Causation: Recovery By Insurers From Loss Adjusters

A recent case in the Technology and Construction Court provides a warning to insurers who are dealing with a troublesome insured under a household policy, to make sure that reinstatement works covered by the policy are clearly defined.

The case concerned an insured's attempt to make the Insurer, Axa, pay for extensive remedial work to their house, whilst the Insurer carried out reinstatement work under the policy to deal with subsidence.

Following the settlement of a dispute between the Insurer and the Insured, the Insurer tried to recover its losses (which it said amounted to £1.5 million) from a firm of loss adjusters on the claim. The Insurer alleged that the loss adjuster's extensive breaches of contract led to a situation in which the only way out for the Insurer was to do whatever was necessary to make the Insured's house habitable.

The Judge held that in spite of several breaches of contract by the loss adjuster, the Insurer had not established the loss adjuster's breaches had caused the Insurer's loss, and therefore the Insurer's entitlement to damages was limited to the sum of approximately £283,000.

The judgement involves a consideration of the principles of remoteness, causation and reasonable settlement.

The Insurer's claim against the loss adjuster

The Insurer alleged it would not have incurred very substantial expenditure but for the loss adjuster's breaches of contract. The Insurer claimed it incurred expenditure of £1.5m, against the £72,000 which it said would have been incurred if there had been no breaches by the loss adjuster.

The Judge found the loss adjuster had committed 13 of the alleged breaches of contract (of which there were 21 in total). The breaches included the use of lintels for crack repairs and poor plasterwork. However it was necessary for the Judge to consider the principles of remoteness; causation; reasonable settlement and general damages in order to determine the extent of the adjuster's liability.

RemotenessFollowing existing case law, the Judge noted a claimant has to show it is reasonable to recover the damages claimed; and provided the claimant can be shown not to have acted unreasonably, it will not have failed to mitigate its loss. By way of illustration the Judge quoted from another case:"[the claimant] is fully entitled to be as extravagant as he pleases but not at the expense of the defendant". The Judge found the Insurer spent considerably more in resolving the problems at the house than was...