The Taylor Wessing Insurance and Reinsurance Review of 2014

The Taylor Wessing
Insurance and Reinsurance
Review of 2014
January 2015
Contents
Law and Jurisdiction...................................................................................... 5
The Starlight Shipping saga: decisions following the Supreme Court’s
ruling on 6 November 2013...........................................................................................5
High Court challenges the Financial Ombudsman Service’s jurisdiction
in relation to a Directors’ and Officers’ policy.............................................................7
Procedure..................................................................................................... 11
No declaratory relief in relation to non-contracting third parties ...........................11
Mesothelioma claim allowed despite prior settlement with other employers.........13
Policy Interpretation / Scope of Coverage..................................................... 16
Co-insurance: Interpretation of a Follow Clause .......................................................16
Interpretation and interaction of conditions precedent to liability under an
insurance policy..............................................................................................................18
Wide scope of cover given to an employee/consultant in relation to a PI policy...21
Damages / Quantification of Claim................................................................ 24
The relevance of events subsequent to valuation date when quantifying
under a Warranty and Indemnity Policy.......................................................................24
Fraud and Avoidance..................................................................................... 26
Court of Appeal upholds Commercial Court decision concerning avoidance
of residential insurance policy.......................................................................................26
No forfeiture of benefit where no dishonest intent ..................................................27
Fraudulent device rule should be followed as a matter of ratio...............................28
Insurers’ Recovery Actions............................................................................ 31
No immunity for international compensation fund from freezing order
relief sought by insurer in the UK.................................................................................31
Consequential losses arising from riot damage held to be recoverable
by insurers ......................................................................................................................33
Brokers’ Duties.............................................................................................. 35
Insurance broker not liable despite providing inadequate insurance cover to a
commercial client ..........................................................................................................35
The Supreme Court hands down judgment on PPI mis-selling and unfair
relationships under the CCA ........................................................................................36
Reinsurance.................................................................................................. 38
Court grants reinsurer’s application for summary judgment –
retrocessionaire’s defence had no reasonable prospect of success .......................38
Court of Appeal upholds Commercial Court decision concerning
typhoon warranty...........................................................................................................39
German Court Decisions ............................................................................... 40
The Federal Court of Justice on the German Insurance Act 2008.........................40
Belgian Insurance Development..................................................................... 42
An ageing population and complementary insurance in Belgian
Social Security ...............................................................................................................42
International insurance team......................................................................... 43
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Our Annual Insurance and Reinsurance Review summarises the key case
law developments in insurance and reinsurance throughout the year.
Please note that some cases covered in this review may be subject to
further appeal.
In our 2014 review, we look at the following cases:
Case
Judgment dates
Page
San Evans Maritime Inc & Others v Aigaion Insurance
Co SA
4 February 2014
16
BGH v 12/03/2014 – IV ZR 306/13
12 March 2014
40
Alan Bate v Aviva Insurance UK Ltd
21 March 2014
26
Milton Furniture Ltd v Brit Insurance Ltd
1 April 2014
18
Assuranceforeningen Gard Gjensidig v International Oil
Pollution Compensation Fund 1971
7 May 2014
31
Mitsui Sumitomo Insurance Co (Europe) Ltd and Others
v Mayor’s Office for Policing and Crime
20 May 2014
33
Federal Mogul Asbestos Personal Injury Trust v FederalMogul Ltd (formerly T&N Plc)
27 June 2014
11
Tokio Marine Europe Insurance Ltd v Novae Corporate
Underwriting Ltd
2 July 2014
38
Ageas (UK) Ltd v Kwik-Fit (GB) Ltd and AIG Europe Ltd
4 July 2014
24
Beacon Insurance Co Ltd v Maharaj Bookstore Ltd
9 July 2014
27
Starlight Shipping Co v Allianz Marine & Aviation
Versicherungs AG
18 July 2014
5
Amlin Corporate Member Ltd v Oriental Assurance Corp
7 August 2014
29
Dowdall v Kenyon & Sons
12 August 2014
13
BGH v 10/09/2014 – IV ZR 322/13
10 September 2014
40
Eurokey Recycling Ltd v Giles Insurance Brokers Ltd
12 September 2014
35
Versloot Dredging BV v HDI Gerling Industrie
Versicherung AG (The DC Merwestone)
16 October 2014
28
R (on the application of Bluefin Insurance Services Ltd)
v Financial Ombudsman Service Ltd
20 October 2014
7
Plevin v Paragon Personal Finance Ltd
12 November 2014
36
Rathbone Brothers plc and Michael Paul EgertonVernon v Novae & Others
14 November 2014
21
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Law and Jurisdiction
The Starlight Shipping saga: decisions following
the Supreme Court’s ruling on 6 November 2013
Starlight Shipping co v Allianz Marine & Aviation Versicherungs AG and others1
Court of Appeal, 18 July 20142
High Court, 26 September 20143
Background
Two decisions have been handed down this year in relation to the dispute between the ship
owner of the vessel Alexandros T and the insurers of the vessel which sunk in May 2006.
Starlight, the ship owner, and other co-assureds commenced proceedings against the insurers in
2006 (the “2006 Proceedings”) for the loss against their Lloyd’s and Company Market Insurers
(the “Syndicates” and the “Company Market Insurers” respectively), who denied the claim,
alleging amongst other things that the vessel was unseaworthy with the insured’s knowledge.
Similar allegations were also raised in an arbitration between Starlight and another insurer of the
vessel, Hellenic. The 2006 Proceedings were resolved through settlements (in the form of Tomlin
orders) between Starlight and the insurers shortly before the trial began.
In 2011, the insured commenced proceedings against the insurers in the Greek courts under
the Greek Civil and Criminal Code. The insurers responded by seeking to invoke the Tomlin
orders and the indemnity under the settlement agreements in favour of the insurers and also by
initiating new English proceedings for relief and damages for breach of the jurisdiction clauses
within the settlement agreements.
The High Court held in favour of the insurers in its judgment dated 19 December 2011, granted
the insurers summary relief and held, among other things, that the Greek proceedings were:
„„
„„
„„
in breach of the exclusive jurisdiction clauses in the underlying policies;
in breach of the jurisdiction clauses in the settlement agreements; and
in breach of the terms of the settlement agreements.
The Court of Appeal, in its judgment dated 20 December 2012, allowed the insured’s appeal
holding that the claims brought by the Company Market Insurers and Syndicates should be
stayed under Article 27 of the Judgments Regulation because these claims involved the same
cause of action as the Greek proceedings and the English Court was second seised.
