Can the lead insurer bring a claim against the insured on behalf of the following market?
Royal & Sun Alliance Insurance plc and others v Textainer Group Holdings and others [26.07.21]
This was the question considered in the case of Royal & Sun Alliance Insurance plc and others v Textainer Group Holdings – a question that has rarely been considered despite this being a common place consideration in claims brought by insurers with a following market. It is a particular problem when a number of insurers subscribe to a policy but only some of that market wishes to pursue its rights of subrogation. Can one insurer’s reticence to join proceedings prevent the rest of the market from pursuing its rights?
The defendant leased a number of its containers to Hanjin Shipping Co (Hanjin), and insured its container fleet with a number of insurers through an excess of loss insurance programme. The first claimant, RSA, were the lead insurers on the first three insurance policies within that excess of loss insurance programme. When Hanjin entered liquidation, the defendant made a claim against that insurance programme and settled its claims with insurers. During the course of the liquidation proceedings, Hanjin’s liquidator made a number of significant payments to container lessors, including the defendant. The claimant insurers in this action are seeking to recover those sums paid to the defendant by reason of their rights of subrogation.
RSA, as the lead insurer on the first three insurance policies, issued proceedings in its own name and alleged that it was entitled to bring such proceedings as lead insurer, representing both its own interests and the interest of all but one of the following market.
One of the following insurers did not wish to participate in the proceedings and refused to allow RSA to act as a representative of its interests. The defendant disputed that RSA was entitled to act on behalf of the following market or enforce its own rights without the participation of the entire market. The defendant alleged that the claim was improperly constituted by the claimant insurers.
The claimant insurers, therefore, made an application under CPR 19.6(1)(b) seeking an order from the court allowing RSA to act as a representative of four other insurers who participated as the following market. The claimant insurers also made an application under CPR 19.6(1)(B), that the claim was properly constituted under CPR 19.3.
The defendants complained that, unless all insurers on a policy were joined to the proceedings, there was a risk that an insured may face later, inconsistent and competing claims from other insurers who were not party to the current proceedings but who did participate in the insurance policy. As such, they alleged that the claimant should join any such reticent insurers as co-defendants within the proceedings.
“(1) Where a claimant claims a remedy to which some other person is jointly entitled with him, all persons jointly entitled to the remedy must be parties unless the court orders otherwise.
(2) If any person does not agree to be a claimant, he must be made a defendant, unless the court orders otherwise.
The court concluded that whilst it is well established that the interests of each subscribing insurer to a particular policy may be the same, any obligation to indemnify is several, not joint (Irish Shipping Ltd v Commercial Union Assurance Co Plc ). The Marine Insurance Act 1906 Clause 24(2) specifically states:
Where a policy is subscribed by or on behalf of two or more insurers, each subscription, unless the contrary be expressed, constitutes a distinct contract with the assured.
Mr Justice Henshaw concluded that:
“In my view, the concept of joint entitlement under CPR 19.3 refers to claims which are jointly held as a matter of law, such as the examples referred to in Roberts v Gill and Re AMT Coffee of claims by equitable assignees or by executors. There may also be cases of contractual obligations owed to joint promises. The concept does not in my view extend to situations where an entitlement to a remedy could be described as ‘joint’ only in the sense that the grant of a remedy, in which a claimant and non-party share the same interested, would expressly or impliedly delimit and settle their legal positions vis a vis other parties to the proceedings (whether claimants or defendants) or other persons with an interest in the subject-matter of the proceedings.”
Mr Justice Henshaw confirmed that the insurers participating in the subrogation proceedings could be said to have a common interest with non-participating insurers. However, those insurers were each suing for a several and not a joint entitlement. Accordingly, while there may be practical and commercial reasons for the defendants to wish to join the non-participating insurers to the current proceedings, RSA’s was not obliged to join them to the proceedings and therefore, Mr Justice Henshaw rejected the defendants’ suggestion that the current proceedings were improperly constituted according to CPR 19.3.
The White Book (which contains sources of law relating to the interpretation of the CPR) is almost silent around the application of CPR 19.3 so this is a welcome clarification as to the parties to be included when there is a large following market.
Where a subscribing market is presented with an opportunity to effect a recovery, there may be all sorts of reasons why one or more insurers within that market might not wish to participate. This is particularly so when the recovery action may be against the insured. There may be commercial and practical interests which create such reluctance and it is commonplace for an insurance market to be split on such issues.
However, this decision will be welcome news to those insurers who wish to proceed with such recovery actions. It confirms that those insurers are free to commence proceedings and to enforce their own rights - even when those rights are against the insured!
Kennedys acted for the successful claimants in this case.