A bit of a liability

Liability insurance has a limit, and, in industries like construction where large claims can arise, the amount of cover may be insufficient to satisfy it.

This can cause problems for claimants and defendants. The claimant may not know how much insurance cover the defendant has and whether it is worth pursuing a claim. The defendant will have to consider whether to reveal the amount of cover to the claimant.

Deciding whether to reveal the indemnity limit in claims where it might be exceeded is difficult, and involves the insured as well as the insurers. There are often strong arguments against revealing it, because it makes claims more difficult to settle except on the basis that the full limit of indemnity is paid. It is possible to settle within the limit of indemnity, but this is more likely where the limit has not been revealed.

But following Justice Irwin’s judgment in Harcourt vs Griffin & Ors, parties to litigation may now be obliged to reveal details of their insurance cover.

In September 2004, the claimant Harcourt suffered serious personal injuries at a gym run by the defendants. There was speculation that the claim might be between £6m and £7.5m, after a deduction for contributory negligence, plus costs on a conditional basis, which were estimated to be upwards of £1m.

The claimant served a request for further information relating to the defence under part 18 of the Civil Procedure Rules (CPR), asking for details of the nature and extent of the defendant’s insurance cover. The claimant wanted to know four things: the amount of such cover, whether it included claimant costs, whether it included defendant costs and whether it covered orders for periodical payments. The claimant argued that if the insurance cover was inadequate to meet the potential award of damages and costs, it would be wasteful and wrong to engage in contested litigation about the amount that should be paid to the claimant.

Deciding whether to reveal the indemnity limit in claims where it might be exceeded is difficult, and involves the insured as well as the insurers

The judge held that rule 18 should be interpreted liberally so that litigants have all the information they need to deal efficiently with the matters in dispute. He found that rule 18 was broad enough to cover the information requested by the claimant’s solicitors and ordered the defendants to provide the information.

The judge accepted that there might be cases where revealing the limit of indemnity would bring a tactical advantage to the claimant, and said the court should listen to any argument about prejudice. But it is difficult to reconcile this with the judge’s decision that it was important for a claimant to have this information to decide whether to continue with the litigation.

The judge said that disclosure of this information should only be ordered where a claimant could demonstrate there was a possibility that a realistic award would not be met. He added that there must be a real basis for suggesting that disclosure was necessary in order to determine whether future litigation would be useful or a waste of time and money.

Most claimants will be able to satisfy such a test where a damages claim is large, and the claimant does not know the defendant’s limit of indemnity. So requesting such details could become commonplace in large claims.

Consultants contract in their appointments and collateral warranties to maintain a minimum level of professional indemnity insurance over a certain period. But this will not tell a claimant whether it is the only cover available, nor will it reassure the claimant unless they know the consultant has complied with it.