Lumbermens Mutual Casualty Company v Bovis Lend Lease Ltd

There are before the court four preliminary issues ordered to be tried by an order of Colman J. dated 7 May 2004. At least two of those issues raise matters of some importance in the field of liability insurance and in particular as to its application to the construction industry.

The defendants, “Bovis”, were insured by the claimants, “the Insurers”, under a construction, engineering and design professional liability policy and a commercial excess liability policy. The Insurers claim declarations that they are under no liability under either policy in relation to the design and construction by Bovis as contractor of the Braehead Retail and Leisure Centre in Glasgow between May 1996 and September 1999. The employer was Braehead Glasgow Ltd, a retail property developer. The works were carried out by Bovis under a building contract dated 18 December 1997.

Disputes arose under the building contract and Bovis commenced proceedings in the Technology and Construction Court in which it claimed £37,778, 266 allegedly due under that contract. This was a balance outstanding from a total of £254,153,124 after giving credit for amounts paid by Braehead totalling £216,374,898. The gross amount was made up of six elements, namely amounts due and payable in respect of common user, post novation design fees, an amount due in respect of preliminaries and loss and expense, a management fee and interest.

Braehead served a defence and counterclaim. The latter included a claim for mismanagement of the project by Bovis in the sum of £49,524,189 made up of £43,911,439 being the difference between Bovis’ claim under the contract and the amount which the works would have cost if the project had been properly managed together with a number of additional items said to be caused by defective management. The claim for mismanagement was put in the alternative in the sum of £21,700,047. This was calculated by reference to the cost of eight specific instances of mismanagement plus further additional costs on nine sub-contract packages together with additional professional and management fees.

The counterclaim also included a claim for £46,685,178 in respect of defective and non-compliant work and a claim for liquidated damages in the sum of £7,385,000. The Insurers contend that some parts of the counterclaim were in respect of liabilities outside the scope of the cover.

Thus, whereas Bovis’ total claim amounted to £37,778,226, Braehead’s counterclaim totalled £103,594,367 or alternatively £75,770,225.

The trial having been fixed to commence in October 2002, the litigation was settled by an agreement, “the Settlement Agreement”, dated 11 January 2002. Under that Settlement Agreement Braehead agreed to pay Bovis £15 million in full and final settlement of all disputes under the building contract. The method of calculation of that global sum was not identified in the agreement. In particular, there was no indication as to what extent if any Bovis’s claim of £37,778,226 had been treated as validly in excess of £15 million or which if any of the many detailed elements of Braehead’s counterclaim had been treated as valid. Indeed, the terms of the Settlement Agreement gave no indication as to whether the parties agreed that there was any substance in any of the elements of Braehead’s counterclaim that is to say whether there was any common position that the claim by Bovis fell to be reduced because it was partly intrinsically defective or because part of Braehead’s counterclaim could be set off against Bovis’s claim. Nor does it contain any indication as to whether any particular amount was paid to settle such part of the counterclaims as the Insurers could not dispute fell within the scope of the indemnity.

In addition to the terms relating to payment of the settlement amount, the Settlement Agreement contained other terms, some of which varied the building contract, as well as additional indemnities from Braehead for the benefit of Bovis and from Bovis for the benefit of Braehead. There were other terms designed to facilitate the settlement and the continuation of the building contract.

So far as Bovis’s perception is concerned there is evidence that it had received advice from its solicitors, Masons, in a report dated 18 August 2001 to the effect that it was likely to recover £12,741,625 from Braehead. This figure had been arrived at by reducing to £248,579,744 the gross amount Bovis was entitled to claim for the contract works and by very heavily discounting the three main elements of Braehead’s counterclaim which could be set off against the amount of above £32 million due to Bovis after giving credit for prior payments. However, this was a unilateral assessment of the value of the claim and counterclaim and there is no evidence that Braehead accepted it.

