Seth was engaged by a company under contract to install meters. Seth was working one day when an accident occurred resulting in damage to the customer’s property. Seth’s employer hired a third party to fix the damages. Under his contract, Seth was required to have public liability insurance.
Seth sustained some minor injuries but returned to work shortly after the accident.
After a few weeks, Seth’s employer told him it was cancelling his contract. The employer had investigated the accident and found Seth had used unsafe practices which caused the accident. The employer believed Seth was liable to pay for the repair work.
Seth asked his employer to pay his outstanding wages. Instead of doing so, the employer sent Seth an invoice to pay for the repairs, and subtracted his outstanding wages from this.
Seth disputed the findings of the investigation report. He did not agree that he was liable for any damages. Seth also believed that he had been unfairly dismissed and decided to take his employer to court. He believed he was an employee and not a contractor.
Seth informed his public liability insurer. They decided to await conclusion of the employment proceedings.
The employment case concluded that Seth was an “independent contractor” and not an employee. Seth was ordered to pay costs to his employer.
Seth’s employer had initiated proceedings for the repair and investigation costs. This was put on hold until the conclusion of the employment proceedings.
Seth lodged a counter claim for loss of wages and legal costs against his employer. A few days before the hearing, Seth’s insurer advised him they did not need to attend. The insurer assured Seth that if he was found liable, he would be covered.
A few days before the hearing, Seth’s employer made another settlement offer. If Seth dd not accept, the employer would claim further costs against Seth (a calderbank offer). The employer offered to drop its claim for damages and other costs if Seth agreed to drop his counter-claim.
At this time, Seth was travelling and did not have access to legal advice. He did not contact his insurer to ask whether he should accept the settlement. At the time, Seth believed he had his insurer’s support and that his insurer would pay him the repair costs instead of his employer. He decided to take the employer’s offer and drop his counter-claim.
Seth’s insurer declined to pay his claim. The insurer did not think that Seth could reasonably believe he had the insurer’s unqualified support. Seth’s public liability policy only responded to claims against Seth by third parties.
The insurer had not agreed to the settlement agreement, nor had it suggested it would pay Seth instead of the employer. The insurer felt concerned that Seth’s claim would result in him becoming unjustifiably enriched as he had suffered no loss.
The insurer noted Seth was not found liable for the damages, therefore, no third-party claim existed for his policy to respond to.
Seth complained to FSCL.
In considering Seth’s case, we had regard to the law and what would be reasonable in the circumstances.
While Seth has acted in accordance with his insurer’s advice in the most part, we had to agree with the insurer.
We found that Seth gave up any potential claim with his insurer when he entered into the settlement agreement which was in full and final settlement of both his and the employer’s claims.
Seth did not agree with our view noting he had accepted the offer under duress. He believed that the insurer should at least pay him for wages that were offset against the cost of repairs.
We issued our final decision declining to uphold Seth’s complaint. While we had considerable sympathy for Seth, we found that the insurer was not party to the settlement agreement and could not reasonably be expected to compensate Seth for a liability claim that did not exist. The settlement Seth entered into in full and final settlement included Seth’s wages that were offset against any repair work.
Insurers should exercise caution that any advice provided to customers is clear, and adequately manages a customer’s expectations. In this case, all communications occurred via a broker and had the potential to be miscommunicated. It would be prudent for insurers to talk to the customer to minimise any misunderstandings and/or refer them to seek independent legal advice, particularly where an imbalance in bargaining power and cross over of interests exist.
Customers should be aware that they need to act in accordance with their insurance policy and follow their insurer’s advice.
In this case, the customer would have benefitted from seeking independent legal advice.