Did you know? A third party who intentionally interferes with the operation of a contract (including a policy of insurance) that causes you or your insured customer loss and damage, may be liable to the party that suffered the loss. This is referred to as the “tort of contractual interference”.
The tort has two components – a mental component and an actual interference component:
1. The “mental” element requires the interfering person to have “sufficient knowledge of the contract” to base an intention to interfere with its operation – accidental interference with a contract is insufficient. The test differs depending upon whether the specific terms of the contract were, or were not, known:
- Where the terms of the contract were known to the person said to have committed the tort, you must show that the person knew that the induced or procured act would breach the contract; however
- Where the precise terms of the contact were unknown, a deliberate disregard (whether reckless or indifferent) for the potential terms of the contract, or an intention to proceed with a course of action regardless of the impact on the contract could comprise the requisite mental element to establish the tort (this seems to us to be an easier test than where the exact terms were known).
2. The interference component may be direct (e.g., physically preventing a party from carrying out their side of the contract) or indirect (e.g., encouraging, telling or coercing a party to take or not take action), and indirect interference includes persuasion of or pressure placed upon non-parties to the contract such as agents of the contracting parties (a broker, for example).
must also cause loss to one of the parties to the contract (if there is no actual negative consequence of the interference, the tort will not have been committed, even if an intention to do so existed). In other words, there is no tort of “attempting (but failing) to interfere with a contract”.
In practice, insurers might suffer this tort when third parties (such as repairers) induce customers to sign documents such as repair agreements in contravention of policy terms requiring agreement from the insurer before repairs are commenced on the premise that “this is the way things are done” (or similar) where the repairer knows very well that such conduct is likely in breach of the terms of the contract, and could be extended also to hire car or storage charges. The loss suffered by the insurer could be the difference between what is ultimately paid and what the insurer would have paid if the policy was properly honoured and in the absence of the interference.
While unlikely to stand alone, consideration should be given whether to include a claim of this tort in the broader response to a dispute which may arise between an insurer and its customer, where the “blame” for the underlying dispute can be directed towards some third party (often a repairer) who usually stands as the beneficiary of the insured customer not complying with their obligations under the policy.
Important note: this tort will not apply to interactions between an insurer and a third party (whether or not represented by a recovery agent or repairer), because the third party has no contractual obligations to the insurer.
The content of this article is intended to provide a general guide to the subject matter. Specific advice should be sought about your specific circumstances.