Bovis’s policies with the Insurers included a primary policy for the period 28 October 1999 to 28 November 2000 (by subsequent extension). It was subject to a limit of £5 million per claim and a self-insured retention of £525,000 per claim. There was also an excess of loss policy for the same period which protected up to US $75 million per claim excess of the primary policy with an aggregate cover of US$75 million.

On 15 May 2003 Bovis sent to the Insurers a formal letter of claim for an indemnity under the policies. The total claim was for £19,222,722.40. It broadly replicated the assessment by Masons in their report of 24 August 2001, which had estimated the valid counterclaim by Braehead at £19,463,221. In other words, Bovis deployed their own solicitor’s assessment of the substance of their own claim and of Braehead’s counterclaim as the basis of their proof of an insured loss.

The Insurers issued their claim form for negative declaratory relief on 8 September 2003 and Bovis served its Defence and Counterclaim on 19 December 2003. The counterclaim was for the same figure as shown in the letter of 15 May 2003. It claimed that it had suffered insured losses in that amount caused by its liability to Braehead in relation to its breaches of duty under the building contract.

The preliminary issues now before this court are as follows:

With reference to Issue 2, it was pleaded by paragraph 11.4 of the Defence as follows:

By paragraph 5 of the Defence it was pleaded:

As to Issue 4 it is agreed that the court should confine itself to answering 4(b) as to coverage in respect of claims for breach of clause 2.5.2.5 of the building contract.

The Insuring Clause in the policies was in the following form:

The Insurers’ case is very simple. It is submitted by Mr Gavin Kealey QC on their behalf that, these being liability policies, the assured can recover an indemnity only in respect of a legal liability which has been “ascertained” or, in the case of a settlement, proved, to exist and in an amount which has been ascertained by judgment or arbitration award or, in the case of a settlement, which does not exceed the true amount for which the assured would have been liable to the third party but for the settlement.

In support of this general submission Mr Kealey relies on the decision of the House of Lords in Bradley v. Eagle Star Insurance Co Ltd [1989] 1 AC 957, approving the reasoning of the Court of Appeal in Post Office v. Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363. He also relies on the subsequent decision of the Court of Appeal in Commercial Union Assurance Co v. NRG Victory Reinsurance Ltd [1998] 2 Lloyd’s Rep 600 and McDonnell Information Systems v. Simback [1999] Lloyd’s Rep I&R 516 and on the decisions of Potter J. in Colin Baker v. Black Sea and Baltic General Insurance Co Ltd [1995] Lloyd’s Rep I&R 261and of Moore-Bick J. in Structural Polymer Systems Ltd v. Brown [2000] Lloyd’s Rep I&R 64. Mr Kealey submits that, given that in the present case there was ascertainment of liability and loss neither by a judgment nor by an arbitration award, the assured could recover only if it proved that it had become legally liable as a result of an eventuality insured under the policies and if the amount of its loss caused by that liability was ascertained by the settlement agreement and was reasonable in the sense of being no greater than the true amount of damages for which the assured would have been liable in respect of that liability but for the amount agreed under the settlement.

The Insurers contend that in the present case the global settlement agreement did not operate to identify any loss caused to the assured by any legal liability in respect of Braehead’s counterclaim nor did it quantify any such loss. Accordingly, there was no ascertainment of such loss by the settlement agreement and, in the absence of such ascertainment, there was no basis for recovery as under the policy: there was simply no cause of action.

It is submitted on behalf of Bovis that there is no rule of law that it must be possible, in order for an entitlement to indemnity to be triggered, to discern the extent of an insured’s liability for insured matters from the terms of the settlement itself. In particular, it is open to the insurer to challenge the existence or amount of the assured’s liability to a third party and to assert that the settlement sum was unreasonable or that the true basis of settlement differed from what was stated in the agreement. In such cases the court, having held that the settlement agreement does not ascertain the liability or the amount of the loss, does not go on to reject the claim for an indemnity but proceeds to determine if the assured was liable to the third party and, if so, in what amount.

In support of this proposition Mr Roger Stewart QC relies on the judgment of Mance J. in McDonnell Information Systems v. Swinback [1999] LRLR 98 which was affirmed by the Court of Appeal at [1999] Lloyd’s Rep I&R 516.

