UKAF brought the claim against insurers, Markel, under the Third Party (Rights Against Insurers) Act and the rarely used Braganza test relating to contractual power and decision-making was applied during the case.
UKAF, with Georgina Squire of Rosling King acting for them, had obtained judgments for negligent over-valuations against the insolvent valuer whose insurer, Markel, avoided its professional indemnity insurance policies, leaving the valuer with no cover and UKAF with no means of recovery. UKAF then brought action under the Third Party Rights legislation and stepped into the insolvent valuer’s shoes to challenge Markel’s avoidance of the policies.
HHJ Pelling QC, sitting as a High Court judge, handed down the judgment on Skype and awarded damages of £16million to UKAF.
Georgina Squire of Rosling King said: “We are delighted by this judgment which is a significant judgment in that it underlines the point that a party in a position of contractual power should always have the Braganza test in their mind when making a decision. It was expected that the Braganza test would be applied widely. Perhaps it has, though very few disputes over it appear to have gone to Court and this is therefore all the more interesting.”
Markel applied the unintentional non-disclosure (UND) clause to say that the valuer had not established to their satisfaction that the misrepresentations were innocent and free from intention to deceive, the normal basis of a UND clause. The Braganza test was then applied. Lady Hale in that Supreme Court case held that a contractual decision maker should not abuse their position and overcame this by implying a term as to the manner in which they exercise their decision making powers. The Judge held that there was an implied term of the UND clause that Markel could not use it to make a decision which was arbitrary, capricious or irrational.
The Court did not believe it was right for it to review the position afresh, but instead it considered the evidence adduced by Markel and judged the underwriter’s decision making, explained to the Court in detailed cross examination, against this Braganza irrationality test.
|
