Quantum Claims Compensation Specialists Limited V. Wren Insurance Services

Pursuers: A. Smith QC, Beynon; Lefevre Litigation

Defenders: Lake QC; Simpson & Marwick W.S.

30 March 2011

[1] This case is about a contract for legal expenses insurance. The pursuers ("Quantum") carry on business in funding and managing civil litigation. In return for a proportion of the damages which may be awarded, Quantum instructs legal representatives to represent its client and indemnifies the client against an adverse award of expenses. The defenders ("Wren") carried on business as insurers and contracted with Quantum to indemnify it against (i) all awards of expenses awarded against Quantum's client in favour of defenders in an action and (ii) outlays incurred by a solicitor acting for the client.

[2] In October 1999 Wren and Quantum entered into an indemnity insurance contract, which had the policy number WLP1999200131. The policy required Quantum to pay the first £10,000 of any claim and provided insurance up to one of four agreed levels of cover. In the action, which I describe below, which it pursued on behalf of Mr John Carter, Quantum elected to take out cover of £100,000. Quantum claims that it is entitled to receive £90,000 (£100,000 less the excess of £10,000). Wren denies liability under the policy. This action is the result of that dispute.

[3] Counsel handled the proof in this action efficiently. I had the benefit of both affidavit and oral evidence from Mr George Alexander Clark, the managing director of Quantum, Mr Thomas David Christie, an insurance broker, and Mr Iain Armstrong QC, who conducted the proof in Mr Carter's case. There was also uncontested affidavit evidence from Ms Gillian Peebles and Mr Derek Reekie. Further matters were agreed in a Joint Minute. As a result the proof lasted only one and a half days.

The relevant terms of the policy

[4] The insurance policy in the Schedule Item VI defined "Defendant" as

"All Defendants subject to a Court action managed by the Insured ... providing such action has been declared to Underwriters in accordance with the Declaration Clause forming part of this policy."

"Legal Action" was defined in the Schedule Item VII as:

"All Court action managed by the Insured ... providing such actions have been declared to Underwriters in accordance with the Declaration Clause forming part of this policy."

The sum insured under the policy was defined in the Schedule Item V in these terms:

"(A) Defendant costs and own disbursements: For a sum insured according to the cover level shown in endorsement 1 but in no circumstances exceeding £150,000 for each Client insured and declared under this policy.

(B) Own costs: not insured."

The Insuring Clause, so far as relevant, provided that in return for payment of the premium the Underwriters agreed to pay on behalf of the Insured:

"all Defendant Costs ordered by the Court to be paid by any Client of the Insured to the Defendant in any Legal Action but not exceeding the Sum Insured ... provided always that the Client and their Legal Action has been declared and accepted by Underwriters."

In the definition section of the policy "Defendant Costs" was defined as:

"All costs, expenses and disbursements ordered by the Court to be paid by the Client in any Legal Action."

The Declaration Clause, so far as relevant, was in the following terms:

"Underwriters agree to include any Client Legal Actions, formally accepted by Underwriters ... subject to the terms and conditions of this Policy, providing the Insured immediately completes a proposal form and sends this to the Underwriters ..."

[5] The insurance policy contained an exclusion clause (Clause 1(k)) that the Underwriters were not liable for:

"any Defendants Costs, Own Disbursements and Own Costs which have been incurred after the Insured and/or their Client becomes aware of any fact or matter which adversely affects the prospect of success in any Legal Action or the quantum of the Claim unless Underwriters have given their prior written consent which will not be unreasonably withheld."

The policy also in its Conditions section (Clause II) stated that if the Insured and/or their Client did not

"comply with any obligation or requirement in the following Clauses then Underwriters shall have no liability under this Policy."

The following clauses included these provisions:

"Conduct of any Legal Action

The Insured and/or their Client shall take all reasonable steps to minimise the costs and expenses payable under this policy and must conduct any Legal Action in accordance with the advice of the Legal Representative and/or counsel and with reasonable speed and economy ..."

"Providing Information to Underwriters

The Insured shall provide (or instruct their Client or any Legal Representative to provide) all information and documentation concerning any Legal Action which Underwriters reasonably request. The Insured and/or their Client must inform Underwriters as soon as possible if they become aware of any fact or matter which adversely affects the prospect of success in any Legal Action or the quantum of the claim."

