High Court refuses pre-action disclosure of insurance policy to a third party

Out-Law Legal Update | 01 Jun 2017 | 12:15 pm | 3 min. read

LEGAL UPDATE: The UK High Court has said that Civil Procedure Rule 31.16 governing pre-action disclosure could not be commonly used by third parties to obtain the insurance policy of an insolvent insured because parliament has already enacted separate legislation to govern that type of disclosure – in the form of the recent Third Party (Rights Against Insurers) Act 2010.

After a fire at one of its warehouses, Peel Port Shareholder Finance Company applied for disclosure of the insurance policy of the contractor which allegedly caused the fire. The insurance company was Dornoch Ltd.

The contractor was solvent and the insurance policy request was made under Civil Procedure Rule 31.16, which governs disclosure before proceedings start. Dornoch argued that the legislators could not have envisaged allowing disclosure of insurance policies under CPR 31.16 because the Third Parties (Rights against Insurers) Act 2010 (the 2010 Act) contained a specific regime for the disclosure of information in such policies, albeit where the insured is insolvent.

The 2010 Act allows a claimant to ask a potentially liable insolvent defendant if there is a contract of insurance that covers the supposed liability, who the insurer is, what the terms of the contract are instead of attempting to rely on the CPR pre-action disclosure provisions. It also allows it to ask whether the insured has been informed that the insurer has claimed not to be liable under the contract in respect of the supposed liability. Although there is no express provision for supply of the contract of insurance itself in the legislation, it is likely that this would happen in practice.

In the High Court, Mrs Justice Jefford agreed with Dornoch and refused the application, providing useful insight into the interaction between CPR 31.16 and the 2010 Act, which came into force in August 2016. She said that CPR 31.16 could not be commonly used by third parties to obtain the insurance policy of an insolvent insured because Parliament has already enacted separate legislation to govern that type of disclosure – in the form of the 2010 Act. Furthermore, the judge interpreted the Law Commission's review of the 2010 Act to indicate that the Court would not generally order disclosure of a solvent party's insurance policy during litigation and observed that statute has never expressly provided for a litigant to obtain the insurance policy of a solvent insured.

The judge concluded that CPR 31.16 should not allow a claimant to ask for disclosure just because the insured may become insolvent at a future date and that it may therefore have a claim against the insurer. Despite Peel Port's arguments - that the case was exceptional, the insured had set out no defence, if litigation was to proceed against it, it would be liable and unable to meet the liability, and rights against the insurer would therefore pass to the applicant - these were all a series of conjectural hypotheses and not enough to be "sufficiently exceptional" for the Court to overturn established practice. The application for pre-action disclosure was refused. 

Peel Port owned a warehouse which had been damaged by fire and had claimed this had been caused by the defendant company carrying out flame cutting work in the vicinity of flammable insulation material. The defendant was insured by Dornoch, and Dornoch was substituted as the respondent to the application. Dornoch denied that the claim was covered under the insurance policy because of an endorsement providing that it was a condition precedent to liability that certain precautions were taken when using the sort of spark-emitting equipment the defendant was using. While the terms of such an endorsement were disclosed in correspondence between the parties, the insurance policy itself was not.

Peel Port argued that parts (a)-(c) of CPR 31.16 were satisfied, and that pre-action disclosure of the full insurance policy should be granted. It argued that if the insured was put into liquidation, which it would be if found liable, Dornoch and Peel Port would be the parties to the proceedings and the endorsement, and its effect, would be the key issue of proceedings. Secondly, if the policy was disclosed and showed that the endorsement was effective, Peel Port would not pursue the defendant or the insurer, which would avoid litigation and costs in accordance with three of the required limbs under CPR 31.16 (d).

Dornoch argued that the legislators cannot have envisaged allowing disclosure of insurance policies under CPR 31.16 because the 2010 Act contained a specific regime for the disclosure of information in such policies, albeit where the insured is insolvent. The effect of this, it argued, was that the applicant against the insolvent insured could pursue the insurer instead and request certain information from the insurer before the insured's liability is established, creating a form of pre-action disclosure.