The Supreme Court, in its judgment dated 6 November 2013, allowed the insurers’ further
appeal, holding that Article 27 did not apply to the insurers’ claims since they did not involve the
same cause of action as the Greek proceedings. The orders of Burton J in the High Court were
reinstated and the remainder of the appeal against his judgment on the merits was remitted to
the Court of Appeal.
New Court of Appeal judgment dated 18 July 2014
The Court of Appeal dismissed the entire appeal (in favour of the insurers) and upheld the orders of
Burton J granting summary judgment for the insurers with damages to be assessed and the insurers
to be indemnified by the insured for their expenses in defending against the Greek proceedings.
1
ee our previous commentary summarising the decisions of the High Court ([2011] EWHC 3361
S
(Comm)), the Court of Appeal ([2012 EWCA Civ 1714) and the Supreme Court ([2013] UKSC 70) at
page 1 of our Annual (Re)insurance Review 2013 available here:
http://www.taylorwessing.com/fileadmin/files/docs/Insurance-and-Reinsurance-Review-2013.pdf
2
[2014] EWCA Civ 1010
3
[2014] EWHC 3068 (Comm)
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Regarding the indemnity provision, the Court of Appeal concluded that, regardless of their
basis being tortious rather than contractual, the Greek proceedings were related to the loss of
the Alexandros T and so fell within the indemnity provision. The insured agreed to indemnify
the insurers against any claim that might be brought against them in relation to the loss of the
Alexandros T and the Greek proceedings were certainly in relation to that loss.
Regarding the settlement provision, the Court of Appeal stated that it was “the obvious
intention of the parties that the settlement provision and the indemnity provision should
march together and complement one another…”. The Court of Appeal extended the principle
from Fiona Trust v Privalov4 (which related to the application of an arbitration agreement) to
settlement clauses, concluding that the sensible commercial meaning of the words “full and final
settlement” indicated that the intention of the parties was that all claims relating to the loss of
the Alexandros T should be included in the settlement agreement.
The Court of Appeal also extended the Fiona Trust principle to jurisdiction clauses and held that
the Greek proceedings also fall within the jurisdiction clauses of the settlement agreements.
Further, the Court of Appeal concluded that the Greek proceedings fell within the exclusive
jurisdiction clauses contained within the underlying policies as the insured had promised, through
those jurisdiction agreements, to submit to the exclusive jurisdiction of the English courts
and thus promised not to bring claims in other courts where such claims might (or might not)
succeed.
The insured’s argument that the claims for damages or declarations in favour of the insurers
would interfere with the jurisdiction of the Greek court or infringe EU law was rejected.
Following the Supreme Court’s ruling lifting the stay on the insurers’ English proceedings, on
the basis that the English proceedings and Greek proceedings did not involve the same cause
of action, there was therefore no question of any interference with the jurisdiction of the Greek
court. The Greek court would be free to consider the Greek proceedings but will have to decide
whether to recognise any judgment of the English court that the Greek proceedings fall within
the terms of the settlement agreements and any award for damages made by the English
courts against the insured for the breach of the settlement agreements and the policies. That,
however, the Court of Appeal held, is not an interference with the Greek court’s jurisdiction but
rather an acknowledgement of the Greek court’s jurisdiction.
New High Court judgment dated 26 September 2014
The Greek proceedings were brought not only against the insurers but also individual employees
and underwriters of the insurers. The issues remaining to be determined by the High Court
were:
„„
„„
the relief sought by the insurers in respect of the employees/underwriters of the insurers;
and
specific performance of the Syndicates’ settlement agreement sought by the Syndicate
insurers and Syndicate individual defendants.
We focus below on the first issue.
The settlement agreement with Hellenic expressly stated that it was in full and final settlement
of claims against “…the Underwriters [i.e. Hellenic] and/or against any of its servants and/
or its agents…” and therefore was not in issue. However, the settlement agreements with the
Company Market Insurers and Syndicates stated that they were in full and final settlement
of claims against “…the Underwriters…” and did not contain wording in respect of servants
or agents. The Company Market Insurers and Syndicates argued that the true construction
of the word “underwriters” encompassed the servants and agents of the underwriter. The
insured argued that “underwriters” meant the corporate entities set out in the preambles of
4
[ 2007] UKHL 40. A House of Lords decision which approved the Court of Appeal’s approach setting
out the principle that (in the absence of express wording to the contrary) sensible business people
likely intend for any dispute arising out of a relationship to be determined by the same tribunal rather
than different courts or tribunals.
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the Company Market Insurers’ and Syndicates’ settlement agreements and not their employees,
individual underwriters or agents.
The High Court considered that the correct approach to the construction of the agreements
was to consider the language used and ascertain what a reasonable person would have
understood the parties to have meant and that if there were two possible constructions the
court would be entitled to adopt that construction which is consistent with business common
sense. With this approach, the High Court concluded that the word “underwriters” encompassed
its servants and agents and that the alternate interpretation – that it was restricted to the
named corporate entities – defied business common sense (since it would entail the Greek
proceedings potentially resulting in awards against the servants or agents who would be entitled
to seek to be indemnified from the underwriters and they, in turn, would be entitled to seek
cover under the indemnity from the insured in the Company Market Insurers’ and Syndicates’
settlement agreements). Further, the High Court considered that the clear intention of the
parties was for the settlement agreements to provide a general release and a “clean break”.
The High Court also accepted the insurers’ argument that the joint tortfeasor rule – that where
there is a joint cause of action against two or more persons, a discharge against one tortfeasor
operates as a discharge against all – supported the insurers’ interpretation of the settlement
agreements. The High Court did not consider any exceptions to the joint tortfeasor rule to be
applicable in the circumstances.
High Court challenges the Financial
Ombudsman Service’s jurisdiction in relation to a
Directors’ and Officers’ policy
R (on the application of Bluefin Insurance Services Ltd) v Financial Ombudsman
Service Ltd5
High Court, 20 October 2014
Bluefin acted as a broker in obtaining a D&O policy for Betbroker Ltd. Mr Lochner, a director
of Betbroker Ltd who was an insured person under the D&O policy, gave notice to Bluefin of a
potential claim against him. The insurer refused to provide cover and Mr Lochner alleged that
this was because Bluefin did not inform the insurer of the claim. Mr Lochner complained to
the Financial Ombudsman Service (the “FOS”), which ruled that it had jurisdiction to hear his
complaint against Bluefin.
