Hay Day at the Court of Appeal

On 30 January 2025, the Court of Appeal gave its judgment in Norman Hay Plc v Marsh Limited.  Marsh had appealed against Mr Justice Picken's decision, in which he refused their application for summary judgment and/or to strike out the claim. The appeal was dismissed, the court concluding the issues should be addressed at trial. 

Background

The claim arose out of a road traffic accident in Ohio, where an employee ("Mr Kelsall") of Norman Hay's German subsidiary ("the Subsidiary") was driving a hire car, uninsured. Mr Kelsall was involved in a fatal accident whilst driving on the wrong side of the road. The driver of the other vehicle, Ms Sage, sustained serious injuries. 

Before Ms Sage issued proceedings, Norman Hay decided to sell its subsidiaries, including the Subsidiary. As part of the sale, Norman Hay had to indemnify the purchaser for any claims brought by Ms Sage. A GB sterling sum equivalent to US $8m was taken off the purchase price and paid into escrow. Norman Hay eventually settled Ms Sage's claim for US $5.5m ("the Sage Claim") which was paid from the escrow account, reducing the sum received for the sale.

Claim by Norman Hay against Marsh

Norman Hay alleges that Marsh, as their insurance broker, failed to adequately assess their insurance needs, which included coverage for employees driving hire cars in the US. They claim that if such coverage had been in place, it would have covered the Sage Claim. 

The Alternative Bases

In the alternative, Norman Hay contends that:

• had it been advised that that cover would not have been possible, it would have advised its employees they needed to arrange suitable cover individually when hiring cars or to use private hire vehicles. Accordingly, adequate cover would have been in place to cover claims in the event of any accidents. Alternatively, the accident itself would have been avoided because an employee would not have been driving. 
• the Subsidiary did have 'non-owned auto cover' (a liability only policy for drivers of hire cars), prior to the inception of the global liability policy which had been arranged for Norman Hay by Marsh. However, Marsh advised Norman Hay to cancel that cover.  Norman Hay contend Marsh should have advised on the impact of that and, had they done so, Norman Hay could have ensured that coverage was in place for the Sage Claim.

Marsh's defence

Marsh denies the allegations, asserting that it was Norman Hay's responsibility to provide all relevant information relating to its business such that Marsh could identify appropriate coverage.  Marsh asserted that 'non-owned auto cover' is not typically included in UK liability policies and therefore they were not obligated to advise on it. Marsh also argued that Norman Hay failed to prove liability to Ms Sage, which was grounds for striking out the claim. 

The first instance decision

Mr Justice Picken distinguished claims against insurance brokers from those against insurers under liability policies. He emphasised the need to investigate the counterfactual scenario – namely, what would have happened if the hypothetical policy which the broker had failed to arrange, had been in place. 

Mr Justice Picken stated that this investigation required a trial and was not suitable for summary judgment/strike out.  He also confirmed that proving liability to the third party was not the only issue to consider; it was also necessary to look at the insurer's potential commercial view on the claim. This means undertaking a "broader inquiry" going beyond the strict contractual position under the putative insurance policy.

The Appeal

Marsh appealed, alleging the Judge had erred in finding that the determination of the counterfactual was essential. Marsh contended that Norman Hay's failure to plead that it was liable to Ms Sage was fatal to the negligence claim against Marsh. They relied on the fact that in order to be indemnified under a liability policy, the insured must establish there is a liability to the claimant. Marsh asserted that the hypothetical policy would not have responded, as no such liability had been established, and the claim against Marsh should be struck out. 

The Court of Appeal decision

What policy?

The parties were criticised for prematurely focusing on causation and loss without first establishing what Marsh should have done, which Lord Justice Males described as putting 'the cart before the horse'.  