Mr Stewart emphasised that it is rare for settlements to ascertain the amount of the loss. In particular, the settlement figure agreed may be for more than one claim, as with acceptance of a Part 36 offer or payment into court, or may also cover costs or may be in an amount which is not directly derived from a perceived amount of damages for which liability is alleged but with regard to other considerations, including claims which are merely feared but have never been advanced. Further, an agreement to break down the amount to be paid by reference to particular claims is not binding on insurers who may go behind the terms of the agreement and prove the amounts to be unreasonable. In such a case, there will have been no ascertainment of the amount of the liability. Reliance is placed on the judgment of H H Judge Bowsher QC in P & O Developments Ltd v. Guy’s & St Thomas’ National Health Service Trust [1999] BLR 3.

Secondly, Mr Stewart submits that it would be contrary to public policy, inconsistent with the proper construction of the insurance policy and contrary to commonsense to impose a requirement that the terms of the settlement themselves identify the amount of the insured indemnity. In particular, there was express provision in the policy (condition 7) under which Bovis was prevented from admitting liability or settling or making or promising any payment in respect of any claim which might be the subject of indemnity and the insurers were permitted to take over and conduct the insured’s defence or settlement of any such claim and Bovis were required to give all information and assistance as the Insurers might reasonably require. In this case the Insurers had declined to take over Bovis’s defence. Following a Part 36 payment by Braehead on 3 August 2001, which was reported to Insurers, at a meeting between Masons and Kendall Freeman the latter, while not admitting liability under the policies, requested a breakdown of the various heads of Braehead’s counterclaim and were provided with a copy of Masons’ August 2001 report to Bovis. In December 2001 Masons sent a draft form of the global Settlement Agreement to Kendall Freeman. Insurers raised no objection to this form of agreement. Nor did they raise the question of want of ascertainment. I interpose that it is not suggested that Insurers made any representation amounting to waiver of their strict legal rights or that they are estopped from relying on them.

In these circumstances it would be contrary to public policy if there were a general rule that, absent an ascertainment in the strict sense of express quantification of claims, an assured who had entered into a global settlement which took various claims into account and under which its position was worsened by making payment or giving credit could not recover an indemnity. Indeed, even if the settlement had included an apportionment of the total amount between claims, it is doubtful whether that would have improved the justice of the case for the parties could have agreed to divide the money in any way they chose and without reference to the true value of the claims.

Thirdly, the global settlement did in a general sense ascertain the losses in as much as it was clearly intended to settle all Braehead’s counterclaims and they were all separately quantified so that it did establish the existence and amount of liability. In this connection Mr Stewart further relied on the approach of H H Judge Bowsher QC in P & O Developments, supra, for the proposition that it must have been in the mutual contemplation of Bovis and the Insurers when they entered into the policy that Bovis might enter into a global settlement with its employer on the basis of Bovis’s subjective assessment of the value of each claim as exemplified by Masons’ August 2001 report and that accordingly the global payment represented a foreseeable head of loss recoverable under the second rule in Hadley v. Baxendale.

Finally, Mr Stewart submits that, if the effect of the Settlement Agreement was not to ascertain the amount of the liability, Bovis is still entitled to a declaration that it was under an insured legal liability to Braehead on particular heads of the counterclaim and that the amount paid was by way of settlement of such liability. That evaluation of liability and its quantification can be proved by evidence extrinsic to the Settlement Agreement, but the amount recoverable from insurers cannot exceed the lesser of the true amount of liability or the amount paid under the settlement.

Underlying the submissions of Bovis on this issue is the point that, where the ascertainment relied on is that by means of a settlement agreement, the assured still has to prove by extrinsic evidence that he was in truth liable and that the true amount of his liability is at least that of the amount paid in settlement. This process of establishing liability under the policy therefore in any event involves reliance on substantial extrinsic evidence, the only contribution of the policy being to cap what is recoverable from insurers.