Bluefin sought judicial review of that decision, asserting that at the relevant time Mr Lochner
was not acting as a consumer and therefore not entitled to complain to the FOS under the
relevant rules. As an initial issue, the question arose whether, as the FOS argued, it alone had
discretion to determine the potential claim unless there was an error of law or it was clear that
an irrational decision had been made or whether the court was entitled to consider whether the
eligibility requirements were satisfied. Where a tribunal’s authority over a claim depends on a set
of objective facts being satisfied, it is established that it is for the courts, and not the tribunal
itself, to consider whether those “precedent facts” have been met.
The Court held that: (i) it was within its jurisdiction to decide whether the individual was acting
as a consumer as a question of “precedent fact”; and (ii) on the facts, as a matter of precedent
fact Mr Lochner was not a consumer. Alternatively, the FOS had misdirected itself as a matter of
law, and had it not done so it would have concluded that the FOS did not have jurisdiction, as at
the relevant time the insured was not eligible as a consumer or otherwise.
5
[2014] EWHC 3413 (Admin)
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The decision confirms that eligibility to make a complaint to the FOS is a matter of “precedent
fact” which the courts may review, and provides some much-needed clarity regarding the
definition of “a consumer” for this determination.
The decision also highlights an avenue for parties such as insurers or brokers to challenge the
FOS’ jurisdiction to entertain complaints regarding D&O policies, based on the eligibility of the
complainant.
Background
Bluefin Insurance Services Ltd (“Bluefin”) acted as a broker for a D&O policy (the “Policy”)
taken out by Betbroker Ltd (“Betbroker”). The Policy named Mr Wayne Lochner (“Mr
Lochner”) as an insured person.
The Policy included cover in respect of claims made for management liability of individuals for
“wrongful acts”. A claim was brought against Mr Lochner personally for alleged fraudulent
or reckless misrepresentations he made about Betbroker which induced Aberdeen Asset
Management to invest approximately £500,000 in Betbroker.
The Policy had expired on 8 September 2008, but the claim was brought against Mr Lochner
on 7 September 2011. The insurer refused cover contending that they had not received any
notice of a claim or circumstance likely to give rise to a claim prior to the expiry of the Policy.
Mr Lochner stated that he had made Bluefin aware of the potential claim against him prior to
the expiration of the Policy, but that this information had not been passed on to the insurer.
Mr Lochner made a complaint to the FOS against Bluefin for its alleged failure to pass on this
information.
The FOS’ jurisdiction flows from s.226 Financial Services and Markets Act 2000 (“FSMA”) and
the delegated legislation made by the Financial Conduct Authority (the “FCA”) in the form of
the “Dispute Resolution: Complaints” section of the Financial Services Handbook (“DISP”).
The FOS published a decision dated 3 May 2013, which set out a series of findings including:
“The jurisdiction of the FOS is set out in the Financial Conduct Authority’s dispute resolution
DISP rules. These rules stipulate exactly what the Financial Ombudsman Service can and
cannot consider”.
The decision proceeded to set out DISP 2.7.3R, which states that “an eligible complainant must
be a person that is: (i) a consumer…” and definition of “consumer” in the Glossary to the FCA
Handbook was at the relevant time “any natural person acting for purposes outside his trade,
business or profession”. The FOS concluded that the question was whether Mr Lochner “was
acting outside his employment when bringing this complaint”, and concluded that he was.
Bluefin argued that Mr Lochner did not fall within this definition.
Relevant issues examined by the Court
(a) Is a decision whether Mr Lochner was acting as a consumer an issue
of “precedent fact” for the Court to determine regardless of the FOS
assessment?
The Court first addressed whether the issue of whether Mr Lochner was acting as a
consumer was an issue of “precedent fact”, such that the Court then has jurisdiction to
make a decision on the basis that there is a right or wrong answer (as argued by Bluefin),
or whether the issue was reserved for the FOS’ discretion (as argued by the FOS).
The judge agreed with Bluefin on the basis of Lady Hale’s judgment in the Supreme Court
in R (A) v Croydon London Borough Council6. While the FOS has compulsory jurisdiction to
6
[2009] 1 WLR 2557
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further the aim of resolving certain disputes quickly, it still must be shown that the incident
case is one to which the compulsory jurisdiction rules apply. The answer to this question
would lie in a “hard-edged finding of objective fact”.
It was therefore held that this was a matter of “precedent fact” for the Court to determine.
However, on the hypothetical basis that this was not the case, the Court also assessed
whether the FOS had misdirected itself in law.
(b) If the issue is for the FOS, did the FOS misdirect itself in law in reaching its
decision?
•
Time when assessment of eligibility is to be made
The FOS had argued that the correct point in time is the point at which the complainant
makes their complaint, while Bluefin argued that the assessment should be made at the
earlier time of when the Policy was entered into, or, at the latest, the date of the act or
omission which forms the basis of the complaint.
On this aspect, the judge agreed with the FOS and held that the correct interpretation
under s.226 FSMA was that if the complainant was a consumer at the time of the
complaint, then he would be an eligible complainant.
•
Did the FOS incorrectly conclude that Mr Lochner was a consumer?
The Court was asked to assess whether, at the time of making the complaint, Mr Lochner
was “acting for purposes outside his trade, business or profession”.
Bluefin argued that it does not follow that if the claim is brought personally it is therefore
outside the “trade, business or profession”. The fact that the liability is personal does not
make it, without more, consumer liability. Bluefin further argued that Mr Lochner could
not have been acting as a consumer, as the alleged wrongdoing was in the course of
promoting the business of which he was founder, CEO and shareholder. Distinguishing the
Policy from other group policies such as private health insurance, Bluefin argued that whilst
those policies covered purely private matters, this Policy only covered an individual against
professional or business liabilities.
The FOS argued that, given Mr Lochner’s spouse was also a beneficiary under the Policy,
the question of whether Mr Lochner was a consumer was no different than if she has
made the complaint. The FOS argued that the Policy was exactly like a private health
insurance policy in that it protected an individual in their private life from liabilities or
misfortunes that may, or may not, occur through employment.
The judge held that the complaint made by Mr Lochner to the FOS was “to obtain redress
which would compensate him for the loss sustained by virtue of his being left unprotected
under the Policy in respect of loss arising from the Claim for his wrongful acts undertaken
in the course of his trade, business or profession”. There was no proper basis that the FOS
could conclude that the subject matter of Mr Lochner’s complaint was “outside his trade,
business or profession”.
The judge rejected the analogy made between the Policy and a purely private group
insurance policy, because such policies provide protection in respect of the private interests
of the members of the scheme.
