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Accident at Work – Insurance, Privity of Contact, Duty of Care and Negligence

In a judgement delivered by Mr Justice Michael Peart on the 5th day of February 2013 in the case of Yun Bing Hu v Duleek Formwork Limited (“In Liquidation”) and Aviva Direct Limited t/a Aviva, the High Court looked at the issue of whether there was privity of contract between the plaintiff and Aviva in relation to the enforcement of a contract of insurance as between the first named defendant and Aviva where an excess payment which was a condition precedent to liability under the policy had not been paid. The plaintiff had suffered a workplace injury.BackgroundThe plaintiff in this case was a carpenter who whilst while working for his employer sustained an injury to his thumb. The plaintiff believed that the injury was sustained as a result of negligence on the part of his employer, Duleek Formwork Limited, the first named defendant. He subsequently commenced proceedings with a view to obtaining compensation for the injuries sustained and believed that his employer had the benefit of a contract of insurance in respect of any claim successfully brought. The plaintiff subsequently learned that while his employer had a contract of insurance which was intended to cover employer’s negligence, it breached one of the conditions precedent to liability which was the payment of an excess of €1000.When the plaintiff first issued proceedings he named his employer only as defendant but subsequently sought to have Aviva added as a defendant. Having entered an appearance, Aviva issued a Notice of Motion dated 22nd June 2012 seeking an order to strike out the proceedings pursuant to Order 19,rule 28 of the Rules of the Superior Courts on the grounds that they disclosed no reasonable cause of action against Aviva. Alternatively, Aviva sought to have the proceedings struck out under the inherent jurisdiction of the Court on that ground and/or on the basis that they were bound to fail. In essence the following relief was sought against Aviva:“ A declaration that any sum awarded by this Honourable Court at the trial of this action and any costs awarded to the plaintiff as a result of his injuries constitutes an award for a wrong and the second named defendant is obliged, under the terms of the policy of insurance entered into with the first named defendant herein, to pay the required monies to the plaintiff and to discharge any sum awarded for damages and costs pursuant to the provisions of the policy of insurance”.Aviva first received a notification of the plaintiff’s accident on the 3rd September 2009, just over two weeks after it had occurred. The excess payment of €1000 under the insurance policy, a condition precedent to liability to the insured, had not been paid by the insured by the time the proceedings were issued and served. The loss adjusters wrote to the liquidator informing him that unless that excess was paid, cover under the policy would be declined. Not having received this payment by the 25th March 2011, the loss adjusters wrote again on that date to state that cover was declined. The plaintiff was unaware of these events at that time.The plaintiff’s solicitor stated that if the plaintiff had been made aware that the excess payment of €1,000 had not been paid by the insured or the liquidator, it was likely that some form of pressure could have been brought to bear on the first named defendant or the liquidator to ensure that the payment was made, including by possible court order. Alternatively, it is stated, the plaintiff would have endeavoured to discharge that payment himself in order to ensure that his claim would be met under the policy. The plaintiff’s solicitor had been informed by letter dated 25th March 2010 that Aviva had declined cover, but no reason was provided in that letter.The plaintiff’s solicitor further noted that depriving the plaintiff of an opportunity to make that payment to Aviva himself has wrought an injustice on the plaintiff by him effectively being unable to recover compensation for the injury which he suffered simply because the insured failed to make the excess payment required under the policy of insurance taken out in order to cover claims such as that if the plaintiff. Counsel for Aviva submitted that there was no privity of contract between the plaintiff and Aviva and that the only party entitled under law to challenge the decision to decline cover for the accident to the plaintiff was the first named defendant.The High Court noted that the plaintiff was seeking to rely upon the provisions of Section 62 of the Civil Liability Act, 1961 as amended in order to maintain its claim against Aviva. That section provided:“62. — Where a person (hereinafter referred to as the insured) who has effected a policy of insurance in respect of liability for a wrong, if an individual, becomes a bankrupt … or, if a corporate body, is wound up … moneys payable to the insured under the policy shall be applicable only to discharging in full all valid claims against the insured in respect of which those monies are payable, and no part of those moneys shall be assets of the insured or applicable to the payment of the debts (other than those claims) of the insured in the bankruptcy … or in the winding up or dissolution, and no such claim