As to the second issue on whether the Insured’s loss should be measured subjectively by reference to Bovis’s perception of the relevant amounts based on the August 2001 Report from Masons, as revised, or on an objective approach evidenced by a retrospective analysis of the value of the counterclaims following the making of the settlement agreement, Bovis submits that the correct approach is a subjective one. Reliance is placed on the judgment of H H Judge Bowsher QC in P & O Developments v. Guy’s & St Thomas, already referred to. Alternatively, it is submitted that the judgment of H H Judge Hicks QC in Royal Brompton Hospital v. Hammond [1999] BLR 162 at page 166 supports this result.

It is first necessary to investigate the juridical nature of “ascertainment” in the context of a liability policy. For this purpose the starting point is to ask what engages the insurer’s obligation to indemnify the insured.

Firstly, there has to have occurred an eventuality which has rendered the insured liable to a third party. Secondly, the eventuality and the consequent liability has to be within the scope of the cover provided by the policy. Thirdly, it must be established that such liability has caused loss to the insured of an amount within the scope of the contractual indemnity. Each of these constituents of the obligation to indemnify the insured has to be established before it can be said that there is a cause of action. This is quite clearly established by the decision of the Court of Appeal in Post Office v. Norwich Union Fire Insurance Society Ltd, supra. Thus, at page 373, Lord Denning MR, with whom Salmon LJ. agreed (at page 378), observed:

The full passage from the judgment of Devlin J. in West Wake Price & Co v. Ching is as follows:

In Bradley v. Eagle Star Insurance Co Ltd [1989] AC 957 these judgments were expressly approved by the majority. Lord Brandon at page 966 said this:

These passages reflect the principle applicable to contracts of reinsurance as previously expressed by the Court of Appeal in Versicherungs und Transport A/G Daugava v. Henderson (1934) 39 Com Cas 312. Thus at pages 316 – 317 Scrutton LJ. observed:

Maughan LJ. at page 317, in agreement with Scrutton LJ. added:

In Colin Baker v. Black Sea and Baltic General Insurance Co Ltd [1995] LRLR 261 Potter J. accepted as correct the proposition, conceded by counsel for the reinsurers, that under a contract of reinsurance, being a contract of indemnity, time began to run for the purposes of the Limitation Acts only when the liability of the re-assured had been ascertained by judgment, arbitration award or settlement agreement:

Finally, it is necessary to refer to certain observations which I made in the course of my judgment in King v. Brandywine Reinsurance Co (UK) Ltd [2004] EWHC 1033 (Comm) at paragraphs 199 to 202:

“199.

It is not enough for the reassured to prove that there was liability to one of several primary insureds unless it is also proved that such liability was ascertained by judgment or settlement. If insurer X insures A and B against losses caused to either or both by a given peril and A claims, but B does not claim, that it alone has suffered loss caused by an insured peril and if there is then a judgment or arbitration award on a claim brought by A alone against or a settlement of A’s claim, it is quite unarguable that X’s liability to B has thereby been ascertained so as to establish that X is entitled to recover as a reinsured loss such amount as B may subsequently claim under the policy. The proposition only has to be stated to be seen to be wholly untenable.

200.

Does it make any difference if A promises by the terms of the settlement agreement to indemnify X if in future B should bring a claim against X under the primary policy for loss caused by the same insured peril? Clearly the answer must be No.

201.

Apart from express provisions to the contrary, that which triggers the obligation of a reinsurer to pay under his contract of reinsurance is not only the liability of the reassured to the primary assured but also the ascertainment of that liability by judgment or award against the reassured or by settlement by the reassured of a claim asserting such liability: Bradley v. Eagle Star Insurances Co Ltd [1989] 1 AC 957. In the absence of a judgment or award which concludes that a reinsured is liable to the primary insured, the process of ascertainment of such liability by settlement involves that an agreement has been made between the reinsured and the primary insured who asserts a claim under the policy under which the primary insured withdraws his claim for the consideration of usually a promise of payment by the reassured. The substance of this requirement is that for such consideration the liability of the reassured has been discharged. It is the cost of the discharge of the reassured’s liability which becomes the reinsured loss.

