Professional Negligence and Liability update

This article reviews two recent United Kingdom cases of interest to those who defend and insure professional negligence and liability claims.

Norman Hay PLC (Norman Hay) is a global entity with group companies located in different jurisdictions throughout the world. Its employees frequently travel for business purposes. It retained Marsh to advise on and place its global insurance programme.

On 22 November 2018, an employee was involved in a road traffic accident in the US whilst driving a rental car without insurance. The accident resulted in serious injury to the driver of another car. The injured party brought a proceeding against Norman Hay alleging that the crash was caused entirely by the negligence of its employee. Norman Hay settled the claim for USD$5.5 million.

Norman Hay was uninsured for the accident. It brought a claim against Marsh for failing to arrange insurance that it said would have indemnified it for the injured party’s claim. Alternatively, Norman Hay said it lost the opportunity to obtain insurance cover that would have responded. Further, that Marsh ought to have identified that senior employees of Norman Hay frequently hired cars while on business trips for which adequate liability insurance was required.

Marsh applied, unsuccessfully, to strike out the claim, or for summary judgment in its favour. This required the Court to determine whether Norman Hay had reasonable grounds for bringing the claim and whether it had a real prospect of success.

A key issue was the application of Dalamd Limited v Butterworth Spengler Commercial Limited [2018] EWHC 2558 (Comm). Dalamd’s insurer refused cover because, firstly, there had been non-disclosure and misrepresentation, and, secondly, a breach of an external storage condition in the policy. Dalamd accepted the declinature and did not pursue the insurer. Instead, it brought a claim against its broker (Butterworth) alleging that it had negligently failed to pass on information to the insurer resulting in the non-disclosure.

The Judge in Dalamd had to decide how the Court should approach the insurer’s alternative ground for denying cover (i.e. the breach of the storage condition). Dalamd argued that the question of whether the insurer would have pursued that alternative defence and been successful at trial should be decided on a ‘loss of chance’ basis. The Judge disagreed and held that where the broker alleges that the claim would have failed anyway (because the insurer has an alternative defence), the causation analysis has two stages. The Court must first decide if the insurer’s alternative ground would have succeeded at trial. This is determined on the balance of probabilities. If so, the second question is whether the insurer would have pursued this point and what would have been the result. This requires a loss of chance analysis.

In Norman Hay, Picken J held that Dalamd should not be treated as authority, that the only way in which a claim against an insurance broker can succeed is if the Court is persuaded, on the balance of probabilities, that the claimant (i.e. the insurance broker’s customer) would have recovered under the assumed policy of insurance which, but for the broker’s negligence, would have been in place. Picken J distinguished Dalamd. Dalamd had a policy of insurance which might have covered the loss. However, the insurer disputed liability because of material non-disclosure and/or beach of a condition. Dalamd elected only to pursue the broker. In Norman Hay, however, the group companies did not have any relevant insurance.

Picken J said it would be open to Norman Hay to invite the trial Judge to conclude that, had a liability policy been in place which covered risk of accidents causing injury, then Norman Hay would have obtained an indemnity either:

• In full (if Norman Hay can establish that it was liable to the injured party as she alleged); or
• For a lesser amount assessed on a loss of chance basis because the Court is persuaded that it is likely the supposed insurer would have taken a pragmatic and commercial stance which would have seen it pay a partial indemnity.

Norman Hay was decided in the context of an application for strike out or summary judgment. It therefore reflected Picken J’s view that Norman Hay’s arguments were at least arguable. The decision confirms a different causation analysis is needed depending on the particulars facts as to whether there is insurance. Where a broker fails to secure insurance to cover a particular risk, the Court may evaluate the chance of the broker’s client making a recovery.

This decision has been appealed to the Court of Appeal with the hearing set down for January 2025.

The second case is a decision of the Court of Appeal in Miller v Irwin Mitchell LLP [2024] PNLR 17.

We start with a recap of three general principles relevant to the liability of professionals:

1. Where there is a contractual retainer in place, a professional’s duty of care is limited to carrying out work specifically agreed with the client. A solicitor owes no duty to go beyond the scope of their express instructions and give advice in relation to other matters.
2. However, a duty may extend to matters which are reasonably incidental to tasks undertaken – see, for, example, Gilbert v Shanahan [1998] 3 NZLR 528. There must be a “close and strong nexus” between the retainer and the matter upon which it is said that the professional should have advised.
3. Where there is no retainer, but a professional undertakes responsibility for a particular task, a professional may be taken to have voluntarily assumed a legal duty. This is a fact specific inquiry.

Carol Miller suffered a serious injury after she fell down some stairs at a hotel whilst on holiday in Turkey on 13 May 2014. As a result, she suffered an open fracture to her leg and underwent emergency surgery. Unfortunately, she later developed an infection that led to amputation of her lower leg in November 2015.

Mrs Miller’s package holiday was purchased through a travel operator, Lowcost. Lowcost did not own or operate the hotel itself; it had booked it through an intermediary known as LTS. The holiday contract required Lowcost to take reasonable skill and care to arrange for the provision of facilities. It would be liable for any personal injury sustained due to negligence by its suppliers.

At the time of the accident, Lowcost was insured by HCC. The policy required Lowcost to notify HCC of any accident that might give rise to a claim. It also had to pay and exhaust an annual aggregate excess of £560,000 before HCC would indemnify it for any claims. Although LTS informed Lowcost of the accident on 15 May 2014, Lowcost did not notify HCC at that time.