shall be provable in the bankruptcy … winding-up or dissolution.” (emphasis added)”Aviva submitted that no monies were payable to the insured under the policy, as the policy has been repudiated. It submitted that the purpose of Section 62 was not to provide the plaintiff a remedy against the insurance company in circumstances where otherwise there is no privity of contract, but rather to ensure that when an insurance company is liable to pay money to an insured under a policy, and the insured person goes bankrupt or, in the case of a company, goes into liquidation, the insurance monies are ‘ring-fenced’ to meet the claim made on the policy, and does not disappear into the general fund for the benefit of other creditors.Counsel also relied on a passage from the judgment of Laffoy J. in Power v. Guardian PMPA Insurance Limited [2007] IEHC 105 in support of his submission that it was clear that it is only when monies are actually payable under a policy of insurance that a claimant can benefit from the provisions of Section 62 of the Civil Liability Act. Counsel also referred to the judgment of Kearns P. in McCarron v. Modern Timber Homes Ltd (in liquidation) & ors, unreported, High Court, 3rd December 2012 which strongly supported the arguments put forward by Aviva. Counsel for the plaintiff tried to draw support from a judgment of Finlay CJ in Dunne v. P.J. White Construction Co. Ltd (in liquidation) [1989] ILRM 803. Here the Supreme Court concluded that the onus in the case rested with the insurance company, and the appeal was allowed however the case thereafter settled, and the issue as to whether or not that insurer had been entitled to repudiate did not return to the High Court for consideration.DecisionJustice Peart stated that he was satisfied that the plaintiff had no privity of contract with Aviva and that he could not seek to enforce the contract of insurance as between the first named defendant and Aviva, especially in circumstances where he did not dispute that the excess payment was a condition precedent to liability under the policy, and did not dispute that the excess payment was requested to be paid and was not paid.  Justice Peart concluded that monies were therefore not payable to the insured under the policy and Section 62 of the Civil Liability Act did not provide the plaintiff with a remedy against Aviva. He concluded that there was no reasonable cause of action against Aviva disclosed, and that the proceedings should be struck out either under the provisions of Order 19, rule 28 RSC, or under the inherent jurisdiction of the Court as disclosing no reasonable cause of action, or disclosing a cause of action that was bound to fail.Justice Peart noted that the Court’s jurisdiction to strike out proceedings should be exercised sparingly and only in a clear case, otherwise the Court risked depriving a plaintiff of the benefit of a case which might just have a chance of succeeding which would be manifestly unfair and unjust. The Court should be satisfied not only that the pleadings disclosed no reasonable cause of action and/or that the claim is bound to fail, but also that there is no amendment possible to the claim which might save it.Counsel for the plaintiff noted that the proceedings could be amended in order to mount a claim in negligence against Aviva and that there was gross delay and a failure on the part of Aviva to inform the plaintiff that a pre-condition to Aviva’s liability, namely the excess payment, had been breached. Counsel for the plaintiff further noted that Aviva owed a duty of care to the plaintiff as a person whom it was aware was seeking to recover damages from the insured party, and who would be clearly adversely affected by that breach.The High Court noted that the policy was worded in such a way that where a claim was made on the policy, the insured person is required when requested to do so, to make an upfront excess payment of €1000, even before liability for the accident had been established and noted that it seemed to be a manifest unfairness that the entire contract was repudiated and the injured third-party was the one who loses out completely.Justice Peart stated that in order to plead negligence, it must be proven that a duty of care was owed to the plaintiff and that there was a breach of that duty of care causing loss and damage to the plaintiff. He noted that he could not see that Aviva were under a duty of care to the plaintiff to ensure that he was provided with information as to whether or not the insured had complied with the conditions of his insurance policy with Aviva and concluded that he failed to see any basis for any third-party duty of care as asserted by Counsel for the plaintiff. He stated that he was unaware of any case where the Courts found a duty of care to exist between an insurance company and a potential claimant against the insured party.Justice Peart concluded that he was satisfied that the amendment sought by the plaintiff’s counsel would not save the proceedings and made an order striking out the proceedings against the second named defendant on the basis that they disclosed no reasonable cause of action against the second named defendant and that no amendment of the proceedings could be made which might save the proceedings for the plaintiff.

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