Commercial Union Assurance Company Ltd v Hayden
| Jurisdiction | England & Wales |
| Judge | Lord Justice Cairns,LORD JUSTICE STEPHENSON,LORD JUSTICE CAIRNS |
| Judgment Date | 22 October 1976 |
| Judgment citation (vLex) | [1976] EWCA Civ J1022-4 |
| Court | Court of Appeal (Civil Division) |
| Date | 22 October 1976 |
[1976] EWCA Civ J1022-4
In The Supreme Court of Judicature
Court of Appeal
Civil Division
On appeal from Order of Mr Justice Donaldson.
Lord Justice Cairns,
Lord Justice Stephenson and
Lord Justice Lawton (Not present).
Mr RAYMOND KIDWELL, Q.C. and Mr WILLIAM CROWTHER (instructed by Messrs Herbert Smith & Co.) appeared on behalf of the Appellants (Plaintiffs).
Mr CONRAD DEHN, Q.C. and The Hon. CHRISTOPHER BATHURST (instructed by Messrs Reynolds, Porter, Chamberlain & Co.) appeared on behalf of the Respondent (Defendant).
This is an appeal from a judgment of Mr Justice Donaldson in the Commercial Court in a case between two insurers raising the question of how liability between them should be apportioned when both of them have insured against the same risk and there is a clause in each policy providing that in such circumstances the insurer shall not be liable for more than its rateable proportion of any claim.
The plaintiffs, the Commercial Union Assurance Company Ltd., insured Messrs G.T. & D. Cartwright under a policy covering inter alia public liability with a limit of £100,000 in respect of any one occurrence. Lloyd's underwriters (including Mr N.C. Hayden, who represents them in this case) insured Messrs Cartwright under a public liability policy with a limit of £10,000 in respect of any one accident or series of accidents arising out of one event. Each policy contained a "rateable proportion" clause.
One Parsons made a claim for damages for personal injuries against Messrs Cartwright and, with the agreement of both insurers, his claim was settled for £4425.45p. By further agreement between the insurers, the Commercial Union met the total of Messrs Cartwright's insurance claims in full, i.e. paid the 4425.45p. But that was without prejudice to the issue of apportionment, the Commercial Union contending that the liability should be shared equally, while the Lloyd's underwriters claimed that it should be apportioned as to ten-elevenths against the Commercial Union and one-eleventh against Lloyd's. So Lloyd's paid 402.31p to the Commercial Union and the Commercial Union started the action claiming a further 1,810.41p from Lloyd's. 'The Judge decided infavour of Lloyd's, and the Commercial Union appeal.
The wording of the rateable proportion clause was substantially the same in the two policies and it is sufficient to quote the one in the Commercial Union policy, which read as follows: "If at the time of any claim arising under this section there shall be any other insurance covering the same risk or any part thereof the Company shall not be liable for more than its rateable proportion thereof".
Lloyd's contention, which succeeded before the Judge, was that the apportionment should be on what has been called a "maximum liability" basis. Since the maximum liability of the Commercial Union was £100,000 and that of Lloyd's was £10,000, that basis would result in the Commercial Union paying ten-elevenths of every claim, whatever its amount.
The Commercial Union's contention was that a basis described as an "independent liability" basis should be adopted, i.e. that it should first be ascertained what would have been the liability of each insurer if it had been the only insurer and the total liability to the assured should be divided in proportion to those independent liabilities, so that on these two policies any claim up to £10,000 would be borne equally, but on a claim for, say, £40,000 the Commercial Union's independent liability would be £40,000 and Lloyd's liability would be limited to £10,000, so that the apportionment would be in the ratio of i.e. £32,000 to be paid by the Commercial Union and £8,000 by Lloyd's.
Various other possible divisions were adumbrated and were to some extent pursued in the Court below, but on appeal there was no other candidate than the two I have mentioned.
The problem is primarily one of construction of the clauses in the policies, because it is common ground that the fraction of his total claim that the assured could recover from each insurer is the fraction which that insurer must bear as between itself and the other insurer.
