Act: Thomson; HBM Sayers

Alt: Brown; Balfour + Manson LLP (for McCluskey Brown, Solicitors, Kilmarnock)

20 March 2009

[1] This is an appeal against an interlocutor of the sheriff at Kilmarnock dated 22 January 2008, granting decree against the defender and appellant for the sum of £21,422.52 with interest and expenses. The defender and appellant also seeks recall of certain earlier interlocutors in the action which are referred to in the course of this opinion. The interlocutors were pronounced in an action in which the pursuers, an insurance company, seek reimbursement from the defender, their insured, of monies paid out by them to third parties who were injured in a road traffic accident involving a van driven by an employee of the defender. As at the date of the accident, the pursuers were the insurers in a motor insurance policy issued by them to the defender in relation to the van involved in the accident, in terms of which third party, fire and theft cover was provided to the defender and any permitted driver over the age of 25 years. On 3 August 2000 the van was being driven by Steven Marshall, an employee of the defender, and was involved in a collision with a motor vehicle. The accident was caused by Marshall's fault and negligence. As a result of the accident the driver and passengers of the motor vehicle sustained loss and injury. The pursuers aver that the defender failed to notify them of the accident as soon as possible, as he was bound to do in terms of Section 5A of the policy. In those circumstances they contend that they were not obliged to provide indemnity cover to the driver or the defender in respect of loss or damage in the accident.

[2] Section 5A of the policy provides:

" SECTION 5 -

Conditions Which Apply to Your Whole Policy

A Notification of a claim

You must notify any of the following to Us as soon as possible:

a any incident which may give rise to a claim

b civil or criminal proceedings

If there has been a Theft You must tell the Police as soon as possible

We may request You to provide all details in writing together with any supporting evidence which We may reasonably require

If any of the following documents are served on You or any other person in connection with any incident then they must be sent to Us as soon as possible:

(i) writs

(ii) summons

(iii) other legal documents

(iv) letters of claim

(v) other correspondence

You must not answer any correspondence without Our written consent

We will not unreasonably withhold Our consent".

[3] Claims on behalf of the occupants of the motor vehicle, Robert Patrick, Mrs Agnes Patrick, and Kirsteen and Wendy Cooper, were intimated to the Motor Insurers Bureau. The Bureau referred the claims to the pursuers by letter dated 28 November 2001. Mrs Patrick raised an action for damages on her own behalf, and as next of kin of her by then deceased husband Robert Patrick against Steven Marshall in Kilmarnock Sheriff Court. The action was undefended and decree was granted on 30 September 2003 in favour of Mrs Patrick as an individual for damages of £5,000 with expenses and for a further £5,000 as next of kin of her late husband. Kirsteen and Wendy Cooper also raised an action for damages against Steven Marshall in Kilmarnock Sheriff Court. That action was also undefended and on 15 October 2003 decree was granted in favour of Kirsteen Cooper for damages of £5,000 with expenses, and in favour of Wendy Cooper for damages of £3,000 with expenses. These decrees were judgments to which section 151 of the Road Traffic Act 1988 applied and in terms of the section the pursuers were obliged to satisfy the decrees in both actions. They subsequently entered into negotiations with agents acting for Mrs Patrick and the Misses Cooper and as a result made payment in settlement of sums of £4,500 to Mrs Patrick as an individual, £4,500 to her as her late husband's representative, £4,500 to Kirsteen Cooper and £2,750 to Wendy Cooper, together with £5,172.72 in respect of expenses, a total of £21,422.52. The pursuers aver that they paid these claims because of their obligations under section 151 of the Road Traffic Act and that they would not have paid had that section not required them to do so. They rely upon subsection (5) of Section 2 of the policy which provided:

"If We make any payment under any part of Section 2:

(a) solely because of the requirements of any law and

(b) which We would not have paid under the terms of Your Policy if that law had not required Us to make that payment

You will be obliged to repay Us any such payments."

[4] The defender's position as set out on record is that Marshall was employed by him at the time of the accident and was driving the van in the course of his employment. He failed to inform the defender that an accident had occurred and after the accident he, Marshall, failed to attend for work. There was no visible damage to the van after the accident. The defender's business was conducted from his former matrimonial home, but at the material time he was separated from his wife and not living there. His wife had contacted him to tell him that there was a claim form which he required to complete. There was no information which he could have given to the pursuers in connection with the accident which would have made any difference to the outcome of the claims made by the third parties. The defender also avers that he telephoned the pursuers and stated that he was unable to supply details of the accident or to complete the form. No explanation is offered as to why he was unable to complete it.