Therefore, as a matter of precedent fact, the judge held that Mr Lochner was not “acting
as a consumer” at the time that the complaint was made. Further, or in the alternative,
the FOS had misdirected itself in law when concluding that Mr Lochner was doing so. Mr
Lochner was not an eligible complainant.
The Court granted an order quashing the FOS’ decision to entertain the complaint.
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Significance of this decision
This decision provides much needed clarity regarding the eligibility of complainants regarding
policies, such as D&O policies, which provide a personal benefit to the directors. It also confirms
that eligibility issues are ones of “precedent fact” to be assessed by the Court, to be objectively
assessed based on the facts, rather than remaining within the FOS’ sole discretion. This clarifies
the limits to the FOS’ ability to determine its own jurisdiction.
The decision will have importance for parties who are seeking to challenge the scope of the
FOS’ jurisdiction. It could also lead to the FOS being more cautious about entertaining such
complaints in the first place.
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Procedure
No declaratory relief in relation to noncontracting third parties
The Federal Mogul Asbestos Personal Injury Trust v Federal-Mogul Ltd (formerly
T&N Plc) & Others7
High Court, 27 June 2014
The High Court considered the law relating to third parties’ ability to seek declaratory relief in
respect of contractual rights where they are not parties to the contract. This is particularly
difficult where the parties to the contract are not themselves in dispute as to their rights or
obligations. Here, a trust sought various declarations from the High Court regarding the handling
and settlement of the asbestos claims by reinsurers. However, the trust was not a party to either
the insurance policy or the reinsurance contract.
Background
Parties and the insurance policies
The claimant in these proceedings was a trust (the “Trust”) established by an order of the US
Bankruptcy court to deal with asbestos related personal injury claims against Federal-Mogul Ltd
(“Federal Mogul”).
The history of this matter relates to T&N plc (and its subsidiaries) (“T&N”), which was one of
the largest producers and distributors of asbestos and products containing asbestos for much of
the 20th century, and which was subsequently acquired by Federal-Mogul Corporation in 1998.
T&N was faced with an enormous number of asbestos related personal injury claims. For a period
of time, T&N’s strategy was to settle the asbestos claims as quickly and cheaply as possible
without litigation and it became a member of a joint claims-handling organisation – the Center
for Claims Resolution (“CCR”) – for further costs savings in defending the asbestos claims.
By the mid-1990s, T&N shifted its primary business to engineering. In December 1996, T&N put
in place an asbestos liability policy (the “Policy”) with Curzon Insurance Ltd (“Curzon”) with the
aim of drawing a line under the exposure to the asbestos claims and allowing the engineering
business to develop unimpaired by that exposure. Curzon ceded liabilities in three equal shares
under a reinsurance agreement (the “Reinsurance Contract”) to three reinsurers – Centre Re (a
subsidiary of Zurich Re), EIRC (a subsidiary of Swiss Re), and Munich Re (the “Reinsurers”).
Insolvency and claims-handling issues
The asbestos claims proved to be far in excess of what T&N expected: between 1976 and
2001 T&N resolved 245,000 asbestos claims at a cost of US$835m. By January 2001, the CCR
had essentially collapsed and T&N was forced back into the US tort system as a “standalone”
defendant.
In October 2001, Federal-Mogul and T&N filed for bankruptcy in the US and went into
administration in the UK. In the context of this insolvency, a Plan of Reorganisation (the
“Plan”) under Chapter 11 of the US Bankruptcy Code was put in place which culminated in the
creation of the Trust. The Plan required T&N to grant the Trust a power of attorney to “take all
necessary and/or appropriate steps…to pursue [recoveries] in respect of [the asbestos claims]…
and do anything else which the [Trust] considers to be necessary or desirable to achieve the
purposes…” (the “POA”). The Trust itself established a mechanism for valuing individual asbestos
claims in accordance with what were referred to as Trust Distribution Procedures (the “TDPs”).
The terms of the Policy provided wide scope for asbestos claims-handling to T&N as follows:
7
[2014] EWHC 2002 (Comm) | 12
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“…full, exclusive and absolute authority, discretion and control, which shall be exercised in a
businesslike manner in the spirit of good faith and fair dealing, having regard to the legitimate
interests of the parties to [the Policy] and of the reinsurers thereof, with respect to the
administration, defence and distribution (including but not limited to settlement) of all Asbestos
Claims…“
The Policy provided that this claims-handling power would transfer to Curzon in the event that
there was an insolvency event in respect of T&N (it was common ground that an insolvency
event had occurred). The Policy also stated that the appropriate standard for handling asbestos
claims could not be specified completely at its signing date but that T&N was required to specify
a standard from time to time. At the time of the inception of the Policy, the CCR’s standards
were stated in the Policy as being the best practice at the time.
The Reinsurance Contract provided that if Curzon became entitled to exercise the asbestos
claims-handling power then this power would transfer from Curzon to the Reinsurers.
The Trust alleged that the TDPs would ascribe a lower value to asbestos claims than the likely
settlement or award values if the claims were litigated in the US tort system and that therefore
handling the asbestos claims in accordance with the TDPs was an economic “no-brainer” – and
the only business-like approach for the Reinsurers to settle the asbestos claims. On this basis,
the Trust sought various declarations which the High Court described as falling into four broad
categories:
1)
standing of the Trust to claim the declarations;
2)
obligations of Curzon/Reinsurers with regard to claims-handling;
3)methodology utilised by the Trust in relation to settlement/discharge of asbestos claims
presented by the Trust (including in respect of two specific claims which had been
previously settled); and
4)
potential limitation issues and the effect of the Plan and its relationship with the Policy.
The first two categories are of particular interest and we discuss the High Court’s analysis in
relation to these further below.
Standing of the Trust
The High Court came to the conclusion that the Trust did not have standing to seek the
declarations in respect of claims-handling obligations either by virtue of having sufficient interest
or under the terms of the POA provided by T&N in favour of the Trust.
The Reinsurers argued that since the Trust was not a party to the Policy or the Reinsurance
Contract it had no standing to interfere with these contractual arrangements. Absent any
exceptional circumstances warranting such interference, the principle of privity of contract
(preventing a non-contracting third party from claiming contractual rights/obligations) would
be undermined. Further, the Reinsurers argued, interference was particularly unwarranted given
that there was no dispute between the contracting parties as to the exercise of their rights and
that the issue was compounded by the fact that the Trust was seeking to interfere with the
exercise of extremely wide contractual powers of discretion.