202.

It follows that if in the settlement agreement between A and X there is nothing more than an indemnity by A to X in case B should in future claim against X, there is missing from such agreement the essential feature that the assured liability of X to B has been discharged in consideration of a payment by X. There has been no such discharge and there has been no agreement as to the cost of that discharge.”

It is thus clear that the concept of ascertainment in the context of a contract of indemnity and specifically of liability insurance has two quite distinct facets.

First, it provides the essential link between the insured eventuality which has created the insured liability on the one hand and the actual loss sustained by the assured. It is the judgment, arbitration or settlement agreement which has imposed on the assured a judgment debt or a contractual obligation to satisfy an award or to perform a settlement agreement which constitutes the assured’s loss caused by the assured’s liability. It is thus an essential element of the assured’s cause of action on the policy. In the case of a settlement agreement, that which must be distinctly ascertained is thus the cost of the insured liability.

The basis for this principle must be that there is an implied term to this effect in the contract of insurance. Certainly the applicability of this principle has been embedded in the analogous law of reinsurance for seventy years and in the law of liability insurance generally since the decision in Post Office v. Norwich Union, supra, for thirty-seven years. Since there is no express reference in the policy terms to ascertainment as an essential element in the cause of action, it must be an implied pre-condition to the right to recover. This was the explanation which underlay the reasoning of the Court of Appeal in Commercial Union Assurance Co v. NRG Victory Reinsurance [1998] 2 Lloyd’s Rep 600. The issue which arose in the context of a reinsurance contract was whether ascertainment could be provided by the judgment of a foreign court as distinct from an English court. It was held that it could provided:

The passage in the judgment of Potter LJ. with which May LJ and Lord Woolf MR agreed is directly relevant:

Thus, the approach of the Court of Appeal to this issue was to deploy an implied term analysis and if that analysis was applicable in that case it must certainly be applicable in the case of liability policies generally. I would therefore hold that there is an implied term in a contract of indemnity in the form of a liability policy that it is an essential element of the assured’s cause of action that his loss has been specifically ascertained by means of a judgment, arbitration award or settlement agreement.

The second and quite distinct facet of the concept of ascertainment in the context of a liability policy is that it is a source of evidence. As such it operates in different ways according to the nature of the ascertainment. Thus, a judgment that the assured is liable in a given amount of damages is normally conclusive evidence as to liability and quantum. This, of course, would not be true of all judgments – notably of a judgment in default or of a judgment arising from a trial where no proper defence had been raised by the assured. The same would be true if there was a pending appeal. An arbitration award would give rise to a similar consequence. However, a settlement of a claim by a third party has a quite different effect. It is common ground that it evidences the amount which the assured has agreed to pay to discharge the claim in respect of the assured’s liability but that it is not conclusive evidence as between assured and insurer either as to whether there was in truth liability or, if so, what the true amount of that liability was.

Thus as a matter of law an assured who relies on a settlement as a means of ascertainment has to prove by extrinsic evidence that he was in truth under a liability insured by the policy and secondly that what he paid by way of settlement of that liability was reasonable having regard to the amount of damages that he would have to pay if the matter had gone to trial. The latter requirement of reasonableness is normally satisfied by proof that such amount of damage would be at least as much as the amount paid under the settlement: see Structural Polymer Systems v. Brown [2000] Lloyd’s Rep I & R 64, per Moore-Bick J. at page 72.

The requirement that he should prove that the eventuality the subject of the claim gave rise to a liability insured under the liability policy is strikingly illustrated by McDonnell Information Systems Ltd v. Swinback [1999] 1 Lloyd’s Rep I&R 98, and 516 (CA). In that case there had been a settlement agreement in respect of claims by a third party put forward without allegations of dishonesty by the assured’s employee which was known to the assured but not to the third party. Such dishonesty gave rise to an exclusion of liability under the policy. It was held by Mance J. and confirmed by the Court of Appeal that the insurers were entitled to prove the dishonesty and thereby the true nature of the assured’s liability, that being the real basis on which so far as the assured was concerned the case had been compromised. Therefore the assured failed to establish an essential element of the cause of action, namely that the true ground of liability was covered by the policy.

