In Milton Keynes Borough Council v (1) Michael Nulty, Deceased (2) Wing Bat Security Ltd (Formerly DBI Support Services Ltd) and (3) National Insurance & Guarantee Corporation Ltd : National Insurance & Guarantee Corporation Ltd v (1) Michael Nulty, Deceased (2) Milton Keynes Borough Council (2011) EWHC 2847 (TCC), two parallel actions, the High Court was required to determine the cause of two fires at a recycling centre, and the extent of the liability of the National Insurance & Guarantee Corporation Ltd (NIG) to indemnify the first defendant, Mr Nulty, if he was found by the court to have caused the fires. Mr Nulty died in 2010 and therefore NIG conducted his defence in the first action, notwithstanding its own separate claim against him.
In the first set of proceedings, the local authority contended that the first fire was caused by Mr Nulty discarding a cigarette end and the second fire was caused in the same way. NIG contended that the first fire was caused by arcing from a live electrical cable or by arson by an intruder, and that the second fire was caused by an intruder. The court followed the logic of Kiana v Land Rover Ltd [2006] ECWA Civ 880, (2006) 150 S.J.L.B. 891, reasoning that where there are only two possibilities under consideration, both of which seem unlikely, if one seemed much less likely than the other, the less likely could be discounted, thus making the other more likely to have happened on the balance of probabilities. Of the three suggested causes of the first fire, it was found that on the evidence a cigarette end discarded by Mr Nulty was the most probable. It followed that, on a balance of probabilities, Mr Nulty was also responsible, and therefore liable, for the damage caused in the second fire rather than it being caused by an intruder.
In the second set of proceedings, the court ruled that Mr Nulty’s delay in notifying NIG of the fires had impaired NIG’s opportunity to investigate the claim, and perhaps to demonstrate that one of the other causes of the fire had a higher probability of being true. The court assessed the prejudice to NIG in terms of its loss of opportunity to secure a different result according to the same principles that would be used to assess damages for loss of opportunity to defend proceedings: arriving at a figure of 15 per cent. Accordingly, Mr Nulty was therefore entitled to be indemnified to the extent of 85% of his liability or, if that exceeded the £2 million indemnity limit, to the extent of £1.7 million.