Subrogation & Recovery Law Blog : Insurance Subrogation Lawyer & Attorney : Cozen O'Connor Law Firm : Property Damage & Insurance Commentary

As Lord Mansfield ruled in one of the oldest English authorities on subrogation, payment of the loss by an insurer to its insured does not affect the liability of the wrongdoer. He set forth the basic principle as follows:

“Every day the insurer is put in the place of the insured … The insurer uses the name of the insured … I am satisfied that it is to be considered as if the insurers had not paid a farthing”.

So what was a sophisticated Court in South Africa thinking when, earlier this year, it came to the conclusion in Nkosi v. Mbatha (AR 20/10) [2010] that a third party is able to raise the insurer’s indemnification as a defence to the related proceedings brought in the name of the insured?

In Nkosi, the plaintiff, having been involved in a car accident, was indemnified by her insurers in the sum of SA Rand 16,000 (approximately £1,500). A subrogation action was started but only during cross-examination did the plaintiff declare to the Court that she was proceeding on behalf of her insurers. When asked to give particulars, she refused (no doubt with her Lord Mansfield “Book of Quotes” in hand) on grounds that such information was irrelevant.

It seems that both the first instance Magistrate’s Court and then the Court of Appeal in Pietermaritzburg – both of which would be familiar with English common law as South African law is partly based on its principles – were annoyed by the plaintiff’s conduct finding – incorrectly in our submission - that subrogation was a fact that had to be specifically pleaded and proved to the court.

Fortunately, a very recent decision of a South African court suggests that there has been an appropriate judicial reaction to the Nkosi case. In Smith v Banjo (AR290/10) (12th November 2010) the KwaZulu-Natal Provincial Appeal Court ruled that the involvement of the insurer in a lawsuit is irrelevant and it is, therefore, not necessary to plead such involvement. It found Nkosi to be “clearly wrong” and “not binding on future courts”. Whilst it is pleasing that the South African Courts have remedied a poor decision the fact that the decision in Nkosi was ever made (and supported on appeal) goes to show how there is always a litigation risk. Thankfully now, the South African courts are again “satisfied that it is to be considered as if the insurers had not paid a [Rand]”.
 

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Seasoned subrogation professionals do not need to be told how important it is to attempt to afford potential adversaries the opportunity to inspect a loss site before the site, and evidence on the site, has been significantly altered or disturbed. Making such entreaties to an experienced practitioner essentially amounts to “preaching to the choir”.

However, even the seemingly well-developed body of case law regarding spoliation occasionally finds new frontiers to cross. Until recently, the worst-case scenario in spoliation litigation seemed to be the ominously-named “terminating sanction”, which would result in dismissal of a claim. However, in September 2010, a U.S. Magistrate Judge in Maryland (aptly surnamed “Grimm”) attempted to up the ante and impose sanctions upon a spoliator which could potentially have included up to two years’ imprisonment. Victor Stanley, Inc. v. Creative Pipe, Inc., (D.Md. C.A. No. MJG-06-2662, September 9, 2010).

It is important to note that the conduct at issue in the Victor Stanley case involved a defendant’s willful and methodical destruction of electronic records during the course of litigation, in violation of several specific court orders. The defendant and his cronies were so inept in their attempts to destroy information and then cover up their tracks that Magistrate Judge Grimm dubbed them “The gang that couldn’t spoliate straight”. Such conduct is clearly not even remotely akin to an insurer’s asserted failure to preserve a loss site, or artifacts from the site, to the satisfaction of an eventual defendant in a subrogation claim.

It is equally important to note that, upon appeal from Magistrate Judge Grimm’s Order, the U.S. District Judge’s brief opinion held that imprisonment was not an appropriate sanction under the circumstances (the Court upheld the imposition of a default judgment and assessment of $337,000 in attorney’s fees and costs and left open the possibility of civil contempt penalties - - including imprisonment - - if the monetary penalties were not promptly paid). Nevertheless, Magistrate Judge Grimm’s 89-page Memorandum, Order and Recommendation includes a thorough dissertation on the evolution of spoliation law in the federal courts and a facially plausible discussion regarding selection of sanctions that are proportionate both to the degree of misconduct at issue and to the prejudice to the adversary. This discussion ultimately leads to the Magistrate’s Judge’s endorsement of jail time as an appropriate sanction for discovery misconduct.