Both Structural Polymer Systems, supra, and McDonnell Information Systems, supra, are concerned with the evidential function of the material means of ascertainment. They are not concerned with its primary function, namely whether the means of ascertainment specifically identifies and thereby represents the assured’s loss attributable to the relevant liability. They are on analysis authority only for the proposition that, where the means of ascertainment relied upon is a settlement of claims, that agreement is not, as between the assured and the liability insurers conclusive evidence that the assured incurred insured liability or that the loss specifically identified in that agreement is reasonable in the sense of being no greater than the amount for which the assured would be legally liable if sued in respect of the insured liability.

It is important to appreciate that there appears to be no authority to suggest that if a settlement agreement has been entered into but it does not specifically identify the cost to the assured of discharging the insured liability, extrinsic evidence can be adduced to supply an ascertainment of that cost and therefore of the relevant loss. This is hardly surprising, for that proposition would be inconsistent with the contractual requirement for ascertainment of loss confirmed in Bradley v. Eagle Star, supra. Just as a judgment which went no further than a declaration of liability to the third party could not amount to a valid ascertainment of loss caused by such liability see King v. Brandywine Reinsurance Co (UK) Ltd, supra, so a settlement agreement deficient in the identification of the loss suffered specifically by reference to the insured liability could not amount to a valid ascertainment. No cause of action for an indemnity would arise and no amount of extrinsic evidence would cause it to do so. Consequently, on the basis of this analysis, the fact that a court could go behind the terms of the settlement agreement to investigate whether there was in truth liability to the third party and, if so, for what amount of damages the assured would be liable does not lead to the conclusion that the court can cure the deficiency in the validity of the ascertainment of loss by hearing evidence which goes behind that which is expressed by the settlement agreement.

Does the decision in P & O Developments Ltd v. Guy’s and St Thomas’s, supra, so heavily relied upon by Bovis, advance this issue? In that case Guy’s and St Thomas National Health Service Trust were sued by P & O, their project managers, for money due under a management contract in respect of a new building development at Guy’s Hospital. Guy’s counterclaimed for damages for breach of the management contract alleging that delays to the works had been caused by P&O and their service engineers, A&A. The damages counterclaimed were based on a global settlement under which Guy’s had agreed to pay to their main contractor, Higgs & Hill, £83.9 million. Higgs & Hill had claimed against Guy’s under the terms of the main contract to be indemnified against the claims of sub-contractors which in turn were based on claims that P&O and A&A had unjustifiably delayed the progress of the works. By the settlement agreement Higgs & Hill were to meet the claims of those sub-contractors without further recourse to Guy’s. The global settlement agreement did not apportion the £83.9 million between the claims of the individual sub-contractors. Guy’s sought to prove their losses as against P&O and A&A by asserting that the global settlement figure was in itself a reasonable sum at which to settle all Higgs & Hill’s claims and that such figure was made up by aggregating separate evaluations of each claim which those advising Guy’s had considered reasonable in a prior report to Guy’s but not provided to Higgs & Hill.

There was a trial of preliminary issues in the Technology and Construction Court. Amongst the preliminary issues were the following.

To this series of questions H H Judge Bowsher QC gave the following answers:

In the course of his judgment Judge Bowsher relied heavily on the judgment of Singleton LJ. in Biggin v. Permanite [1951] 2 KB 314 at pages 321-324 for the proposition that in a case where a party claims as part of his damages the amount which he has paid by way of settlement of a claim on him by a third party it is not sufficient to establish his loss that he reasonably entered into the settlement agreement: he must go further and prove that the sum paid in settlement was in itself reasonable. In substance, that meant that it must be established that the amount recoverable had the arbitration proceeded would have been “somewhere around the figure at which the plaintiffs had settled”. Whereas it was relevant that the settlement figure had been the subject of legal advice to the plaintiff, that in itself did not prove reasonableness. It was for the court to investigate what would have been recovered had the arbitration fought and damages been awarded against the plaintiff. Evidence of the terms of the settlement was thus held by Judge Bowsher to be relevant and admissible both as a rule of evidence and because under the second rule in Hadley v. Baxendale (1854) 9 Ex 341 the reasonable settlement of claims may be a matter which the parties may be held to have had in reasonable contemplation.

