KR and Others v Royal & Sun Alliance plc High Court, Queens Bench Division, 26 January 2006
Subject: Abuse claims against a corporate insured
Issue
In the case of abuse claims brought under a public liability policy issued to a corporate insured, can the insurer rely on a “deliberate act of the insured” exclusion to refuse indemnity.
Summary
The insurer cannot rely on the exclusion. A corporate insured could only act through its employees. Some acts will be private to the employees, some will be imputed to the corporate insured. Only acts performed by senior employees implementing managerial responsibilities will be imputed to the corporate insured. The acts of abuse were perpetrated for personal reasons, were not the implementation of managerial responsibilities, and so were not the acts of the corporate insured.
Significance
The case emphasises the difficulty of establishing breach of policy condition on the part of a corporate insured and means that in respect of abuse claims directed at corporate insureds deliberate acts of abuse even by senior employees will not normally invalidate the liability cover.
Background
An incorporated body has a legal existence entirely separate from the employees who make it up and the parties who own it.
In the House of Lords' decision in Williams v Natural Life Health Foods (1998) Lord Steyn summarised the position as follows:
“….. a company is a separate entity , distinct from its directors, servants and other agents. The trader who incorporates a company to which he transfers his business creates a legal person on whose behalf he may afterwards act as a director…….His position is the same as if he had sold his business to another individual…..”
Such an incorporated body can only act through its employees and it can in practice be very difficult to decide when the act of an employee is an act of the company and when it is personal.
This is made clear in the following extract from the judgement in H L Bolton Engineering Company v T J Graham & Co. (1957);
“….the intention of the company can be derived from the intention of its officers and agents. Whether their intention is the company’s intention depends on the nature of the matter under consideration, the relative position of the officer or agent and the other relevant facts and circumstances of the case.”
The Decision
The defendant insurer issued a public liability policy to a company that ran care homes for children. There was widespread abuse at institutions run by the company.
Claims for psychological injury caused by abuse had been brought by former residents of the homes.
The insured company had gone into liquidation. In earlier proceedings against the company a court had ruled that it was liable to former residents of the homes because the company’s negligence had allowed the abuse to occur. Having established liability on the part of the insured company the claimants then sought to recover damages directly from the insurers under the Third Party ( Rights Against Insurers ) Act of 1930.
Under the Act the claimant can have no better right against the insurer than the insured could have had. The insurer argued that there was a relevant exclusion that affected the cover.
The relevant provision was that the policy did not cover liability in respect of,
“ Injury damage or financial loss which results from any deliberate act or omission of the insured his partners directors or managerial employees and which could reasonably have been expected having regard to the nature and circumstances of such act or omission.”
It was argued for the defendant insurers that the abuse was facilitated and perpetrated by the deliberate acts of senior managers within the insured company, that these were in law the acts of the corporate insured and that the exclusion therefore applied.
The Court held that the exclusion did not apply. The exclusion applied to deliberate acts of the company itself. The abuse was the result of the deliberate acts of the senior management, but these were not, in law, the deliberate acts of insured company. Whether the act of an employee can be imputed to the company depends not solely on the his position within the company but also on the nature of the acts in question. To constitute acts of the company the acts of the employee must concern a management responsibility. In this case the acts of abuse were personal to the employees and not acts of managerial responsibility.
The company as corporate entity was guilty of negligence but the acts of abuse were personal to the employees.
Brendan O'Keeffe
Claims Counsel, Swiss Re UK