To decide if a broker's breach of duty caused loss, it is imperative to understand what the defendant broker should have done.  This would include an assessment of the instructions given to Marsh, the scope of responsibility which they undertook and what advice a reasonable broker would have given with regards to 'non-owned auto' cover for hire cars in the US. This assessment, the Court of Appeal deemed, is not possible without a detailed analysis of the facts. The Court of Appeal further held that to understand the standard of care owed by a reasonable insurance broker, expert broking evidence would be required.   

Lord Justice Males noted that Norman Hay's pleadings did not specify that Marsh should have arranged a 'conventional liability policy'. For that reason alone, it was not possible to say that any claim under a putative policy would have failed, given that it was not pleaded that the putative policy would have been a liability policy. 

The Court of Appeal outlined that, when assessing whether a broker has been negligent in failing to arrange a policy, the court would also need to understand:

• the type of policy the claimant is alleging should have been placed;
• whether that type of policy would be available; 
• what the putative insurer would have done, when presented with the claim; and
• the premium which the insured would pay. 

This type of in-depth analysis needs to be done at trial and, accordingly, the Court of Appeal agreed that this was not a matter for summary judgment/strike out. 

Conventional liability policies 

The Court of Appeal did confirm that conventional liability policies only respond when the insured is actually liable to the third party. The fact that the insured settled a claim with a third party does not mean that the insured was liable, or that the insurer has to pay. 

The cases of Dunbar v A & B Painters Ltd [1986] and Perry v Raleys [2019] were cited in support of this view. Namely, there were issues the claimant needed to prove on a balance of probabilities (ie what the claimant would have done) and those that require a loss of chance evaluation (ie what others would have done). 

The Court of Appeal's analysis made it clear that in this case, what others would have done was an inquiry that was to be held at trial. 

Conclusion

In brokers' E&O claims, where the claimant alleges they have been left without insurance as a result of the broker's negligence, the court must determine, on a loss of chance basis, what would have occurred had there been no breach by the broker. This determination of the counterfactual can take into account commercial factors (such as the insurer's commercial relationship with its insured), to assess what the putative insurer would have done when faced with the claim. In such scenarios, the Court is not confined to assessing purely the strict contractual position under the terms of the hypothetical insurance policy. 

The Court of Appeal was careful, however, to confirm that the liability of the insured to the third party can still be a relevant factor (albeit not the only factor) in assessing the claim. Citing Perry v Raleys, there needs to be real and distinct possibility of the claim succeeding, rather than merely negligible prospects of success.  For our detailed analysis on the Perry v Raleys decision, see here. 

Whilst there is not yet any decision as to whether Marsh was, in fact, negligent, the court is clear in its approach that brokers can arguably be held liable for depriving their clients of the 'opportunity' to recover under a hypothetical policy, even when direct causation is difficult to establish. This decision is consistent with previous authorities in respect of other professionals, such as solicitors, where the Court is asked to assess, adopting a 'loss of chance evaluation', what would have happened if the professional had acted with reasonable skill and care. In short, the court will have to decide how great a 'chance' of obtaining indemnity has been lost by the broker's failure to arrange cover – just as in solicitors' cases, the Court would consider (for example) what chance of success a claimant has been deprived of by the solicitor whose mistake costs them the chance to bring their claim.

In Dalamd v Butterworth, the Court previously held that in cases where the insured alleges negligence by the broker, but has failed to sue or settle with the insurer of an existing policy, the Court must first assess on the balance of probabilities whether, but for the negligence, the existing policy would have been rendered voidable. Pending further clarification from the Court, the position remains that the binary 'balance of probabilities' causation approach in Dalamd does not apply in circumstances where there is no insurance cover at all and is restricted only to cases where 'inadequate' cover has been obtained.     

Arguably, the justification for the different approaches is based on the fact that in the Norman Hay scenario, the uninsured claimant cannot choose to sue both the broker and the insurer simultaneously, as there is in fact no insurer. Nevertheless, there does seem to be tension in these differing positions, and it is conceivable that further clarification from the Courts may follow, not least on the basis that the Norman Hay decision relates only to a summary judgment/strike out application.