Although not pertinent to the facts of the Victor Stanley case, Magistrate Judge Grimm’s analysis leaves open the possibility that a negligent spoliator whose conduct causes great prejudice could be subjected to harsher sanctions than an intentional spoliator whose actions cause little or no prejudice. It is therefore not beyond the pale that an even harsher sanction than the so-called “terminating sanction” could still be in the offing in an appropriate future case.
 

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As in the United States, experts in England and Wales often play a fundamental role in litigation. Their opinions influence whether a case is brought, case strategy and settlement decisions. Experts currently have limited immunity for claims of professional negligence. This immunity extends to evidence given by the expert in court and to work which is preliminary to giving such evidence. This immunity has applied even where an expert has been dishonest with the parties or the court. The rationale is that an expert witnesses should be free to give evidence in court without fear of being sued by a party whose case is lost.

This issue recently came under scrutiny in Jones v Kaney [2010] EWHC 61. The extent of immunity will be considered by the Supreme Court in January 2011, after permission was granted for a “leap-frog appeal”.

In Jones, Dr. Kaney was hired by the claimant, Mr. Jones, to prepare an expert medical report regarding personal injuries he suffered following a traffic accident. Dr. Kaney initially opined that Mr. Jones suffered from post traumatic stress disorder (PTSD). The defendant’s expert disagreed, believing that Jones had exaggerated his physical symptoms. The experts later discussed the case and prepared a joint statement, signed by both experts, saying the claimant was deceitful. Although Dr. Kaney later tried to retract the statement, the court refused and the claim settled for a considerably smaller sum than originally sought. Jones then brought proceedings for negligence against Dr. Kaney, who sought to have the case struck out on grounds of her immunity from suit, applying the Court of Appeals’ decision in Stanton v Callaghan [1999] 2 WLR 745.

Mr. Jones argued that Stanton is no longer good law for two reasons: (1) the immunity can no longer survive in light of the House of Lords’ decision in Arthur Hall v Simons [2000] 3 WLR 543 (where a barrister’s immunity from suit was abolished); and (2) the expert witness immunity is inconsistent with Article 6 of the European Convention on Human Rights, the right to a fair trial.

The Judge found in Dr Kaney’s favour, considering himself bound by Stanton, but said:

“although I conclude that Stanton v Callaghan remains good law, I have doubts as to whether it will continue to remain so for the reasons canvassed by the Claimant…. I conclude that there is a substantial likelihood that on re-examination by a superior court, with the power to do so, it will emerge that public policy justification for the rule cannot support it”.

With permission for the appeal having been granted, there is a possibility that experts’ immunity will be severely curtailed, if not altogether abolished.
 

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Since 1401, English common law has treated fire damage caused by an escape of fire as being actionable by an adjoining owner without proof of fault. This liability was based on custom and on the special duty imposed on house holders to keep their fires safe. The strictness of this liability was the result of a land based feudal economy with closely knit domestic housing arrangements that were susceptible to catastrophic loss from fires that got out of control. 

As people moved out of agricultural communities and into towns and cities, the harshness of the rule became clear. Following the Great Fire of London in 1666, Parliament wanted to redress the imbalance, making man not liable for fire damage that was not caused by his fault. This lead to section 86 of the Fires Prevention (Metropolis) Act 1774, which granted an immunity from liability for accidental fires. The defendant must show that the fire occurred “accidentally,” but the word is not defined in the statute. 

In the case of Filliter v. Phippard (1847) Lord Denman CJ tried to provide guidance on the meaning of the word “accidentally” when he said that such fires should be started “unintentionally” but also “without negligence”. Over the years, this Act and the subsequent case law have been problematic for many claimants.
 

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