Direct Line Insurance Plc v Khan & Anor

Permission to appeal may properly be granted where a difficult legal issue is genuinely arguable, even though the appeal may face substantial factual or legal obstacles. In insurance disputes, the description of parties as joint policyholders does not necessarily determine whether the policy is joint in law. The court should examine the ownership interests and the policy wording, including whether the cover relates to several interests. A further issue may arise where fraud is committed by one insured or by an agent in presenting a claim, but an issue not argued below should not be finally determined on a permission application.

Direct Line sought recovery of payments made after a fire at property owned by Munawar and Waheeda Khan. The insurer alleged that Mr Khan had fraudulently claimed alternative accommodation costs and that the policy was thereby voidable in its entirety.

The judge, Mr Justice Jackson, gave summary judgment against both defendants. Mrs Khan renewed an application for permission to appeal, arguing that she was unaware of the fraud and held a severable interest rather than being insured under a strictly joint policy. The central question was whether those issues were sufficiently arguable to justify an appeal.

1. Application allowed. Mrs Khan was granted permission to appeal against the whole judgment. The appeal was to be heard by a court of three Lords Justices, one with insurance expertise, with expedition directed because freezing orders were in place.
2. The judge below had treated the policy as joint because the schedule described Mr Khan as a joint policyholder. That reasoning was open to proper doubt. The ownership and policy provisions arguably covered Mr and Mrs Khan for their respective equitable interests, rather than creating a joint policy in the strict legal sense. The distinction was illustrated by General Accident v Midland Bank Ltd [1940] 2 KB 388 and New Hampshire Insurance Co Ltd v MGN Ltd [1997] LRLR 24.
3. It was also properly arguable that, where one joint policyholder commits fraud or other wrongdoing, the relief might be limited as against an innocent co-insured. The court noted that this possibility received little support from p Samuel & Co v Dumas [1024] AC 431 and Professor Clarke’s work, although some possible support existed in the dissenting judgment of La Foret J in Scott v Wawanesa (1989) 59 DLR 660.
4. Mrs Khan faced further difficulties. Her own calls to the insurers could be relevant, and the principle identified in The Litsion Pride [1985] 1 Lloyd's Rep 437 suggested that fraud by an agent in presenting a claim may affect the principal. Those matters had not been argued below and were expressly left open.
5. The court did not disturb the application of Galloway v Guardian Royal Exchange [1999] LRIR 209 to Mr Khan’s fraud. The question on Mrs Khan’s separate interest required fuller consideration on appeal.

• Court of Appeal (Civil Division): permission to appeal granted against the summary judgment of Mr Justice Jackson. The application had initially been refused on the papers but was allowed when renewed on the issue of Mrs Khan’s lack of knowledge of her husband’s fraud.