Watford Community Housing Trust v Arthur J. Gallagher Insurance Brokers Limited

Where multiple insurance policies cover the same risk and contain excess or other-insurance clauses, the clauses must be construed objectively and together. If each policy would provide primary cover but for the existence of the others, the clauses cancel one another out. The insured then has a horizontal layer of primary insurance.

Absent an express rateable proportion clause, double or multiple insurance does not limit the insured’s aggregate recovery to the highest individual policy limit. Subject to the indemnity principle, the insured may claim against insurers in any order up to the combined limits. Contribution is a matter between insurers.

In a broker negligence claim involving loss of a chance, where insurers would have been legally obliged to indemnify the insured, no further enquiry into likely commercial payment or enforcement is required.

The claimant alleged that its insurance broker negligently failed to notify a data breach to two of three policies. One insurer declined cover, while the other later agreed to indemnify the claimant. The claimant had received or had available £6 million of cover and argued that, absent the breach, it would have had access to up to £11 million under the three policies.

The defendant contended that the policies’ other-insurance clauses either left no primary cover or limited the claimant’s total recovery to £5 million. It also argued that the loss-of-chance claim required a further enquiry into whether insurers would have honoured their legal obligations. The court tried these issues as a preliminary issue.

1. Construction of the other-insurance clauses. The clauses had to be construed objectively through the perspective of a reasonable policyholder. Applying Weddell v Road Transport and General Insurance Co., each policy was to be construed independently. Where each insurer would be liable as a primary insurer but for the existence of the other policies, the excess clauses cancelled one another out. The different drafting of the PI Policy, including the words “if this policy did not exist”, did not alter that conclusion. The three policies therefore provided horizontal primary cover of £1 million, £5 million and £5 million plus defence costs.
2. Effect of multiple insurance. The indemnity principle prevented recovery beyond the claimant’s actual loss, but there was no general rule of rateable contribution limiting the claimant’s recovery to the highest individual policy limit. In the absence of an express contractual provision, the claimant could select the insurer or insurers against whom it claimed and recover its loss up to the combined limits. Contribution rights were matters between insurers and did not reduce the insured’s rights.
3. The aggregation provisions did not require determination because the first two sub-issues disposed of the preliminary issue.
4. Loss of a chance. Although the negligence claim concerned the chance of recovering under the PI Policy, a further enquiry into market practice or the likelihood of enforcement was unnecessary. Under Fraser v B.N. Furman (Productions) Ltd, where the insurers would have been legally obliged to indemnify the insured, the legal obligation determined the recoverable loss.
5. The defendant’s no-loss defence failed. The preliminary issue was answered in the negative. The claimant was entitled to damages equivalent to the sums the insurers would have been legally liable to pay above the £6 million already recovered. The parties were directed to draw up an order; costs and consequential matters were to be addressed in writing.