Norman Hay PLC (in Members’ Voluntary Liquidation) v Marsh Limited

In a professional negligence claim against an insurance broker, the claimant need not establish, as a condition of advancing the claim, that a putative insurer would have been legally bound to indemnify it. The court may assess what would probably have happened had proper insurance been arranged, including the chance that the insurer would have adopted a pragmatic commercial approach and paid all or part of the claim.

Where full recovery under the hypothetical policy is established, damages may be recovered in full. Otherwise, the loss may be assessed on loss-of-chance principles. The distinction between claims against insurers and claims against brokers is material, particularly where no policy or insurer exists because the alleged negligence consisted in failing to arrange cover.

Norman Hay brought a claim in contract and negligence against its insurance broker, Marsh Limited. It alleged that Marsh failed to arrange worldwide non-owned auto cover and wrongly recommended cancellation of an existing policy. After an employee was killed in a United States road accident, the injured driver’s claim was settled for US$5.5 million. Norman Hay alleged that it suffered loss through funding, or bearing the economic effect of, that settlement.

Marsh applied to strike out the claim under Civil Procedure Rules 1998, rule 3.4, alternatively for summary judgment under rule 24. It argued that Norman Hay had not pleaded or could not prove legal liability to the injured driver, recoverability under the hypothetical policy, loss, or the reasonableness of the settlement. The central issue was whether those objections made the broker’s claim legally or evidentially hopeless at this interlocutory stage.

Marsh’s applications for strike-out and summary judgment were dismissed.

1. The applicable tests were not materially in dispute. A statement of case may be struck out where it discloses no reasonable grounds, but the court should not strike out unless satisfied that the claim is bound to fail. Summary judgment requires consideration of whether the claim has a real prospect of success.

2. Marsh was right that, under a liability policy, an insured ordinarily must establish actual legal liability to the third party before recovering an indemnity. A settlement, or an allegation of liability, does not by itself establish that liability. That principle was stated in Astrazeneca v XL Insurance (Bermuda) and Technip Saudi Arabia v Mediterranean & Gulf Cooperative Insurance and Reinsurance Co.

3. The same rule does not determine a negligence claim against an insurance broker. The broker claim requires a broader counterfactual inquiry into what would have happened if proper insurance had been arranged. The court may assess the chance that the putative insurer would have engaged with the claim and paid an indemnity, even if full legal entitlement under the hypothetical policy could not be established.

4. Dalamd Ltd v Butterworth Spengler Commercial Ltd did not impose an absolute rule that every alternative defence available to a putative insurer must be decided on a balance of probabilities. Dalamd concerned an existing policy and insurer. The present claim concerned the absence of any policy or insurer and therefore required assessment of what policy would have been obtained, its terms, and the likely response of the putative insurer. Loss-of-chance analysis could accordingly apply.

5. The pleading expressly alleged loss of the opportunity to obtain responsive insurance and alternative means of avoiding or reducing the liabilities. It was therefore sufficiently arguable that the losses could have been avoided even without proving legal liability to the injured driver or entitlement to indemnity under the global programme.

6. The objections concerning the source of the settlement payment and disclosure of legal advice did not justify interlocutory disposal. The loss point was not pursued as a freestanding objection, and disclosure had not yet taken place. A trial was required to determine the pleaded alternatives.

The applications were dismissed.