Can a insurer withdraw from an agreement with a protected party?

In the recent case of Revill v Damiani the court had to determine as a preliminary issue, whether insurers were entitled to resile from a compromise agreement made with the claimant who was a protected party.

It was common ground that the Civil Procedure Rules (CPR) have been interpreted to mean that a compromise with a protected party is not binding unless and until it is approved by the Court.  This means either party may withdraw from the compromise at any time before it is approved.

In this case, the claimant alleged that the provisions of the CPR were incompatible with his rights protected by article 14 of the European Convention on Human Rights (EHCR),  as there was an unjustifiable discrimination against him as a protected party when compared to a party who was not protected.

The claim arose as a result of a road traffic accident on 6 April 2015,  when the insured driver crossed over into the opposite carriage way causing a collision with the claimant motorcyclist.  The claimant suffered from a very severe traumatic brain injury and the medical evidence showed that he lacked capacity to conduct the litigation or his own affairs; requiring his partner Kirsty Jarram to act as his litigation friend.

The claimant made claims for among other things future loss of earnings, future care and case management costs and future therapy costs.  Liability was admitted and at a joint settlement meeting on 24 February 2017, an agreement was reached between the parties, which included a lump sum payment for his future losses.

The calculations for the future losses used a multiplier based on the then discount rate at 2.5 percent.   In clause 3 of the memorandum of agreement the parties provided that “in the event of a reduction in the discount rate before the date of the court approval hearing the future losses as set out herein will be recalculated in accordance with the  reduced discount rate”.

Following the Lord Chancellor’s announcement that the discount rate would be reduced from 2.5 percent to minus 0.75 percent on 27 February 2017, the amount to be paid to the claimant was recalculated and had significantly increased.

In a letter dated 13 March 2017, the insurers’ solicitors advised that the insurers were withdrawing from the compromise.

The claimant contested the insurers’ right to withdraw from the agreement and applied for an approval hearing.  In response to the claimant’s submission that the provisions of the CPR were incompatible with his article 14 rights, the insurers contended that these provisions are justifiable and proportionate.

It was agreed firstly that the claimant’s status as a protected party for the CPR is an “other status” for the purposes of article 14 of the ECHR. Secondly,  the claim made by the claimant against the insurers fell within the ambit of article 6, because it involved the determination of the claimant’s civil rights. Thirdly, it was agreed there was a difference in the treatment of a protected party and another litigant who is not a protected party in bringing a claim for damages, as the other litigant can compromise his claim without the court’s approval.

This meant that the issue between the parties was whether the difference in treatment has an objective and reasonable justification, in the sense that (1) the difference of treatment pursues a legitimate aim; and (2) there is a reasonable relationship of proportionality between the means employed and the aims sought to be realised.

These aims were identified as: (1) to protect the interests of the protected party, including from any lack of skill on the part of their legal advisers; (2) to provide a means by which insurers may obtain a valid discharge in respect of the claim; (3) to ensure that money recovered is properly looked after and (4) in a fatal accident case involving children to ensure that the interests of dependents entitled to share of the recovery are properly defined and protected.

It was common ground that the difference in treatment between the protected parties and other litigants pursued legitimate aims. Therefore the real issue was whether there was a reasonable relationship of proportionality between the means employed requiring the compromise to be approved by the Court and the aims sought as above.

The Court held that the approach taken by the CPR in the compromise rule was long established and provided certainty and it allowed all parties including the protected party to withdraw from a compromise before it had been approved. This afforded a fair balance to withdraw from the compromise for both parties.  In addition, the relevant provisions of the CPR formed part of a series of rules which included the duty on the court to have active case management of both protected and unprotected parties in a proportionate and efficient manner to secure the good administration of justice and to protect the relevant rights.

The court therefore dismissed the claimant’s application to bind the insurers to the compromise of 24 February 2017 and it did not make a declaration that provisions of the CPR were incompatible with the Human Rights Act 1998.

This case is a useful reminder that a settlement compromise between parties involving protected parties cannot be considered binding until approved by the court, and either party can withdraw from a prior agreement. On some occasions, this may be useful for claimants who are seeking to secure a higher settlement sum just before a court approval. However, as in the present case, it can be damaging to a claimant whose previous agreement was withdrawn.

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