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

A claim against an insurance broker for failing to arrange cover is not necessarily defeated because a conventional liability policy would respond only to actual liability. The court must identify the putative policy, the broker’s undertaking and the counterfactual consequences of proper performance. Where the insurer’s likely response would depend on what it would have done as a matter of business, recovery may be assessed on loss-of-chance principles. Strict legal liability remains relevant, but a claim, settlement or judgment does not itself establish indemnity under a conventional liability policy. At an interlocutory stage, unresolved questions about cover, causation, loss, reflective loss and alternative risk-management steps may make strike-out or summary judgment inappropriate.

Marsh appealed from Picken J’s refusal to strike out Norman Hay’s claim or grant reverse summary judgment, reported at [2024] EWHC 1039 (Comm).

Norman Hay alleged that Marsh negligently failed to arrange worldwide, including United States, non-owned auto cover, or failed to advise on alternative steps and existing subsidiary cover. Following a fatal road accident, a settlement with the injured motorist was funded from escrow and reduced the proceeds of Norman Hay’s sale of its subsidiaries.

Marsh argued that the claim was bound to fail because a liability policy would respond only to actual liability and because the claimed loss was irrecoverable reflective loss. The central issues were whether those matters could be resolved without trial and whether Norman Hay had viable alternative cases.

Lord Justice Males gave the judgment of the court. The Master of the Rolls and Lord Justice Birss agreed. The appeal was dismissed.

1. Putative policy and interlocutory disposal. The court first needed clarity about Marsh’s instructions, the duty undertaken, the cover that a reasonable broker should have arranged or advised upon, and the terms of the putative policy. Those matters included whether the policy would have been a conventional liability policy or a policy responding to claims, occurrences or reasonable settlements. Since they remained unresolved, the claim could not be dismissed summarily on the basis that the policy would not have responded.
2. Conventional liability policy. The court accepted that such a policy ordinarily responds only to the insured’s actual liability to the third party. A claim, reasonable settlement or judgment does not itself establish entitlement to indemnity, as explained in AstraZeneca Insurance Co Ltd v XL Insurance (Bermuda) Ltd [2013] EWCA Civ 1660, [2014] 2 All ER (Comm) 55. That principle did not determine a claim against a broker who had failed to arrange any policy.
3. Broker’s counterfactual. Following Fraser v B.N. Furman (Productions) Ltd [1967] 1 WLR 898, the court had to assess what would probably have happened if the broker had performed its duty. The likely conduct of a putative insurer, including whether it would have paid as a matter of business despite a possible legal defence, could be assessed on loss-of-chance principles. Perry v Raleys Solicitors [2019] UKSC 5, [2020] AC 352 supported the distinction between matters dependent on the claimant’s own conduct, proved on the balance of probabilities, and matters dependent on what others would have done, assessed as a lost chance. Actual liability remained relevant: a clearly valid claim required no discount, while a clearly invalid claim required a real and distinct prospect of a beneficial outcome.
4. Loss and alternative cases. The reflective-loss issue did not justify summary disposal. Norman Hay might have had a direct duty-based loss, and an assignment of IMP’s claim might have addressed any separate entitlement problem. Further, Norman Hay’s alternative cases concerning employee instructions and the continuation of IMP’s existing cover independently required a trial.

The claim was therefore not suitable for strike out or summary judgment.

• Court of Appeal (Civil Division): Marsh’s appeal was dismissed. The claim was not suitable for strike out or reverse summary judgment.
• High Court of Justice, King’s Bench Division, Commercial Court: Picken J refused to strike out the claim or grant reverse summary judgment in [2024] EWHC 1039 (Comm).