14 June 2019

Deciding whether liability should be admitted on a claim can undoubtedly be one of the more challenging aspects of an insurance claims handler’s job.

Making such decisions under the pressures of tight protocol timescales can mean that sometimes liability is admitted when, with the benefit of hindsight and further information becoming available, it shouldn’t have been.

So, what can be done when this occurs and an insurer later wishes to dispute liability? If the pre-litigation admission of liability was made under the old voluntary pre action protocol, life was relatively straightforward. Any such admission was not likely to be considered contractually binding on the defender, but was merely ‘an extrajudicial admission’, capable of being withdrawn at any time prior to the written pleadings being finalised in the subsequent litigation. Thus, there was usually ample time for the liability admission to be withdrawn.

This was the view expressed by the Inner House in the Court of Session in the well-known case of Van Klaveren v Servisair UK Limited. However, that was 2009. Fast forward 10 years and we now have Rule 17 of the Scottish Compulsory Pre Action Protocol (CPAP) which requires that the insurer makes it clear whether they intend to be bound by any admission of liability, and if they do so, they will then be bound by that, subject to an exception where the claim is subsequently found to be fraudulent.

What this effectively means for insurers is that there is now a window of three months from acknowledging the claim under the CPAP to investigate and arrive at a decision on liability. At this point, any liability admission not made on the explicit basis that it is binding on the defender, will result in the claimant being entitled to litigate. Such an admission of liability would amount to a unilateral binding admission  with contractual force, which can be relied upon by the pursuer.

BTO recently appeared at Dunfermline Sheriff Court at a hearing where the consequences and nature of a binding liability admission made by one of our insurer clients was scrutinised by the court. The co-defender in the action attempted to rely upon our client’s binding admission of liability to argue that their insured alone were bound to pay for all losses sustained by the pursuer, even though the evidence suggested that the second defender had also contributed to the accident.

Common sense prevailed and the court rejected the second defender’s argument. The court held that for a pre-litigation admission of liability by an insurer to be construed as intending to bind them to make reparation for all losses, irrespective of causation or the contribution by any other party, this intention would need to be very clearly expressed. That was not the case here. A standard binding admission under CPAP did not preclude the defender / insurer from disputing causation or arguing that a contribution was to be paid by another party. Nor did it prevent the Pursuer from seeking reparation from other parties who may also have some liability. The court did confirm in principle that a pre-litigation admission of liability, where the defender or insurer states that they intend to be bound by it, can create a unilateral binding obligation and can be relied upon by a pursuer in any future court action.   

In short, the above case illustrates that the implications of rule 17 of CPAP should not be underestimated for insurers. Careful consideration should be given to when admissions of liability should be made and how should they be worded.

Contact: Angus Gillies, Associate agi@bto.co.uk T. 0141 221 8012