Former employee of non-trading company fails to establish claim against liability insurer

Owen Hannaway originally presented a summary application under the Administration of Justice (Scotland) Act 1972 to recover an insurance policy in order to raise an action against NFU Mutual Ltd, the third respondent, which was the employers’ liability insurer of Discount Trade Windows Ltd when it was still trading. 

The appeal was heard in the Sheriff Appeal Court (Civil Division) by Sheriff Principal Pyle, sitting with Appeal Sheriff McCulloch and Appeal Sheriff Ross. 

No payment made 

The appellant claimed to have been injured in an accident at work on 3 May 2016. He raised an action in the Court of Session against the company in 2017, and obtained a decree in the principal sum of £750,000. A charge for payment was served on the company in January 2018, by which time the company had ceased trading, but no payment was made. 

The third respondent admitted that it provided employers’ liability insurance to the company at the relevant times, but refused to indemnify the claim when the appellant intimated it to them in early 2017. Parties discussed in submission that this refusal was made on the basis that the company’s insurance policy did not cover the appellant’s claim. 

The third respondent maintained that it had two potential defences to a claim based on the Third Parties (Rights against Insurers) Act 2010; that the appellant did not qualify as an employee and the premises in which the accident occurred not being included in the policy, and that the company was not yet a “relevant person” under the 2010 Act as no provisional liquidator had been appointed. 

The sheriff refused the application in August 2019, concluding that the appellant had failed to establish that he was likely to bring his proposed action under the 2010 Act. While she accepted that the appellant had averred a prima facie case on the merits, the company was nonetheless not a relevant person under the 2010 Act, and there was no basis to conclude that this status would change in the near future. 

On appeal, the appellant maintained that he was likely to raise an action under the 2010 Act, and that the sheriff erred in stating that she could not conclude when the company would be removed from the register.  

Effective obstacle 

The opinion of the court was delivered by Appeal Sheriff Ross. Regarding whether the appellant was likely to bring an action against the insurer, he said: “There appears to be an effective obstacle to raising the action against the insurer, namely that liability is founded on the 2010 Act, and no duty arises until the company qualifies as a relevant person. The appellant is not in a position to satisfy a court that that position will change in any predictable timescale. It is simply unknown, and outwith the appellant’s control.” 

He continued: “Counsel for the appellant accepted that the existence of a defence under the insurance contract would make raising the action less likely. The purpose of these proceedings is to establish whether there is any defence to the proposed action. It is not the purpose of an application under the 1972 Act to facilitate tactical decisions. If the likelihood of an action is materially affected by the nature of any recoveries, there is no basis to find that the action is more likely than not to be raised.” 

On whether the sheriff had erred, he said: “There was no factual basis for concluding that the company would qualify under the 2010 Act as a relevant person at all, or in a given period, and accordingly an action remained incompetent. There was no basis to say when or if the company would be removed from the register. We note that the possibility of winding up the company, and thereby satisfying section6 of the Act, was not canvassed in front of the sheriff at all.” 

He continued: “We see no error in the sheriff’s reasoning or conclusions. They were supported and justified by the facts. There is no error or want of logic in the sheriff’s conclusion that, where an action is incompetent, and when no change to that status is underway, and none is predictable, the action is unlikely to be raised.” 

For these reasons, the appeal was refused. Sheriff Ross also noted that the proceedings would not have been necessary if the insurer had released the policy, which it refused to do for confidentiality reasons. 

In respect of this, he noted: “Their position does not appear logical. In respect of confidentiality it is difficult to see what is confidential about a contract with a non-trading company. If the policy contains commercially-sensitive material, the insurer’s commercial interests are protected by the common law remedies, such as redaction or lodging in a confidential envelope.”