(Re)insurance Weekly Update 38- 2017

A summary of recent developments in insurance, reinsurance and litigation law.

Howlett v Davies & Anor: Court of Appeal finds that insurers did not have to plead "fundamental dishonesty" to deprive claimant of benefit of QOCS

http://www.bailii.org/ew/cases/EWCA/Civ/2017/1696.html

The claimants alleged that they had been injured in a car accident caused by the negligence of the defendant. The insurer did not accept that the accident happened (or that, if it did, not in the way that the claimants alleged).

However, the insurer did not go so far as to plead fraud in its defence. That is now a common approach for insurers, following guidance given by the Court of Appeal in Kearsley v Klarfeld [2005] that a defendant "does not have to put forward a substantive case of fraud in order to succeed".

There are various reasons why insurers might prefer this approach, including that they lack direct knowledge of the relevant events and that their lawyers are subject to professional obligations which result in them being slow to allege fraud.

The issue in this case was whether, the judge at first instance having dismissed the claim, the claimants were entitled to the benefit of QOCS ("Qualified one-way costs shifting" which applies in personal injury litigation and results in the claimant having no liability to pay costs if it loses (whereas the defendant must pay costs if it loses)). CPR r44.16 states that QOCS will not apply, with the permission of the court, "where the claim is found on the balance of probabilities to be fundamentally dishonest".

The judge had found that this exception applied, even though fraud was not pleaded in the insurer's defence. The Court of Appeal has now dismissed the claimants' appeal from that decision.

It has held that "the mere fact that the opposing party has not alleged dishonesty in his pleadings will not necessarily bar a judge from finding a witness to have been lying" and that where an insurer has put facts inviting the judge to draw an inference, the judge can conclude not just that the claimant has proven its case, but also (for example) that the accident did not happen: "The key question in such a case would be whether the claimant had been given adequate warning of, and a proper opportunity to deal with, the possibility of such a conclusion and the matters leading the judge to it rather than whether the insurer had positively alleged fraud in its defence".

Here, the insurer had adverted to the possibility of...