As to the reasonableness of the global settlement figure it is clear from page 14 of the judgment that, by reference to the approach of the Court of Appeal in Biggin v. Permanite, it was held that in determining whether a global settlement figure is reasonable it is necessary to consider what would be reasonable for each of the separate claims covered by the settlement. Hence, Judge Bowsher concluded that questions A(1) and A(2) should be answered No and Yes respectively.

In that case the court was confronted by a claim for damages for breach of contract and the issue was what evidence would be admissible for the purpose of proving the amount of damages recoverable in respect of the settlement agreement. The amount paid could only be shown to be reasonable by determining whether what would have been payable as damages absent a settlement was somewhere close to what had been paid under the settlement for the cost of the individual claims. The court could thus investigate the comparative position and decide reasonableness, but reasonableness of any given amount allocated to a separate claim would not be proved by the reasonableness of the amount of the global settlement.

The deployment of this judgment in support of the proposition that the court can open up a global settlement and evaluate for reasonableness the assured’s own assessments of the amounts allocated to each claim against the assured reflects the assumption underlying the submissions advanced on behalf of Bovis that the function of ascertainment of loss in the context of liability insurance is identical to the process of proving the amount of loss caused by breach of contract where the consequence of such breach is liability of the claimant to a third party with whom a settlement has been entered into. As appears from paragraphs (38) to (43) of this judgment, that assumption is fallacious. In the context of liability insurance the process of ascertainment is not merely the process of evidencing loss but represents that stage in the assured’s relationship with the third party by which he sustains those compensatory liabilities to the third party specifically identified by the judgment, award or settlement agreement which, by the terms of the policy, is an essential element in the cause of action against insurers. There is no similar mechanism, which operates as a pre-condition to the cause of action for an ordinary breach of contract. The claimant has his cause of action regardless of whether there was a judgment, award or settlement of a third party’s claim against him. His only concern is to establish the measure of damages and for this purpose the judgment, award or settlement are likely to provide the necessary evidence, although, as appears from P&O Developments, supra, this may not be of great weight in the case of the settlement agreement especially if it is a global settlement. Having regard to these considerations, the decision of H H Judge Hicks QC in Royal Brompton Hospital National Health Service Trust v. F A Hammond, supra, takes the matter no further.

For these reasons I have no doubt that a global settlement agreement of the nature of that found in the present case does not satisfy the requirement of ascertainment of loss under these liability insurance policies. It does not impose on the assured any identifiable loss in respect of any identifiable insured eventuality. It merely identifies the overall price paid by the assured as consideration for a contract which conferred on the assured various different benefits including the dropping by Braehead of all claims in respect of the project.

The argument advanced by Bovis that so to characterise the process of ascertainment would be contrary to public policy because it would be inconsistent with the policy of encouraging the settlement of claims cannot be correct. Once the purpose and scope of the implied term by which this pre-condition is imposed have been defined - as they have been in the cases leading up to Bradley v Eagle Star Insurance, supra, it is not for this court to superimpose a derogation from the effect of this term which would depart substantially from the conceptual basis underlying what has been firmly developed now in the field of liability insurance.

It follows that issues 1(a) & (b) must be answered No.

It further follows that issue 2 must also be answered No. An insured loss can only be quantified by reference to the mode of ascertainment in question, which in this case is the Settlement Agreement. If that agreement does not specifically identify the cost to the assured of discharge of the claim or claims said to be within the scope of the cover, the ascertainment of the relevant loss to the assured cannot be supplied by extrinsic evidence, whether of objective or subjective evaluation.