It cannot be said that as a matter of language either construction is preferable to the other. There is no English authority which is directly in point and such decisions on apportionment between insurers as have been cited - two in England, two in Scotland, two in Canada and four in the United States - shed only an uncertain light on the problem. On behalf of the Commercial Union it was submitted that passages in standard text-books showed that in practice the independent liability basis was the one usually adopted and was the basis regarded by the authors of those books as the fairer. The use of that material was objected to on behalf of Lloyd's on the grounds that practice was not pleaded, that if it were it would be necessary to show by first-hand evidence that the practice was certain, notorious and reasonable, and that the writer's opinions as to what was fair could not govern a question of construction. We were informed that the Judge had ruled against the Commercial Union on this matter. He did however use the text-books to make an interesting review of the way in which the problem of apportionment has been dealt with in various contexts. At the end of that review he said: "There appears to be no settled basis for contribution under liability, as contrasted with property, insurance".
Without giving any ruling on their admissibility, we looked, de beneesse, at passages in two text-books towhich Mr Kidwell referred us - MacGillivray & parkington on Insurance law (6th Edition, paragraphs 1998 and 2000) and Ivamy on General Principles of Insurance Law (3rd Edition at pages 406, 469-472, 477 and 479). All that can be extracted from these passages of any possible relevance to the present appeal is that in property insurance the usual basis of contribution is the maximum liability basis except where the policies contain pro rata average clauses (which are now almost universal except in domestic policies) when the independent liability basis is used.- Ivamy considers the independent liability basis to be fairer and more logical. In my opinion, Mr Dehn's objection to the use of this material was valid - but I add that I cannot see that it is of any substantial help to the Commercial Union's case: certainly it does not support a suggestion of Mr Kidwell that if Mr Justice Donaldson's decision is upheld, it will upset the whole insurance market.
In the Court below two Canadian cases and four United States were cited, and Mr Justice Donaldson summed up their effect by saying: "From these cases it appears that the maximum liability approach is adopted universally in North America irrespective of whether the insurance covers property or liability." We were not asked to look at the Canadian cases. Of the United States cases, one is a Supreme Court decision on property insurance and the other three are decisions of other Federal Courts on liability insurance. In Home Insurance Company v. Baltimore Warehouse Company, (1896) 93 United States, 527, goods were insured under one policy for $20,000 and under another policy for $10,000. It does not appear that either policy contained arateable proportion clause. The action was brought by the assured against the $20,000 insurer and the Supreme Court held that the plaintiffs were entitled to recover from that insurer two-thirds of their total loss. No other fraction was suggested.
In Oregon Automobile Insurance Co. v. United StatesFidelity Co., (1952) 195 Federal Reports, 2nd Series, 958, the United States Court of Appeals, 9th Circuit, considered a dispute between two insurance companies under automobile liability policies. Each policy contained a clause which, if applied literally, would mean that the assured could recover nothing. It was conceded that such a result was not intended and the contest was as to which was the "primary" policy. The Court held that neither was to be regarded as secondary to the other and accordingly that there should be a pro rata division of liability. It was conceded that in that case the division should be according to the proportion of the amounts of insurance.
In Citizens Mutual Automobile Insurance Co. v. Firemen's Fund Insurance Co., (1964) 234. Federal Supplement, 931, Justice Fox, District Judge, United States District Court, Michigan, in a similar case to the Oregon case reached a similar result, no alternative basis of apportionment being put forward.
In Industrial Indemnity Co. v. Continental Casualty Co., (1967) 375 Federal Reports, 2nd Series, 183, the United States Court of Appeals, 10th Circuit, held that a similar basis of apportionment was applicable, although one policy was a specific automobile policy and the other was a comprehensive policy.
There are two Scottish, decisions, one dealing with property insurance and one with liability insurance. Scottish Heritable Securities Association v. Northern Insurance Co., (1883) 11 Session Cases (Rettie), was concerned with property insurance and, as the insurers agreed to contribute on the maximum liability basis, the case is of no assistance as a decision of the Court. Sickness and Accident Insurance Association Ltd., (1892) Session Cases (Rettie), 977, was about liability insurance, but, as both policies insured for the same sum, either basis of apportionment would produce equality. Mr Justice Donaldson, however, drew attention to a passage in the judgment of the Lord Ordinary at page 980 in the course of which the contribution between insurers was likened to that between co-sureties. This was an aspect of the matter' much relied on by Mr Dehn in this appeal. I shall deal with...
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