Sharif and Others v Garrett & Company (A Firm)

Introduction

In February 1985 part of the Appellants' cash and carry warehouse in Birmingham was destroyed by fire. The insurance arranged by brokers (PBL) to cover this risk did not pay and so the Appellants retained the Respondent solicitors to sue PBL. The claim against PBL was struck out for want of prosecution in 1992 and these proceedings against the solicitors followed. Liability was admitted and it was agreed that if the Appellants' claim against PBL had succeeded they would have recovered losses resulting from the fire of at least £842,000 plus interest. However, on the assessment of damages His Honour Judge Perrett, QC held that the only losses they were entitled to recover were the premium paid for the insurance (about £12,000) and the costs paid to the solicitors (about £11,000) plus interest. The Appellants appeal with the permission of this court saying the Judge was wrong to conclude that their prospects of recovering their uninsured losses from PBL were negligible. They say their prospects were good and the Judge should have awarded them substantial damages for loss of a chance.

The Insurance

In view of the Judge's unchallenged finding that the Appellants would have established negligence against PBL, it is not necessary to relate the insurance history at great length. However, the Appellants had a poor claims record. Between 1977 and February 1983 they were insured by the Phoenix who paid a flood claim of £14,000 in 1977 (in respect of other premises), a flood claim of

£37,000 in May 1982 and a fire claim of £1.3m. in August 1982. In February 1983 the Phoenix declined to renew cover for the cash and carry warehouse without saying why. The Appellant then obtained cover from INA for twelve months but INA declined to renew, apparently as a result of information they had received from the Phoenix, which they refused to divulge. At this stage PBL were approached to try and arrange cover and purported to have done so for twelve months from 23 March 1984 through a company or firm called MGM whom, it was claimed, held binding authorities from a number of major insurance companies. In fact MGM had no such authority and in October 1984 they informed PBL that the risk had been transferred to a company called St. Eustatius. This company was registered in the Dutch Antilles. The Appellants were simply advised by PBL in November 1984 that the cover should be placed elsewhere as soon as possible.

The Judge found that the Appellants:

were misled from the date of supposed inception of the MGM policy into believing that they were viably insured against the perils in respect of which they had paid a premium. No prudent insurance broker should have assumed in those circumstances that cover had been successfully effected; still less should a prudent insurance broker have been cajoled into assuming that cover was transferred to St. Eustatius ……

I find therefore that had the action come to trial the Claimant would have succeeded in establishing that PBL were negligent in allowing the Claimants to suppose and in themselves believing that there had at any time been viable and/or continuing insurance cover against the perils paid for by the Claimants for the period in which the fire occurred.

PBL's documents show that between November 1984 and the date of the fire they approached a firm of Lloyds' brokers in London and two insurance companies and a broker (Stewart Wrightson) in Birmingham who were unable to place or declined to accept the risk.

The proceedings against PBL.

The solicitors were retained soon after the fire. As well as PBL, St. Eustatius, MGM and their principal were defendants to the proceedings which were started in March 1986. By this time St. Eustatius had refused to pay the fire claim on the ground, among others, that the Appellants had failed to disclose the 1977 flood claim. They had also contended that cover was limited to £750,000. 6. The statement of claim settled by counsel alleged that St. Eustatius were liable for the full value of the claim and that the 1977 flood claim was not material. The claim was put against PBL in the alternative on the basis that, if the 1977 flood claim was material, it had not been disclosed on the proposal form on PBL's advice and that they had failed to inform the Appellants that their cover was limited. It was alleged that if the Appellants had been informed that their cover was limited to £750,000, they would have obtained additional or alternative cover.

Soon after the proceedings were issued St. Eustatius went into liquidation and it became clear that they and the other Defendants, apart from PBL, were not worth suing.

By 16 April 1987 the solicitors were reporting to the Appellants' loss adjusters as follows :

After several conferences with counsel and our insurance expert, we take the view that there are reasonable prospects of success ……

This is the only record of their having expressed any view about the merits of the claim. It is common ground that at no stage did they advise the Appellants that their claim was hopeless or likely to fail. Indeed from this time right up to the time when the claim was struck out they were saying to the Appellants that they thought that PBL's solicitors were likely to make an offer of settlement.

Following the conferences referred to in the letter to the adjusters, counsel drafted an amended statement of claim which was served in July 1987 so, as he said, " to re-cast the claim in order to make (PBL) the primary target". To this end he deleted the allegations relating to the St. Eustatius cover and PBL's responsibility for its avoidance and/or limitation and alleged that PBL were negligent in much the same way as the Judge found. The consequences of this negligence were pleaded as follows :

By reason of the…… breaches………. The Plaintiffs at all material times until the said fire believed themselves to be insured. In the circumstances they took such normal precautions as a prudent insured should take as follows …… Had they realised they were not insured they would have taken the extreme precautions that they have taken since the fire (which are set out below) and would have avoided the damage they suffered……

In the advice which accompanied the draft amendment counsel noted (as was the fact) that the claim was now very different and that its success depended upon the court accepting the expert's view that PBL had been negligent. He continued :

Causation is also a crucial question. Of course an insured is required to take all reasonable precautions. Might a man not take extreme precautions if he knows that he is not insured which he might not take if he thought he was insured ?…… If the expert is adamant that the client would be expected to take the same precautions whether he was insured or not, it would be difficult if not impossible to establish liability.

It is clear from the documents that the expert was not prepared to alter his views on this point. What is not clear is why counsel did not at this stage plead that if the Appellants had been told that they were not insured, they would have obtained other cover or other cover on terms. This was a question which had been considered by the expert and which counsel specifically dealt with when he later advised in 1989. He described one of PBL's real defences as :

Plaintiffs have suffered no damage …… since their claims record was so poor that they would not have obtained other insurance anyway and (PBL's) strenuous efforts in about November and December 1984 …… were unavailing.

He continued :

This is a substantial defence and one which I find very troubling. The Plaintiffs could lose on this point and, as a result, be landed with all the costs of the action. There appear to be two possible answers to it. Our expert suggests that (PBL) should have selected their most likely, friendly (i.e. supportive) insurer and asked what improvements in security would enable the risk as thus improved to be acceptable despite the claims record. The documents disclosed by (PBL) indicate that this was not done. What likelihood was there in the circumstances that such a course might have proved successful ? This is of course a matter of speculation. What is our expert's view as to this ? If he feels that there was a reasonable chance and can back up his opinion with examples, the client would, at the very least, be entitled to damages for loss of that chance through the breach of contract and negligence of (PBL). The value of such a chance would be assessed as a percentage of the total recoverable damage suffered. As the claim is very substantial the damages recovered under such head would also be substantial. It is essential that the expert is consulted as to this as soon as possible. If, having seen the efforts made by (PBL) he comes to the conclusion that there was no chance of placing the insurance anywhere else, we would have to fall back on the second of our two answers.

That was a reference to the point which had been pleaded to the effect that if they had known they were uninsured the...