[6] In accordance with the Declaration Clause in the policy, Quantum completed the proposal form for Mr Carter's action on 22 March 2000. In that form it stated that the defender was Mrs Kathleen Carter. It also stated that the defender might bring into the action as a third party the garage which modified the car shortly before the accident. It estimated Mr Carter's total costs of the action at £20,000 and the defender's costs at £25,000. It sought cover of £100,000 less the excess of £10,000.

The insured litigation
[7] Mr John Carter was seriously injured on 26 May 1997 while he was travelling as a passenger in a car which his wife, Kathleen Carter was driving. Mrs Carter had been suffering from progressive multiple sclerosis. It was admitted in the pleadings that Mrs Carter had earlier suffered an accident through her inability to operate the foot brake. Hand controls had been fitted to her car shortly before the accident. The Summons alleged that Mrs Carter had placed her foot on the accelerator pedal and had been unable to remove it. The vehicle took off at speed, left the road and hit a tree. Mr Carter was admitted to Aberdeen Royal Infirmary on the same day. He thereafter endured headaches and other symptoms and suffered a stroke four or five weeks later. He raised an action for damages against his wife and obtained the assistance of Quantum after the solicitors whom he had initially instructed withdrew from acting for him. Mrs Carter's solicitors, Balfour & Manson, denied that she had been responsible for the accident and stated that they were considering bringing into the action as third parties Harpers Garage and a Mr Wood, who had fitted hand controls to the car but had not fitted a pedal guard. They also enquired whether Harpers Garage or Mr Wood had instructed Mr or Mrs Carter in the use of the hand controls.

[8] On the eve of the triennium, in April 2000, Mr Carter's solicitors instructed junior counsel, Ms Gillian Peebles, to consider Balfour & Manson's suggestion that others were to blame and asked whether they should bring other parties into the action as additional defenders. She prepared a note for the solicitors in which she suggested that it would be better if the defender brought the other parties in as third parties but that the pursuer would have to satisfy himself that he should not convene them as additional defenders. She also expressed concern about the views of Dr Hern, a consultant neurologist, on the causation of Mr Carter's stroke, which I discuss in paragraph [10] below. After discussing the matter with Mr Carter's solicitors, Ms Peebles prepared a Minute of Amendment to introduce as additional defenders (i) Harper Motor Company Limited ("Harper") which was thought to operate Harpers Garage which had supplied and fitted the hand controls, (ii) Harpers (Aberdeen) Limited, an associated company, which might have done so, and (iii) Mr David Wood who was alleged to have fitted the hand controls. She sent a note with a revised Minute of Amendment on 19 May 2000, advising that:

"... the case against the proposed second defender is barely stateable and has been added to prevent difficulties of time bar.

As previously pled it is of dubious relevance and would be unlikely to survive procedure roll debate."

[9] Mr Derek Reekie, who was then a solicitor practising in Russell Jones & Walker, wrote to Quantum on 25 May 2000, enclosing the Minute of Amendment, and stated:

"This case is clearly going to have to be carefully looked at on both liability and causation during the adjustment period and we look forward to receiving precognitions on the matters raised in the Defences and the further Consultant orthopaedic report you are obtaining as soon as these are available."

Quantum was accordingly aware that three additional defenders had been brought into the action.

[10] One of the issues in the action was whether the accident had caused Mr Carter's stroke. Mr Carter's legal team in embarking on the action relied on the opinion of Dr Dijkhuizen, consultant in acute stroke care, that there was a causal connection between the accident and his stroke. They also had other reports from medical practitioners, who treated Mr Carter, in which they expressed similar views. But Dr Hern, who was a consultant neurologist, had expressed the opinion to Mr Carter's previous solicitors that the accident had not caused or contributed to the stroke. Mrs Carter's legal representatives also had expert medical advice from Mr Coleman, a consultant neurologist, which they did not disclose. Neither the previous solicitors nor Quantum revealed Dr Hern's report to Mrs Carter's legal representatives in the course of the litigation....