The Trust accepted that it was not a party to the Policy or the Reinsurance Contract. However,
the Trust argued that this was not a necessary precondition to granting declaratory relief
and that the law had moved on from the Meadows8 case. The Trust relied on the principles
summarised by Aiken LJ in Rolls Royce Plc v Unite the Union9 in respect of the grant of
declaratory re which included the point that “the fact that the claimant is not a party to the
8
eadows Indemnity Co Ltd v Insurance Corp of Ireland Plc [1989] 2 Lloyd’s Rep 298; which held that
M
it would only be in exceptional circumstances that a party not privy to a contract who had no locus
standi would be entitled to obtain a declaration of rights under that contract
9
[2010] 1 WLR 318
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relevant contract in respect of which a declaration is sought is not fatal to an application for a
declaration, provided that it is directly affected by the issue…”.
The High Court agreed that the law had clearly moved on since the Meadows case. However,
the High Court accepted the Reinsurers’ argument that a non-contracting third party cannot
obtain declarations in respect of the rights of parties to a contract where those contracting are
not themselves in dispute as to their respective rights and obligations.
The Trust also argued that it had standing by virtue of the terms of the POA which gave the
Trust wide scope to pursue or recover sums for the asbestos claims. The High Court disagreed
with this argument. It held that the present dispute related not to what is “recoverable” but
rather to determine the scope of such coverage and what “may” be recoverable – and that it
was unlikely that T&N and the Trust had intended the POA to grant the Trust a power to seek
declaratory relief from the Court in respect of claims-handling.
Claims-handling obligations
As a result of the High Court’s conclusion on standing, the Trust was not entitled to seek the
declarations relating to claims-handling. However, the High Court considered the substantive
merits of these declarations in case it was wrong on the issue of standing – and concluded, on
various grounds, that it would also refuse to grant these declarations on their merits.
In particular, the High Court concluded that the wording of the Policy and the Reinsurance
Contract – which, following T&N’s insolvency, granted wide discretion to the Reinsurers in
terms of claims-handling (i.e. full, exclusive and absolute authority, discretion and control to be
exercised in a businesslike manner) – was incompatible with the Trust’s suggestion that it was
entitled to limit the Reinsurers’ exercise of these contractual rights.
The Reinsurers’ broad contractual rights as to claims-handling were caveated in that they must
be exercised in a businesslike manner (as well as in good faith and fair dealing and with regard to
legitimate interests). The Trust’s TDPs were not the only businesslike manner for handling claims
and there is no monopoly on what may be “businesslike”.
Mesothelioma claim allowed despite prior
settlement with other employers
Dowdall v William Kenyon & Sons Ltd10
High Court, 12 August 2014
The Court held that the claimant, who had previously settled a claim arising from asbestosis
against seven of his 11 former employers, was not precluded from now pursuing a new
personal injury claim against the remaining three employers (one was irrelevant), in respect of
the development of mesothelioma. The case is important because it raises uncertainty over
settlement agreements and orders in hundreds of asbestos cases brought in the last 20 years.
Defendants who were previously sued for damages arising from exposure to asbestos may
now be liable for a further contribution from other employers when the condition develops into
mesothelioma.
Background
The claimant was exposed to asbestos by 10 employers over a long period of time. In 1998 he
was diagnosed with asbestos and pleural plaque with a 15-20% level of disability.
In 2001, he brought an action for damages against seven of his 10 former employers in respect of
asbestosis, pleural plaque and for the risk of developing mesothelioma (the “First Action”). The
claim was settled in 2003 for £26,000 (the “First Settlement”). It is important to note that, in
10 [2014] EWHC 2822 (QB)
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the First Action, the claimant made a claim for provisional damages in relation to the risk that he
would later develop a serious disease or condition, but he did not pursue it. The First Settlement
was on a full and final basis and excluded the development of mesothelioma.
The other three employers were not included as defendants in the First Action because the
claimant’s solicitors did not know the name of one of the former employers and could not
identify the relevant insurers for the other two employers (which are now dissolved). At the
time, there was no scheme in place to trace insurers that had provided employer’s liability
insurance in respect of obsolete employers.
The claimant later developed mesothelioma and, because of the full and final nature of the First
Settlement, he was unable to seek further damages from the original defendants. Therefore, he
brought an action against the three remaining employers in these proceedings for damages in
respect of contracting pleural mesothelioma.
These defendants argued that they would have joined in the First Settlement had they been
sued at the time, and would therefore have had a complete defence to these proceedings,
namely compromise.
The Special Case of Mesothelioma
The Court noted the special nature of cases involving mesothelioma: being an indivisible injury,
mesothelioma may be caused by a single fibre. If an employee has been exposed to asbestos
by several employers, it cannot be proven which employer actually caused the disease.
Fairchild v Glenhaven Funeral Services Limited11 established the special rule of causation
in mesothelioma cases. The claimant only has to prove that an employer has increased the
risk of the development of mesothelioma in order to recover in full against that employer for
the consequences. Then the employers who are being sued can apportion liability between
themselves.
Preliminary Issues
The Court had to consider three preliminary issues, pursuant to an Order of Master McCloud
dated 9 June 2014, summarised as follows:
„„
„„
„„
Whether, in light of the First Action, these proceedings were an abuse of the court process.
Whether the claimant was estopped from bringing a second action because the First
Settlement with the original employers included compensation for the risk of mesothelioma.
Whether the second action was time barred under the Limitation Act 1980.
Abuse of Process
The argument of abuse of process arose out of the principle that there should be finality in
litigation and so the courts discourage multiple proceedings arising from the same proceedings.
The defendants in the second action argued that were they party to proceedings in the First
Action, they would not now be exposed to paying such a large sum in these proceedings.
However, the court held that these proceedings were not an abuse of process. The three
defendants were not parties to the First Action. There was also no evidence that the claimant
had deliberately secured compensation for the risk of mesothelioma and deliberately omitted
the three defendants from the First Action so he could sue them later should he develop
mesothelioma. The decision not to sue the three defendants was honestly made at the time. He
and his solicitors could not find an insurer liable to meet the claim. This was a reasonable, not
abusive, decision-making process.
