends Provident, the court was asked to decide whether a claim in restitution would prevent reliance on the 1978 Act, and concluded that it would not. HCC sought to argue that this provided a sufficient gateway to overcome the “same damage” issue vis-à-vis HCC and Forsters. However, the judge disagreed with HCC’s analysis of the decision in Friends Provident, which concerned whether a different cause of action prevented reliance upon the 1978 Act, not what constitutes the “same damage”. 

Decision

The judge concluded that HCC are not potentially liable for the “same damage” for which Forsters may be liable pursuant to the 1978 Act. In accepting Forsters’ submissions, the judge confirmed that the 2010 Act merely provides a route for claimants to pursue insurers directly as it relates to the potential liability of an insured to a third party, which is not to say that an insurer becomes liable to a claimant for damage allegedly caused by its insured. 

HCC’s application was dismissed, although permission to appeal has been granted on the basis that the judge considered the issue merited appellate level authority.

Comment

This decision should perhaps not come as a surprise. Bovis Construction already provided authority that insurers cannot be regarded as liable for the “same damage” as their insured for claims brought under the 1978 Act, albeit that decision was decided in the context of the 1930 Act. For now, Riedweg is authority for the same point of principle as it relates to claims brought under the 2010 Act.

Where there might be viable recovery claim against a third party, this decision may be regarded by insurers as a barrier to recovery. However, hope is not lost as the question of subrogation was not an issue for determination in HCC’s application. This does, however, give rise to tricky questions of timing and (if the insolvent insured has been dissolved) restoration of an insured for the purposes of exercising rights of subrogation.

In light of this judgment, a subrogated claim in the name of the insured now appears to be the only route through which insurers facing direct claims can overcome the “same damage” predicament for the purposes of seeking contribution from third parties.