No-insurance claims and the loss of chance principle

Following the Commercial Court’s earlier decision in the matter of Norman Hay¹, the Court of Appeal has considered the application of “loss of a chance” principles to insurance broker negligence claims.

For reasons discussed below, the Court of Appeal decided that loss of chance principles should apply in such claims where it is necessary to assess whether a hypothetical insurance policy (which, it is alleged, the broker should have arranged) would have paid out.  Thus, even if that hypothetical cover would not have responded to the loss, it is open to the claimant to argue that insurers would nonetheless have made a payment for pragmatic or commercial reasons, and therefore that the claimant has lost a chance to make an insurance recovery.  This means that a claimant may receive a payment from the broker, even where the claimant might not have got anything from insurers, reflecting the possibility that insurers may have settled.

Background

The Court of Appeal has handed down its judgment in the matter of Norman Hay. By way of recap the background facts were as follows.²

Norman Hay, a holding company whose group companies were specialist chemicals providers, retained its broker to place the corporate group’s global liability programme for the 2018/19 and 2019/20 policy years.

On 22 November 2018, an employee of Norman Hay’s subsidiary, Internationale Metall IMPrägneier GmbH (‘IMP’), was involved in a road traffic incident whilst driving a rental car. The incident resulted in the death of the employee and serious injury to another individual. A claim commenced against Norman Hay by the injured individual was settled for USD 5.5 million.

Norman Hay was not indemnified for the settlement as it did not have rental motor liability cover as part of its global liability insurance programme. Norman Hay commenced proceedings against its broker alleging a failure to arrange cover which would have responded in these circumstances.  

Recap – loss of a chance principles

Where the court is concerned with questions of causation and what the claimant would have done but for the alleged negligence in question, the claimant must prove this on the balance of probabilities.  However, where the question is what a third party would have done, the claimant must only show that they had a real and substantial chance of achieving a better outcome, and then the courts will assess what would have happened on a loss of a chance basis, applying a discount (if applicable) to the damages award to reflect that chance.

The rationale for this test, which was upheld by the Supreme Court in Perry v Raleys,³ is that claimants may find it difficult to prove by the point of trial what the third party would have done. 

First Instance

The broker applied for Norman Hay’s claim to be struck out, or summary judgment awarded in its favour, on the grounds that it believed Norman Hay had failed, inter alia, to establish liability towards the injured third party.

The broker relied on the decision in Dalamd v Butterworth⁴ to argue that, even if there had been insurance cover in place, insurers would have declined an indemnity, as the insured was not liable to the third party.

Mr Justice Picken rejected the request for strike out or summary judgment and distinguished this case from the decision in Dalamd. Unlike in the case of Dalamd, the facts in Norman Hay did not involve an actual insurance policy but consideration of the counterfactual with a hypothetical policy of insurance. In those circumstances, Picken J considered that a broader enquiry was required, focussing on what would have happened had Norman Hay been able to present a claim to its putative insurer. This exercise required an assessment of the chance that the claim under the putative policy would have been met. As such, there was no requirement to prove cover and it was enough for the claimant to prove it lost a chance of making a recovery.

The Appeal

The broker appealed the first instance decision, arguing that Norman Hay’s claim was bound to fail and should be struck out.  One of the key arguments was that the hypothetical policy would not have provided an indemnity in response to the events which occurred, and therefore the claimant had suffered no loss.  In those circumstances, there was no need for the court to make an assessment of the counterfactual on the basis of a loss of a chance.

Males LJ declined to dismiss Norman Hay’s claim, noting that without knowing the terms of the putative policy which it is argued the broker should have obtained, it is not possible to determine whether the policy would have provided cover.

Males LJ went on to consider the position, assuming that the policy which the broker should have obtained was a conventional liability policy. It was correct that, if Norman Hay had cover in these terms, the policy would respond only if liability to the third party could be established (it was not enough that the claim was reasonably settled).  However, like Picken J, the Court of Appeal agreed that the position is different where a party proceeds against a broker for allegedly negligently failing to arrange a policy at all.

Rather than referring to the Dalamd decision, Males LJ referred to the Court of Appeal’s decision in Fraser v B.N. Furman.⁵ In this case the claimant was liable to its employee for an accident at work and sued its broker for failing to arrange employer’s liability cover. It was not in dispute that, had the policy been obtained, it would have contained a condition precedent requiring the insured ‘to take reasonable precautions to prevent accidents and disease’. The broker sought to argue that it was not liable because if cover had been obtained, this condition precedent provided the insurer with a defence. However, and relevant to this case, the Court of Appeal decided that, even if the condition precedent provided the putative insurer with a good defence, it was necessary to consider whether, having regard to commercial considerations, it would have sought to exclude cover. This question was to be assessed on a loss of chance basis with Diplock LJ setting out the principle as follows:

“What damage [the employer] suffered does not depend upon whether [the insurer] would have been entitled as a matter of law to repudiate liability under their standard policy, but whether as a matter of business they would have been likely to do so. What the employers have lost is the chance of recovering indemnity from the insurers.”

Having regard to this previous judgment of the Court of Appeal, Males LJ went on to state that he agreed with a summary of the law as set out in Jackson & Powell on Professional Liability⁶. This states that, when assessing a claimant’s loss under a hypothetical insurance policy, a court has to assess what would have occurred had there been no breach of duty by the broker. If the court finds that an insurer would or might have made a payment to the claimant but for the broker’s negligence, the claimant will recover damages on a loss of a chance basis, even if (as a matter of law) the claimant would not have been entitled to any payment from the insurer.

In practical terms, Males LJ considered that, if it were clear that there would be a claim under a policy, no discount should apply to the claimant’s claim. However, if the insurer did have arguments available to it but there remained a real and distinct prospect of success, a discount could be applied to be established on a loss of a chance basis. Males LJ did not make a final assessment in respect of Norman Hay’s claim against a putative insurer, noting that this was a matter for trial.

Having regard to the above, Males LJ did not consider a failure to plead that Norman Hay nor IMP were liable to the injured third party to be a “knockout blow”. The question of whether Norman Hay was strictly liable to the third party would be just one factor in the counterfactual analysis of what the putative insurer would have done.

Conclusion

The Court of Appeal’s judgment is authority for the position that a requirement to prove cover under a hypothetical insurance policy will not always apply. Males LJ reiterated that what is required is an analysis of what a hypothetical insurer would have done upon receipt of a claim, including the taking into account of business considerations.

Analysis on a loss of a chance basis avoids an “all or nothing” outcome and could result in a partial recovery where, despite coverage arguments available to it, an insurer may have adopted a commercial or pragmatic stance (providing that the claimant can establish at least a real and substantial chance of a payment).

Whilst the appeal was not successful, this does not bring finality to proceedings and Norman Hay’s claim will continue to trial. 

Footnotes

1. [2025] EWHC 1039 (Comm)
2. Our previous briefing following Picken J’s first instance decision can be found here
3. [2019] UKSC 5 
4. [2018] EWHC 2558 (Comm)
5. [1967] 1 WLR 898
6. 9th edition (2022)