London Borough of Redbridge v Municipal Mutual Insurance Ltd 1

Redbridge had indemnity insurance with Municipal Mutual which covered legal liability to pay compensation for loss arising out of negligence. A number of employees had taken early retirement based on misleading information. In each case, the former employees initially received benefits higher than they were lawfully entitled to. Subsequently, Redbridge gave them each notice that it intended to adjust the sums being paid to the former employees, but made little or no attempt to recover the overpayments which had already been made. Various former employees complained to the Pensions Ombudsman.

During 1998 and 1999 the Ombudsman made a series of determinations requiring Redbridge to pay compensation to these former employees which effectively restored them to the position they would have been in had the misleading information been correct.

Various questions subsequently arose, including whether Municipal was liable to indemnify Redbridge under the terms of the policy and in addition, if the Redbridge employees involved in making the payments were found guilty of the offence of misconduct in public office, whether Municipal could rely on an exception under the policy.

The Court held that the liability imposed by the Pensions Ombudsman was a statutory liability imposed in consequence of maladministration and it is not normally possible or permissible to go beyond the determination for the basis of liability. Where liability has been established by a competent court or tribunal, it is not open to another court to establish that the basis of liability was in fact something else – such a misconduct in public office. The Court said it would have no difficulty in inferring from the determinations that lack of proper administrative procedures and supervision must have involved negligence (although this was conceded).