Estoppel
The Court held that there was no automatic cause of action estoppel here because the parties
in the First Action were different from the parties to these proceedings. However, the Court had
to consider whether estoppel arose because of the principles set out in Heaton v Axa Equity &
11
[2002] UKHL 22
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Law Life Assurance Society Plc12. The principle was that where there are concurrent tortfeasors
(several independent wrongdoers whose actions combine to produce the same damage to
another), a settlement against one will not extinguish the claim against the others, unless there
has been full satisfaction of the entire claim. The question that flowed from this was, as posed by
Lord Bingham in Heaton, “has the claimant accepted a sum which was intended to represent the
full measure of this estimated loss?” The answer here was no. Following from the First Action,
the First Settlement accepted by the claimant was for the risk of mesothelioma and not for the
development of mesothelioma. The claimant, at the time of the First Action, decided not to seek
an order allowing him to return to court should mesothelioma develop. The First Settlement
did not include any sum that would arise from the development of mesothelioma. In these
proceedings, the claimant had suffered a loss arising from mesothelioma, which had developed
after the First Settlement and for which the claimant had not been compensated. Therefore, the
Court decided to allow the claim to proceed.
Limitation
On the face of it, these proceedings were time barred, as the claimant had ‘knowledge’, within
the meaning of s.14(1) Limitation Act 1980, in 1998 in relation to two of the defendants. The
claimant had knowledge 12 months later in relation to William, Kenyon & Sons Ltd, as he and
his solicitors could reasonably have been expected to determine the company as the claimant’s
employer. However, the court decided to use its discretion in disapplying the limitation period
under s.33 Limitation Act 1980 and allowing the action to proceed.
The Court considered arguments in the defendants’ favour, such as the fact that witnesses
would have died or become unavailable since 1998. It was also noted that the defendants would
suffer the financial prejudice of having to pay damages if the arbitrary time limit were disapplied.
The liability that the defendants now faced was much higher than if they had contributed
to the First Settlement. Being excluded from the First Settlement which was agreed before
the condition developed meant that these defendants lost the chance of avoiding paying the
defendant the damages to which he was otherwise entitled. The defendants also argued that
they had uncertain prospects of whether they would be able to recover contributions from
the defendants in the First Action in respect of damages arising from the development of
mesothelioma.
Overall, however, the Court decided that there was little prejudice due to loss of evidence and
that the only prejudice the defendants faced was financial. On balance, the Court disapplied the
limitation period because the claimant had a substantial claim for a very serious injury and the
medical evidence in respect of this was uncontroversial.
12
[2002] UKHL 15
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Policy Interpretation /
Scope of Coverage
Co-insurance: Interpretation of a Follow Clause
San Evans Maritime Inc & Ors v Aigaion Insurance Co SA13
High Court, 4 February 2014
The Court held that the defendant following underwriter was required to follow a settlement
reached by lead underwriters under a Follow Clause, despite the following underwriter being
excluded from the settlement agreement between the lead underwriters and assureds.
Background
The three preliminary issues tried in this case arise out of a hull and machinery policy covering
the vessel St. Efrem. On 27 July 2010, the vessel grounded at Paranagua, Brazil and suffered a
generator breakdown. It was then towed to Abidjan, Ivory Coast.
The claim was bought by three claimants. The first claimant was the vessel owner, the second
claimant was the vessel manager and the third claimant was a mortgagee of the vessel. The
first and second claimants were Liberian companies which had been dissolved. Their claims
were stayed on 20 December 2013 as they failed to provide security for costs. The third
claimant’s (Mrs Chariklia Livanou’s) claim proceeded and the court’s determination was binding
upon all the claimants.
50% of the interest in the vessel was insured under a policy written on 16 and 17 March 2010
by three Lloyd’s syndicates; Catlin, Ark and Brit (the “Lloyd’s Policy”). Catlin was the slip
leader. 30% of the interest in the vessel was insured by the defendant, Aigaion Insurance Co SA
(“Aigaion”) under a policy issued on 24 March 2010 (the “Aigaion Policy”). The remaining 20%
interest was uninsured. A claim was made under both policies. The Aigaion Policy contained the
Follow Clause below:
“Agreed to follow London’s Catlin and Brit Syndicate in claims excluding ex-gratia payments”
On 6 April 2011, Aigaion complied with a request to send a copy of the Aigaion Policy to the
Lloyd’s syndicates. On 24 April 2012, the Lloyd’s syndicates settled the claim brought against
them. Clause 7 of the settlement agreement included the following wording:
…none of the Underwriters that are party to this Agreement
participate in the capacity of a Leading Underwriter under
the Policy and do not bind any other insurer providing hull and
machinery cover in respect of the St. Efrem.
The claimants argued that Aigaion is obliged to follow the settlement in respect of its cover for
30% of the interest in the vessel. Aigaion denied that it was required to do so.
The preliminary issues
The three preliminary issues arising are summarised as follows:
„„
13
Did the Follow Clause require Aigaion to follow any settlement by the Lloyd’s syndicates or
did it merely authorise the Lloyd’s syndicates to act on Aigaion’s behalf in negotiating or
agreeing the settlement?
[2014] EWHC 163 (Comm) | 17
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„„
„„
If the Follow Clause required Aigaion to follow the settlement, was the Follow Clause
triggered by the settlement agreement?
Did the claimants agree by clause 7 of the settlement agreement that Aigaion would not be
bound by the settlement and, if so, can Aigaion rely on the Contract (Rights of Third Parties)
Act 1999 (the “Act”) to enforce clause 7?
Teare J Mr Justice. considered the third issue before the second issue, and we summarise the
Court’s ruling in the same order below.
The first issue – interpretation of the Follow Clause
Aigaion argued that the Follow Clause created an agency relationship such that Catlin and Brit
were required to act as agents on behalf of Aigaion in respect of negotiations and settlement
(and had therefore not acted as agents for Aigaion when they entered into the settlement
agreement in their own right). Teare J rejected this argument and stated that a simple approach
must be taken to the construction of the Follow Clause. Teare J stated that introducing
the concept of agency when there was no agreement between Aigaion and Catlin and Brit
“unnecessarily complicates the operation of the clause”. Teare J also relied on the obiter
comments of Rix J in Mander v Commercial Union Assurance14 where he stated:
“…the agreement of the leading underwriter works as a ‘trigger’ rather than as an act of
agency…It seems to me that the trigger analysis also has the virtue of avoiding the danger of
imposing upon a leading underwriter the unrealistic fiduciary obligations of an agent, e.g. to
avoid any conflict of interest”.
Teare J noted, however, that there was conflicting authority on this issue. He highlighted the
cases of Roadworks (1952) Ltd v JR Charman and Others15 and Youell v Bland Welch16 where
the agency analysis was accepted, and the case of Unum Life Insurance v Israel Phoenix
Assurance17 where Mance LJ stated that the agency analysis was “thoroughly arguable”.