Six days after the accident, after seeing a television advert, Mrs Miller called Irwin Mitchell’s legal helpline on 19 May 2014. The legal helpline adviser provided Mrs Miller with a high-level summary of personal injury law. She confirmed that the limitation period to bring a claim for damages for personal injuries is three years. However, the adviser did not inform Mrs Miller of the requirement to notify Lowcost of her injury, as required by the Lowcost insurance policy.

The adviser referred the matter to Irwin Mitchell’s International Travel Litigation Group who sent Mrs Miller a letter on 20 May 2014 requesting further information and documents. Mrs Miller did not provide the requested documents until April 2015. She did not formally instruct Irwin Mitchell and agree a letter of engagement until 25 January 2016. Irwin Mitchell then sent a letter of claim to Lowcost on 22 February 2016, requesting that Lowcost notify its insurers of Mrs Miller’s claim. Lowcost then notified HCC of the claim. However, HCC declined cover due to Lowcost’s late notification and non-compliance with the excess clause. Lowcost went into administration in July 2016.

Irwin Mitchell concluded there was no prospect of recovery from HCC and notified Mrs Miller accordingly.

The trial Judge:

1. Found that even if HCC had been notified of the accident on 8 April 2015, it would have declined cover under the policy for late notification.
2. Accepted expert evidence that HCC would have refused cover if it was prejudiced by the late notification.
3. Found that HCC’s ability to investigate the accident had been substantially prejudiced by the lack of immediate notice.

Mrs Miller accepted there was no retainer with Irwin Mitchell at the time she spoke to the legal helpline in May 2014. Irwin Mitchell’s 20 May 2014 letter specifically stated that only once Mrs Miller had provided the necessary documents would they “discuss whether Irwin Mitchell was able to accept her case”.

The Court of Appeal found that Irwin Mitchell owed Mrs Miller a duty of care regarding the advice it did give to her. However, it rejected her attempts to extend the duty beyond that. In particular, Irwin Mitchell did not owe a duty to advise Mrs Miller to notify Lowcost of the accident, or to do so themselves, prior to sending the letter of claim in February 2016. By this time the policy would not have responded.

The High Court Judge was entitled to find that the parties only started to behave as if they were in a solicitor/client relationship after the letter of engagement was sent in January 2016.

Mrs Miller’s case on appeal focused solely on the conversation with the legal helpline adviser on 19 May 2014 as giving rise to a duty of care based upon a voluntary assumption of responsibility. She argued that, by telling her that the limitation period for a personal injury claim was three years, Irwin Mitchell assumed a duty to advise her to take reasonable steps open to her to protect her position, including notifying Lowcost and the insurer. On the other hand, Irwin Mitchell contended that any duty was narrow and confined to the matters advised upon during the call.

In Spire Property Development LLP v Withers LLP [2022] EWCA CIV 970, Carr LJ provided a helpful summary of when a solicitor will voluntarily assume responsibility. The issue in that case was whether the trial Judge had been right to find that where the solicitors had answered questions from former developer clients relating to rights concerning access requirements for electrical cables on private land, the solicitors had assumed wider duties. The solicitors accepted that they had assumed a duty of care to exercise reasonable skill and care in answering the specific questions posed. However, they argued they had assumed no wider duty to advise on the developers’ rights and remedies. Carr LJ said:

The concept of assumption of responsibility as identified in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (‘Hedley Byrne’) remains the foundation of the tortious liability. The reference to ‘voluntary’ assumption in Hedley Byrne (at 529 and 530) must not be taken to mean that the solicitor needs to consent to the claimant placing responsibility on them. Rather, the doing of the act implies a voluntary undertaking to assume responsibility. Thus a solicitor is taken to have voluntarily assumed a legal responsibility where they undertake responsibility for a task: ‘it is the undertaking to answer the question posed which creates the relationship’ (see White v Jones at 273g). The fact that information or advice is provided gratuitously negates neither the assumption of responsibility nor the requirement to perform the tasks so assumed with reasonable skill and care.

Whether any responsibility is assumed, and the extent of any such assumption, is to be judged objectively in context and without the benefit of hindsight. Thus, an objective test will be applied when asking the question whether, in a particular case, responsibility should be held to have been assumed by the defendant to the claimant (see Henderson v. Merrett Syndicates Ltd (No 1) [1995] 2 AC 145 at [181], endorsing Caparo Industries plc v. Dickman [1990] 2 AC 605 at 637). The primary focus must be on exchanges which cross the line between the solicitor and the claimant (see for example Williams v Natural Life Health Foods [1998] 1 WLR 830 (‘Williams’) at 835G). A fact-sensitive enquiry in each case is necessarily required.”

The Court of Appeal determined that Irwin Mitchell had only assumed a duty to give high-level preliminary advice. They accepted a solicitor might come under a duty to inform a prospective client of any obligatory legal steps needed to preserve a claim (e.g. the need to raise a claim prior to a limitation date). Irwin Mitchell’s helpline had done that. Their pre-retainer duty of care did not extend to providing Mrs Miller with advice about the steps she might reasonably take to protect her position generally.

Irwin Mitchell confirms that professionals, particularly solicitors, can assume wider duties of care than they intend. Professionals need to be careful about giving advice informally before the opportunity to define and circumscribe the professional’s obligations. The outcome will turn on the specific facts in question. Irwin Mitchell was fortunate that its legal adviser had made it clear that the initial advice on the legal helpline was general and preliminary and that detailed advice relating to the specific circumstances of the case would follow once the specialist legal team had examined the matter in more detail.

This publication is intended as a general overview and discussion of the content dealt with. It should not be used in any specific situation, in which case you should seek specific legal advice.