Insurers, Privity and Procedure
| Author | N.S. Price |
| Published date | 01 September 1996 |
| Date | 01 September 1996 |
| DOI | http://doi.org/10.1111/j.1468-2230.1996.tb02690.x |
Insurers, Privity and Procedure
N.S.
Price"
Can the owner of a vehicle, who hires it out and provides in the contract of hire for
the hirer to insure the vehicle,
sue
the insurer direct upon the policy of insurance
taken out by the hirer, despite the doctrine of privity of contract, when the vehicle
is lost? This was the substantive question posed in
D
G
Finance
v
Scott and Eagle
Star.'
Despite very clear suggestions2 that in such circumstances a trust of the
policy in favour of the owner should be inferred,
so
that a direct claim will lie, the
Court of Appeal declined to answer this question in the affirmative, at least upon
an application for summary judgment, and the indications are that the question
would receive a final no. In reaching this conclusion, the Court3 declined to follow
not only the leading textbook on insurance law, but a number of dicta, including in
particular the
view
of no less a Chancery judge than Upjohn LJ in
Re
King?
5s
well
as
a
decision of the High Court of Au~tralia.~ Apparently, the Court considered
Re
King
to have been affected by the later decision of the House of Lords in
Hepburn
v
Tomlinson,6
where it
was
held that a bailee could insure to the full value of the
goods bailed to him, not just to the extent of his own interest. This
is,
however,
unexplained and it is not clear how that case affected
Re
King.
The Court rejected the analysis of Judge Nigel Hague QC at first instance, where
he
held that the owner could sue the insurer direct where it was impracticable to
expect the hirer to sue because, for example
(as
in the instant case), he was
bankrupt and the trustee in bankruptcy had no interest in pursuing the matter
because
he
would hold the proceeds of the policy on trust for the owner.7 Relying
on the words of Lord Diplock in a different context,' the Court appears to have
doubted whether there is any trust at all in these circumstances, merely
a
duty to
account on the part of the hirer once the proceeds of the policy have come into his
hands.' The approach by the Court of Appeal on this issue is regrettable since it
denies the owner a direct cause of action in circumstances where justice and
~ ~~
*Solicitor, Kimbell
&
Co (the author acted for the plaintiffs).
1
Court of Appeal, 16 June 1995, Glidewell, Hobhouse, Swinton Thomas LJJ; New Law Reports
Commercial Communication
104.
A
petition for leave to appeal was dismissed by the Appeal
Committee of the House of Lords (Lords Goff, Slynn and Hoffman) on 24 March 1996.
See
McGillivray
and
Parkington
on
Insurance
Law
(London: Sweet
&
Maxwell, 8th ed, 1988), at para
1638. Compare, however, Birds,
Modern Insurance
Law
(London: Sweet
&
Maxwell, 3rd ed, 1993),
at pp 59-60. See
also
Law Commission Consultative Paper No 121,
Privify
of
Contract: Contractsfor
the Benefif of Third Parries
(1991); Beatson (1992)
Current
Legal
Problems
1.
Another approach is
by way of agency, but this may face difficulties if the policy predates the contract of hire.
The single judgment of Hobhouse
LJ
was concurred in by the other two members of the Court.
[I9631
1
Ch 459, 491.
See
also
Hepburn
v
Tomlinson
[I9661
1
QB
21,
47 (Pearson LJ); and Lord
Pearce in the same case on further appeal,
at
[I9661 AC 451,476B.
Trident General Insurance
Co
v
McNiece Bros Pfy
Lfd
(1988) 165 CLR 107; (1988)
80
ALR 574, esp
per
Deane J; Reynolds (1989)
105
LQR
1.
Relying on
Harmer
v
Amrrong
[I9341
I
Ch 65.
The Albazero
[
19771 AC 774, 845.
In
Re
Dibbens
[I9901 BCLC 577, Harman
J
had held that the bailee's duty to account to the owner
was based on
a
fiduciary obligation rather than arising out of
a
trust
srricro sensu
but, according to
Hobhouse LJ, this does not give any right to the owner to pursue the insurer because there is no trust
of the policy
or
fiduciary obligation
on
the bailee to make
a
claim.
8
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2
3
4
5
6 n4 above.
7
8
9
738
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