The third issue – whether the claimants agreed by clause 7 of the
settlement agreement that Aigaion would not be bound by the settlement
(and whether Aigaion could enforce this term)
The claimants argued that the purpose of clause 7 was to set out the capacity in which the
Lloyd’s syndicates entered into the settlement agreement. This, the claimants argued, had at
least two functions: (i) to avoid the possibility of Brit or Ark arguing that Catlin (the slip leader)
was not authorised to agree a settlement on their behalf; and (ii) to protect Catlin from a claim
for breach of duty by Brit or Ark alleging that the settlement should not have been reached on
the terms in the settlement agreement.
Aigaion argued that the plain commercial intention of clause 7 was to ensure that the settlement
agreement was not binding upon “any other insurer providing hull and machinery cover in
respect of the St. Efrem” and that Aigaion fell within the meaning of this phrase.
Teare J accepted Aigaion’s argument and rejected the claimants’ arguments. He found that the
settlement agreement was clearly an agreement into which the three Lloyd’s syndicates entered
in their own right and that there was no need for clause 7 to make this clear.
However, Teare J found that Aigaion was not entitled to rely upon the Act to enforce clause 7.
He relied on the comments of Christopher Clarke J in Dolphin Maritime v Sveriges18 which stated
that a “benefit” conferred under a contract to a party connotes that it must, as a purpose of the
bargain, intend to benefit that party (rather than “one of its incidental effects if performed”).
14
[1998] Lloyd’s Rep. I.R. 93
15 [1994] 2 Lloyd’s Rep. 99
16 [1990] 2 Lloyd’s Rep 423
17
[2002] Lloyd’s Rep I.R. 374
18
[2009] 2 Lloyd’s Rep 123
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Teare J held that the purpose of clause 7 was not to confer a benefit on Aigaion but to avoid
any possible liability to Aigaion (as the Lloyd’s syndicates were aware of the Aigaion Policy and
the Follow Clause).
Teare J went on to consider the claimants’ further submission that the effect of the Follow
Clause was a contractual agreement between the claimants and Aigaion and that, pursuant
to this contractual agreement, Aigaion was required to follow a settlement reached by Catlin
and Brit. Teare J accepted this submission. While clause 7 meant that the Lloyd’s syndicates
were acting in their own rights and Aigaion was not bound by the settlement agreement, the
claimants could still rely on the Follow Clause directly against Aigaion. Teare J held that this
was an important right that would require clear words to justify a conclusion that the claimants
intended to waive this right.
The second issue – whether the Follow Clause was triggered by the
settlement agreement
Aigaion argued that the Follow Clause would not be triggered by a settlement that was clearly
not intended to be binding on Aigaion and that the Follow Clause should be subject to an
implied term to that effect. Aigaion further argued that it was unreasonable and uncommercial
to construe the Follow Clause as requiring Aigaion to follow a settlement under a settlement
agreement which clearly excluded Aigaion.
Teare J rejected Aigaion’s argument. He stated that where a lead underwriter made clear
that it was entering into a settlement in its own right and not purporting to bind a following
underwriter, the purpose was to avoid any liability under a duty of care to the following
underwriter. However, that did not countermand the effect of a follow clause which obliged the
following underwriter to follow the settlement regardless of whether the lead underwriter acted
as an agent of the following underwriter. Teare J also rejected Aigaion’s further argument on the
Follow Clause being interpreted unreasonably/non-commercially where Aigaion is required to
follow a settlement which the parties to the settlement agreement agreed would not be binding
on Aigaion. Teare J stated that Aigaion had itself agreed to follow a settlement reached by Catlin
or Brit and it did not matter that Catlin and Brit purported to act on their own behalf when settling
the claim. Teare J held that the Follow Clause was triggered by the settlement agreement.
Interpretation and interaction of conditions
precedent to liability under an insurance policy
Milton Furniture Limited v Brit Insurance Limited19
High Court, 1 April 2014
The High Court determined that two potentially conflicting conditions, despite both being
held to be conditions precedent to an insurance policy, interacted so that one qualified the
other, rather than one being subordinate to the other. In doing so, the judge examined the true
commercial purpose of the conditions in light of the terminology used and rejected the approach
adopted in some American authorities, that where there are two or more conditions precedent,
each clause must be seen as “an island unto itself”. He also found that a condition precedent
requiring that an alarm be monitored could be breached by permitting the monitoring service to
lapse, regardless of whether the alarm was activated at the relevant time.
19 [2014] EWHC 965 (QB)
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Background
The claimant hired out furniture to its clients for events. In the early hours of 9 April 2005, a
catastrophic fire at its premises destroyed the vast majority of its stock.
The parties had entered into a Commercial Combined Insurance Policy (the “Policy”) under
which fire was a specified risk. The Policy covered loss or damage to stock in trade, loss of gross
profit and increase cost of working with an indemnity period of 12 months.
The evidence indicated that the fire resulted from arson, caused by an intruder. The burglar alarm
at the property was not fully set at the time of the fire, and was not monitored externally as the
claimant has stopped paying for this service during the term of the Policy. The owner of the
claimant was asleep in a house joined to the business premises at the time of the fire.
Following the fire, the claimant sought to claim under the indemnity, which the defendant
underwriter resisted alleging that the claimant had breached two conditions precedent to its
liability:
1)Protection Warranty 1 (“PW1”) made it a condition precedent to liability “in respect of loss
or damage caused by Theft or attempted Theft that the Burglar Alarm shall have been put
into full and proper operation whenever the premises … are left unattended and that such
alarm system shall have been maintained in good order throughout the [life of the Policy]
under a maintenance contract with a member of NACOSS”.
2)General Condition 7 (“GC7”) required that “the whole of the protections including any
Burglar Alarm provided for the safety of the premises shall be in use at all times out of
business hours or when the Insured’s premises are left unattended and such protections
shall not be withdrawn or varied to the detriment of the interest of the Underwriters
without their prior consent”.
Relevant issues examined by the Court
„„
„„
„„
„„
„„
Is GC7 subordinate to PW1 so that, as regards the obligations therein specified, compliance
with GC7 is not a condition precedent to the defendant’s liability?
Does PW1 qualify GC7 – as regards the obligation to ensure that the burglar alarm was in use
– such that the claimant’s duties in that regard were the same under both provisions, and no
more onerous than those set out in PW1?
Was the claimant in breach of its obligations under the first part of GC7 by not ensuring that
the burglar alarm was in use at the material time?
Was the claimant in breach of the second part of GC7, in particular by causing or permitting
the withdrawal of the monitoring of the burglar alarm?
