Morton Insurance Brokers Ltd. v Sidhu

In allegations of serious misconduct, the civil standard remains the balance of probabilities. The seriousness of the allegation is relevant because it affects the inherent improbability of the event and therefore the strength of evidence required. The court must assess all the evidence and decide whether the alleged event was more likely than not. An employee who backdates insurance documents to represent that cover existed for an uninsured event breaches the contractual duty of good faith. Losses caused by that breach are recoverable where they were reasonably foreseeable.

Morton Insurance Brokers Limited claimed damages from its former branch manager, Avtar Sidhu, alleging that he had backdated manual motor-insurance cover notes between 1999 and 2001. The backdating allegedly represented that insurance cover existed when motorists had already suffered uninsured accidents.

Morton sought recovery of its settlement with the insurer, professional indemnity insurance-related losses, investigation costs and associated expenses. Liability depended on whether, on the balance of probabilities, Mr Sidhu had backdated the disputed documents. Quantum was largely accepted, subject to proof of causation and reasonable foreseeability.

1. Liability. The claim succeeded. The defendant had backdated the disputed cover notes and thereby breached the duty of good faith owed to his employer.
2. Standard of proof. The court applied the approach stated by Lord Nicholls in [1996] AC 563. The standard remained the balance of probabilities, but the seriousness of the allegation was a factor making compelling evidence necessary.
3. Inference from the evidence. The relevant computer records contained unalterable dates for quotations, transfer to BROOMS and recording of premiums. None supported insurance cover having been arranged on the alleged inception dates. Premiums had been paid in cash and recorded later, while documentation was sent to the insurer after the accidents. The defendant's explanations were not credible.
4. The manual system enabled the defendant to avoid the audit trail that would have been created by the electronic system. The court rejected pressure of work and the alleged need for additional information as explanations for using the manual process.
5. The claimant's losses were caused by the breach and were reasonably foreseeable. Judgment was entered for £55,000 paid to the insurer, £8,241.92 in fees subject to any applicable VAT adjustment, £4,230 for risk-management analysis subject to any applicable VAT adjustment, the additional insurance premiums calculated as directed, £1,938.75 for cover-note audits subject to any applicable VAT adjustment, interest and costs.

not stated in the judgment.