The recent case of Riedweg v HCC & others appears to be one of the first reported decisions that looks at the interaction between the Civil Liability (Contribution) Act 1978 (the 1978 Act) and the Third Parties (Rights Against Insurers) Act 2010 (the 2010 Act).

To bring a claim for contribution pursuant to the 1978 Act, a claimant must show that the damage sought is the 'same damage' as that for which they are also potentially liable. In this case, the court was required to decide whether the liability that a professional indemnity insurer of an insolvent insured had to a claimant under the 2010 Act was for the "same damage" as the contribution claim that the insurer subsequently sought to bring against another party.

Background to the case

The claim arose in relation to an alleged negligent valuation. The Claimant entered into a contract to purchase a property for the sum of £8 million in December 2016 (the Contract). The purchase price was based on a valuation by Goldplaza Berkeley Square Ltd (the Valuer), who the Claimant argued was negligent. The Claimant alleged that the negligent overvaluation meant she was unable to complete the purchase or assign the Contract for the sale of the property to anyone else.

The seller subsequently sold the property to a third party for the sum of £5,500,000 and brought proceedings for the balance against the Claimant. Under a compromise of those proceedings the Claimant remained liable to the seller for £2,200,000. She claimed this sum as damages from the Valuer – together with interest and other associated losses.

The Valuers went into liquidation in November 2021 and the Claimant pursued her claim against the Valuer's professional indemnity insurers, HCC International plc (HCC), relying on the 2010 Act. Where an insolvent party is liable to a third party and is insured for that liability, the 2010 Act transfers the insolvent party's rights under the insurance policy to the third party, allowing that third party to bring a direct claim against insurers instead.

However, insurers are only liable to the third party to the extent that they would have otherwise been liable to indemnify their insured for that claim. So, any notice provisions, policy limits or other defences that applied to a claim by the insured would apply equally to a claim by the third party.

HCC sought permission to issue a Part 20 Claim against the Claimant's solicitors in the original transaction (the Solicitors) – seeking a contribution under the 1978 Act. HCC alleged that the Solicitors had acted in breach of fiduciary duty, breach of contract and had been negligent in advising the Claimant to enter into the Contract – and that the Solicitors' breaches had contributed to the damage suffered by the Claimant as a result.

The Solicitors opposed the application. They argued that the liability of HCC to indemnify the Claimant – whose rights under the insurance policy arose because of the transfer under the 2010 Act – and the Solicitors' potential liability to the Claimant for professional negligence was not liability for the same damage. On that basis, no claim for contribution could be sought under the 1978 Act.

Decision of the court

The court refused to give permission for the contribution claim to be made.

Any person liable in respect of damage suffered by another can – under the 1978 Act - seek to recover a contribution from any other person liable in respect of the same damage. The requirement for the same damage is key.

The Solicitors accepted that if it was the Valuers who were the defendant to the Claimant's claim, then in principle the Valuers would be entitled to a contribution from them – albeit the Solicitors denied the allegations made against them in any event. In that situation the damage suffered by the Claimant in relation to both claims would be the financial loss caused by her entering into a transaction that she would otherwise not have entered into, on the terms she did, were it not for the alleged breaches of duty by the Valuers and the Solicitors. Even if the loss caused by each party’s alleged breach would not necessarily be identical, in those circumstances there would at least be an overlap, enabling a contribution claim to be pursued.

However, it did not follow, from the fact that the Valuer would (if it had been the defendant) have had the right to seek a contribution from third parties, that an insurer in the position of HCC would also have that right. The purpose of the 2010 Act is to provide a mechanism for a claimant to pursue an insurer directly in respect of the insurer's liability to indemnify its insured for their liability to that claimant, and for the claimant to stand in the insured’s place for the purpose of making that claim under the insurance policy.

The insurer’s liability is still that which flows from its obligations to indemnify its insured. The only damage an insurer is capable of inflicting is in refusing to meet its obligations under the policy - the insurer does not become liable to the third party for the damage caused or allegedly caused by its insured, which it did not inflict.

Key takeaways on the application of the 'same damage' rule

Previous case law had established that in relation to a claim for contribution under the 1978 Act, insurers would not be liable for the same damage as that caused by their insureds. This decision goes further and makes it clear that the same principle will apply in relation to claims made under the 2010 Act. Insurers sued under the 2010 Act cannot bring contribution proceedings against third parties responsible for the same damage as the damage for which an insured is liable to the claimant.

In the right circumstances, insurers will still have the right to pursue a subrogation claim against any relevant third party who is liable for loss in respect of which the insurer has indemnified their insured or paid a third party under the 2010 Act. This is because when subrogating, an insurer does then stand in the shoes of their insured and acquires their rights against any third party. However, this would only arise once payment under a policy has been made, subject to any express policy wording to the contrary which allowed an insurer to subrogate at an earlier point in time.

To discuss any of the points raised in our summary of this important case, please get in touch with Samantha Holland, Susannah Fink or your regular Gowling WLG contact.