Post Office v Norwich Union Fire Insurance Society Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
Judgment Date18 January 1967
Judgment citation (vLex)[1967] EWCA Civ J0118-2
Date18 January 1967

[1967] EWCA Civ J0118-2

In The Supreme Court of Judicature

Court of Appeal

Civil Division

From Mr. Justice Donaldson


The Master of the Rolls

(Lord Denning)

Lord Justice Harman and

Lord Justice Salmon

Post Office
Norwich Union Fire Insurance Society

MR HUGH GRIFFITHS, Q. C. and MR LAN WARREN (instructed by Messrs William Easton & Sons, Agents for Messrs Mills & Reeve, Norwich) appeared as Counsel for the Appellants.

SIR JOHN HOBSON, Q. C. and MR J. NEWEY (instructed by Mr J. P. Ricks, Solicitor to the Post Office) appeared as Counsel for the Respondents.


The Post Office have a telegraph cable laid in the ground underneath St. John's Street, Huntingdon. In May 1963 some contractors called Potter & Company Ltd, were proposing to dig a hole in the street so as to find a water main. On the 20th May their representative met the Post Office engineer on the site and discussed the position of the cable and the proposed excavation. On the 24th May Potters were carrying out the work when they struck the cable and damaged it. The Post Office claimed damages against Potters and sent in a bill for £839. 10s.3d. for repairing the cable. Potters refused to pay. They said that it was the fault of the Post Office because their engineer pointed out the wrong place.


Thus far it looked as if there would be an action by the Post Office against Potters to decide liability and the quantum of damages. But before the Post Office brought any action, on the 1st June, 1964, Potters went into liquidation. The Post Office considered the position. They found out that Potters were insured with the Norwich Union Fire Insurance Society Ltd. under a public liability policy, i.e. covering their liability to third persons. On the 17th June, 1965, the Post Office brought an action. They brought it, not against Potters, the wrongdoers, but against Potters' insurers, the Norwich Union. The Post Office claimed that, once Potters went into liquidation, they were entitled to sue the Insurance Company direct. They had no right to do so at common law because there was no contract between them. But they claimed a right under the Third Parties (Rights against Insurers) Act 1930. The Insurance Company denied that the Post Office could claim against them direct. The point was set down as a preliminary point. Mr Justice Donaldson held that the Post Office could sue the Insurance Company direct. The Insurance Company now appeal to this Court.


In the days before the 1930 Act, when an injured person got judgment against a wrongdoer who was insured, and the wrongdoer then went bankrupt, the injured person had no directclaim against the insurance moneys. He could only prove in the bankruptcy. The insurance moneys went into the pool for the benefit of the general body of creditors: see in Re Harrington Motor Co., 1928 Chancery, page 105: applied in Hood's Turstees in the same volume at page 793. That was so obviously unjust that Parliament intervened. In the 1930 Act the injured person was given a right against the Insurance Company. Section I says that: "Where under any contract of insurance a person is insured against liabilities to third parties which he may incur", then in the event of the insured becoming bankrupt if he is an individual, or, in the case of the insured being a Company, in the event of a winding-up, then "if, either before or after that event, any such liability as aforesaid is incurred by the insured, his rights against the insurer under the contract in respect of the liability shall, notwithstanding anything in any Act or rule of law to the contrary, be transferred to and vest in the third party to whom the liability was so incurred".


Under that section the injured person steps into the shoes of the wrongdoer. There is transferred to him the wrongdoer's "rights against the insurers under the contract". What are those rights? When do they arise? So far as the "liability" of the insured is concerned, there is no doubt that his liability to the injured person arises at the time of the accident, when negligence and damage coincide. But the "rights" of the insured against the insurers do not arise at that time.


The policy says that "the Company will indemnify the insured against all sums which the insured shall become legally liable to pay as compensation in respect of loss of or damage to property". It seems to me that the insured only acquires a right to sue for the money when his liability to the injured person has been established so as to give rise to a right of indemnity. His liability to the injured person must be ascertained and determined to exist, either by judgment of the Court or by an award in an arbitration or by agreement. Until thatis done, the right to an indemnity does not arise. I agree with the statement by Mr Justice Devlin in West Wake Price & Co. v. Ching, 1956, 3 All England Reports, page 825: "The assured cannot recover anything under the main indemnity clause or make any claim against the underwriters until the assured have been found liable and so sustained a loss".


Under the section it is clear to me that the injured person cannot sue the Insurance Company except in such circumstances as the insured himself could have sued the Insurance Company. The insured could only have sued for an indemnity when his liability to the third person was established and the amount of the loss ascertained. In some circumstances the insured might sue earlier for a declaration, e.g. if the insured company were repudiating the policy for some reason. But where the policy is admittedly good, the insured cannot sue for an indemnity until his own liability to the third person is ascertained.


It appears that in Hood's Trustees, 1928 Chancery, page 793, in the course of the argument it was assumed on both sides and by the Judge that the insured obtained a cause of action against the Insurance Company at the time when the accident happened. I think that assumption was incorrect. The decision in Hood's case itself can be supported on other grounds, namely, that after the first bankruptcy there was a subsequent judgment against the bankrupt ascertaining the amount. Once that judgment was obtained against the bankrupt, he had a right to indemnity against the Insurance Company and this right vested in the first trustee in bankruptcy under Section 38(1)(a) of the Bankruptcy Act, 1914. It seems to me that, unless that judgment had been obtained, there would have been no right to an indemnity.


But there is a further point. When the rights of the insured are transferred to the injured person, they are transferred on the ordinary understanding, that is, subject to such conditions as the contract provides. Under Condition 3 of this policy it is stipulated that: "No admission offer promisepayment or indemnity shall be made or given by or on behalf of the insured without the written consent of the Company which shall be entitled if it so desires to take over and conduct in the name of the insured the defence or settlement of any claim". In the face of that condition I do not see how the insured could sue the Insurance Company before his liability is ascertained. He is not at liberty to say: "I admit I am liable and therefore I ought to recover an indemnity". He cannot make that admission: and therefore cannot sue.


In these circumstances I think the right to sue for these moneys does not arise until the liability is established and the amount ascertained. How is this to be done? If there is an unascertained claim for damages in tort, it cannot be proved in the bankruptcy: nor in the liquidation of the Company. But nevertheless the injured person can bring an action against the wrongdoer. In the case of a Company, he must get the leave of the Court. No doubt leave would automatically be given. The Insurance Company can fight that action in the name of the wrongdoer. In that way liability can be established and the loss ascertained. Then the injured person can go against the Insurance Company.


In confirmation of this view, I would remark that at the time when the 1930 Act was passed, the practice in these Courts was to keep secret the fact that the defendant was insured. It was misconduct on the part of counsel to indicate to the jury that the defendant was insured. If this Act had enabled the injured person to sue the Insurance Company direct, before liability was ascertained, it would have cut...

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