Professional Liability Guide

PROFESSIONAL LIABILITY GUIDE

It is only if, first, [a] right would have been exercised, but was not, and secondly the insurer has suffered resulting prejudice that can be represented in monetary terms that the provision of s 54(1) allowing reduction in the insurer’s liability is engaged. If the right would not have been exercised, the insurer has not suffered prejudice, let alone prejudice that can be measured in monetary terms. And in the setting of a trial, this last proposition amounts to saying that if the insurer does not prove, on the balance of probabilities, that it would have exercised the right in question, it fails to demonstrate that its liability for the claim should be reduced.’ 615 It seems clear, therefore, that an insurer needs to be able to point to more than just steps that it may have taken that may have produced a different result. An insurer needs to prove, on the balance of probabilities, not only that it could but that it would have taken certain steps and that those steps would have produced a better or different result. As a practical consideration, the Court in Moltoni was not persuaded by the insurer’s evidence as to what course would have been taken had consent been sought, which it concluded was affected by hindsight. In the absence of any contemporaneous evidence of similar action taken in similar matters before the events in question, the insurer failed to establish any prejudice. This demonstrates the evidentiary difficulties an insurer may face in seeking to establish prejudice because of a failure to obtain consent. In the case of incurring defence costs without consent, an insurer might seek to argue that the costs incurred would have been less had consent been sought. Generally, if an insured’s defence costs are reasonably incurred, an insurer will likely face some difficulty establishing any material prejudice. (In Antico , the Court held that a measure of prejudice in these circumstances depended on the question of whether there were reasonable grounds to defend a claim.) Another avenue of prejudice may rest in comparing the respective rates charged by an insured’s solicitor and those of the insurer’s. Establishing prejudice in this way would require the insurer to establish that had consent been sought it would have been entitled to (and would have) instructed defence counsel to assume conduct of the matter, or would have been entitled to limit the availability of cover to the applicable rates of the insurer’s defence counsel. It will very much depend on the specific wording of the policy. In the case of an insured effecting a settlement without consent, an insurer may seek to argue that it would not have resolved the claim (on any basis) and would have instead defended the matter to trial or would only have settled for a different sum or on materially different terms. The reasonableness of the insured’s decision to settle (and, in turn, the reasonableness of the settlement sum or terms involved) will, therefore, be the primary consideration. This is explored further below. Declinature of cover or ‘prudent uninsured’ A similar scenario arises where an insured’s conduct (for instance, incurring defence costs or reaching a settlement) occurs at a time when an insurer has (wrongfully) declined indemnity for a claim, or is not yet able to confirm or decline cover but has directed an insured to act as a ‘prudent uninsured.’ [our emphasis]

615 Ibid 161–162.

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