[5] Both parties tabled pleas to the relevancy of the other's pleadings. At a debate before the sheriff the defender moved for the case to be sent to proof before answer reserving both preliminary pleas, while the pursuers sought decree de plano, arguing that no relevant defence had been stated on record. By interlocutor dated 26 May 2006 the sheriff sustained the pursuers' plea to the relevancy finding that the defences were irrelevant save in so far as directed to quantification of the pursuers' claim. Subsequently, by interlocutor dated 20 June 2006, he allowed a proof restricted to quantum of damages and repelled the defender's preliminary plea. In the note accompanying his interlocutor of 26 May the sheriff found that the provisions as to notification of a claim contained in Section 5A of the policy document constituted a condition precedent of the pursuers' obligation to indemnify. The defender had been in breach of that condition as a result of his failure to notify any claim and the pursuers were accordingly under no obligation to indemnify him. In these circumstances the pursuers were obliged to settle with the third parties only because of the operation of section 151 of the Road Traffic Act and would not otherwise have made any payment.

[6] The defender then appealed to the sheriff principal against elements of each of the sheriff's interlocutors, but his principal attack was on the sheriff's finding that no relevant defence had been stated. By interlocutor dated 12 June 2007 the sheriff principal refused the appeal and adhered to the interlocutors of the sheriff. In his note the sheriff principal explained that the only live issue for determination was whether failure to obtemper the requirements of Section 5A was a necessary bar to a successful claim to be indemnified under the policy, or whether that failure was a breach of a condition whose materiality, once ascertained after proof, would determine whether a claim to indemnity was barred or not. The sheriff principal went on:

"If no notification is given and no claim is made (in writing if so required) with all such details as can be supplied by the insured then he has not in my opinion taken the steps necessary to invoke his contractual right to indemnification under the policy and the insurers have not come under any obligation to deal with any claim let alone make any payment in satisfaction of their obligation to indemnify the insured. Whether one applies phraseology such as 'condition precedent' to Section 5A of the policy or describes its effect in some other terms (as I have done) seems to me immaterial to the issue, which is whether the requirements of Section 5A must be fulfilled in order for a claim to arise under the policy and be entertained by the pursuers. I consider that this last question demands an affirmative answer."

[7] There followed a proof before the sheriff on the question of quantum following upon which, by interlocutor dated 22 January 2008, the sheriff granted decree against the defender for £21,422.52 with interest and expenses. The defender appeals that interlocutor to this court. The appeal opens up for review all previous interlocutors and the defender's principal argument was directed at the interlocutor of the sheriff principal of 12 June 2007.

[8] Counsel for the appellant invited us to recall all three interlocutors, to sustain the preliminary plea for the defender, and to assoilzie the defender from the crave of the initial writ. He said that the parties were agreed that the issue for determination was whether on a proper construction of the policy the notification provisions in Section 5A relied on by the respondents were a condition precedent to their liability to indemnify. Section 5A of the policy contained no specification as to the manner of notification which was required. The defender's position on record was that he did not know of the incident which gave rise to the injury to the third parties. He had never completed a claim form. The first notification he obtained came from the pursuers at the time of settlement of the third parties' actions against Steven Marshall. Counsel then made a number of submissions in support of the proposition that Section 5A did not constitute a condition precedent of liability on the part of the pursuers and argued that the actions of the defender after he had been informed of the claims, including such communication as had taken place between him and the pursuers, had imposed on the pursuers an obligation to indemnify the defender for any liability he might have incurred towards third parties. Counsel conceded that if this submission was unsuccessful, he would be bound to fail in his defence to the action.

[9] Counsel for the respondents argued that there was nothing in the defender's pleadings which was sufficient to entitle him to prove that a claim had been made in terms of Section 5A of the policy. The provisions of that section were such that the policy holder required to comply with it before any duty of indemnity fell upon the insurer. The defender had failed to trigger the insurers' obligation to indemnify. The failure to fulfil the notification requirements was a bar to indemnification. In any event, notification in terms of Section 5A of the policy was a condition precedent to liability.

[10] The defender does not dispute that the pursuers were obliged, under section 151 of the Road Traffic Act 1988, to satisfy the claims made by the third parties against Steven Marshall. The amount of the sums paid has now been proved. In terms of subsection 5 of Section 2 of the policy, the pursuers are entitled to recover these sums from the defender provided that they would not have had any obligation to pay them under the terms of the policy. Any obligation on the pursuers to indemnify the defender only arises on notification of a claim by the defender within a reasonable time. In our view the defender's pleadings are lacking in any averments which could be interpreted as asserting that he notified a claim to the pursuers at any stage. Counsel for the defender indicated that he was not in a position to make any amendment to his pleadings in this connection. The defender has therefore failed to plead a case which would enable it to be proved that a claim for indemnity had been notified by him. Any rights which he had under the policy were, so far as his averments go, at no time invoked and a necessary precondition of the defenders paying in terms of it was accordingly never met. In these circumstances, the provisions of subsection 5 of Section 2 of the policy must take effect and the pursuers are entitled to the reimbursement they seek. The appeal is therefore refused.