Insolvency and Contribution Claims make uneasy companions in the professional liability sphere. The latest proof is the judgment of Master Brightwell on Monday this week in Riedweg v HCC International Insurance plc & Ors [2024] EWHC 2805. Helen Evans KC explains the challenge that emerged in that case – and how variations of it have manifested themselves elsewhere.
The Riedweg case concerned a claimant bringing proceedings against a professional liability insurer under the Third Parties (Rights Against Insurers) Act 2010. S. 1 of the TPRA effectively “cuts out” the need to sue an insolvent professional company and lets claimants sue their insurers directly. That is all well and good – until the insurers want to bring a Contribution Claim, for instance against another professional adviser as defendant.
Under the Civil Liability (Contribution) Act 1978 (“the Contribution Act”), such a claim needs to satisfy what is sometimes called the “Royal Brompton Triangle”- i.e. the person bringing the Contribution Claim and the defendant to that claim (at the bottom two corners of the triangle) both need to be liable to the same person, usually a client in this sort of dispute (at the top of the triangle)[1]. Further, under s. 1(1) of the Contribution Act that liability needs to be in respect of the “same damage”.
But where the person bringing the Contribution Claim is an insurer rather than a professional itself as a result of the TPRA, how is that supposed to work? The insurer in question never owed any duties to the client at the time of the work, and furthermore is only liable because of the TPRA.
In Riedweg, Master Brightwell found that the Contribution Claim failed the “same damage” test. At para. 31 he observed that “an insurer does not inflict damage on anyone”, and that “the only damage it is capable of inflicting is in refusing to meet its obligations under the policy of insurance.” He concluded that it did not follow from the fact that the insured professional had the right to seek a contribution from others that its insurer would also have that right. He said:
“I consider that the purpose of the 2010 Act [i.e. the TPRA] is to provide a mechanism for a claimant to pursue an insurer directly in respect of the liability of its insured, and for the claimant to stand in the insured’s place for that purpose. The insurer’s liability is still that which flows from its obligations to the insured, which can only be to indemnify the insured against its liability to a third party. The insurer does not become liable to the third party for the damage caused or allegedly caused by its insured, which it did not inflict.”
This issue may not be as niche as it seems. Indeed, it forms one of several insolvency related conundrums that arise from time to time in Contribution Claims. Particular problems can emerge where insolvency legislation confers particular causes of action or remedies- such as claims relating to wrongful trading, or setting aside transactions at an undervalue or preferences (eg under s. 214, 238 and 239 of the Insolvency Act 1986).
If insolvency practitioners bring such a claim in their own name against, say a director of a company, and the director in question wants to sue a professional who they say was implicated, they have a different “Royal Brompton Triangle” problem. Here, the problem is that the person who would need to be at the top of the “Royal Brompton Triangle” in each instance is not the same (the directors having been sued by the insolvency practitioner and the other professional owing a duty to the company itself).
This situation was considered some years ago in Cohen v Davis [2006] PNLR 33, where Contribution Claims that had their foundation in s. 214, 239 and 240 of the Insolvency Act failed at the strike out stage. The court took the view that those provisions hand insolvency practitioners claims or remedies which are distinct from claims that the companies had themselves.
The Contribution Claim stemming from misfeasance allegations under s. 212 of the Insolvency Act did, by contrast, survive. That was because s. 212 was seen as being of a different character to the other Insolvency Act provisions under debate.
Often the answer to this type of challenge lies in assignments, insurers’ rights of subrogation (depending on timing), or similar. But the issues caused by insolvency in Contribution Claims– and the recent judgment in Riedweg- reinforce the impression that there is no other short piece of legislation that gives rise to more challenges than the Contribution Act.
© Helen Evans KC, 4 New Square Chambers
13 November 2024
Disclaimer: this article is not to be relied on as legal advice. The circumstances of each case differ and legal advice specific to the individual case should always be sought.
[1] Royal Brompton Hospital NHS Trust v Hammond [2002] 1 WLR 1397.