If GC7 is not a condition precedent to the defendant’s liability, was any breach by the
claimant of its obligations under GC7 causative of the loss sustained?
The first and second issues – is GC7 subordinate to or qualified by PW1?
The judge sought to examine the commercial purpose of GC7 in the light of the terminology
deployed and other relevant contractual positions, rather than looking at each clause in isolation.
Wording containing in the quotation was not helpful because it did not form part of the contract
of insurance. A distinction was drawn between the wording in PW1, which required as a condition
precedent that there be a burglar alarm, and that in GC7, which applied to any alarm that
happened to be present in the insured property. On this basis the judge believed that one of the
commercial purposes of PW1 was to ensure that the insured had a burglar alarm with certain
attributes.
The judge rejected the suggestions that PW1 set a high watermark, or that the sole purpose of a
burglar alarm was to reduce the risk of theft or attempted theft. He did not feel that the use of
the words “theft or attempted theft” limited the condition precedent to claims for such loss. On
these bases the judge held that the GC7 was not subordinate to PW1.
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Turning to the second issue, the judge again took a commercial view. He believed that it made
little sense to suggest that GC7 created greater obligations but which would only apply if the
loss was not caused by theft or attempted theft. GC7 should therefore have been read down so
that the insured was only required to set the alarm when the premises were unattended.
The third issue – was the claimant in breach by not having armed the
alarm at the time of the fire?
The claimant’s argument was that the clause should not be interpreted as imposing a
requirement to set the alarm at a time when it almost certainly would have gone off due to
persons legitimately being in the premises. Instead GC7 should be construed so that the burglar
alarm would only have to be set out of business hours when the premises were closed and
therefore unattended, or during business hours when they were unattended. The wording ‘the
whole of the protection’ excluded any argument that the alarm should have been part set.
The defendant argued that such an interpretation effectively deleted the consideration of
business hours from GC7 and instead favoured reading in words to the effect that the alarm
must be set out of business hours.
The judge favoured the claimant’s submission regarding business hours. He also determined that
the factual and legal matrix had to be considered when assessing whether the premises were
“left unattended” at the relevant time. One person was asleep in a large complex, but this was
sufficient for the premises not to be unattended. In ordinary terms, houses or premises become
unattended when their occupants leave. Therefore, the judge held that the claimant was not in
breach of the first part of GC7.
The fourth issue – was the claimant in breach by having permitted the
withdrawal of monitoring from the alarm?
The judge rejected an interpretation of this fairly standard wording that required that the
withdrawal has a causative effect on the loss, as to do so would take this from a condition
precedent to a mere condition. Despite finding for the claimant on the previous issues, he
concluded that the claimant was in breach by failing to pay the monitoring charge. The claimant
knew that the monitoring charge was payable in advance and that it had not been paid for over
six months. Even considering the suggested disputes between the claimant and the monitoring
service, the claimant had been reckless as to the risk that the service would be cut off.
Therefore, the claimant was in breach of the second part of GC7.
The fifth issue – if GC7 was not a condition precedent, was the breach of
it causative of the loss?
The judge had earlier concluded that GC7 was a condition precedent and, as such, was not
required to determine whether the breach had been causative of the loss. However, even if he
was wrong and the clause was not a condition precedent, he concluded that causation would
have been established in any event, as it was likely that an intruder would have triggered an
active burglar alarm much earlier than the fire alarm. Irrespective of whether the alarm was
monitored, this could have prevented the arsonist from setting the fire.
The case acts as a useful reminder of the importance and possible interplay between conditions
precedent and the need for precision when drafting.
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Wide scope of cover given to an employee/
consultant in relation to a PI policy
Rathbone Brothers PLC & Michael Paul Egerton-Vernon v Novae Corporate
Underwriting Ltd & Others20
UK Court of Appeal, 14 November 2014
The Court of Appeal construed a PI policy taken out by a trust management company broadly to
extend cover to a personal trustee during his roles as both an employee and later as a consultant
for the company. The Court of Appeal also considered how the PI policy applied where the trust
management company had also indemnified the employee and the extent to which the insurers
had a right of subrogation against that indemnity.
Background
Rathbone Brothers PLC (“Rathbone PLC”) is a large international investment management firm
whose trust business included managing family trusts for wealthy private clients. Rathbone Trust
Company Jersey Limited (“Rathbone Jersey”) employed Paul Egerton-Vernon (“PEV”) in a full
time role until June 2007 after which PEV continued to act as a consultant for Rathbone Jersey
on materially the same terms (it had employed PEV since 1984 when it existed as Nigel Harris
and Partners and was later acquired by Rathbone PLC). Rathbone Jersey provided management
services in a corporate capacity to the trust set up by the late Mr Jack Walker, an industrialist,
(the “Walker Trust”), while PEV provided management services as a personal trustee to the
Walker Trust (a common structure for trust management in Jersey).
The dispute arises out of a claim commenced in the Jersey courts by certain beneficiaries of the
Walker Trust alleging that the trustees, including PEV, made poor investment decisions in breach
of their professional and fiduciary duties from the end of 1999. In July 2003, Rathbone PLC and
Rathbone Jersey had provided an indemnity to PEV in respect of certain liabilities arising from
the performance of his duties (the “Rathbone Indemnity”). Rathbone PLC had also taken out PI
cover and claimed coverage under the PI policy for itself and for PEV.
The primary underwriter, AIG, accepted cover whilst reserving its position depending on the
outcome of this case. The excess insurers comprised of members of the Lloyd’s Syndicate 2007
and other underwriters (the “Excess Insurers”) denied coverage and further argued that, even if
they were liable to PEV, they were only liable after the Rathbone Indemnity had been exhausted.
The Excess Insurers also argued that they were entitled to be subrogated to PEV’s contractual
right to the Rathbone Indemnity.
The first instance decision was in favour of the insureds as the judge held that PEV could
recover under the PI policy which did not apply as a secondary layer to the Rathbone Indemnity.
However, the judge held that the Excess Insurers were subrogated to PEV’s right to sue on the
Rathbone Indemnity. The Excess Insurers appealed on the coverage and coverage priority issues
while Rathbone PLC and PEV appealed against the subrogation issue. The Court of Appeal
therefore considered the following three issues:
1)Was the risk covered by the PI policy in respect of PEV?
2)
Did the PI policy apply secondary to the Rathbone Indemnity?
3)
If the Excess Insurers were liable to PEV, were they subrogated to PEV’s right to sue on the
Rathbone Indemnity?
20 [2014] EWCA Civ 1464
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The Court of Appeal held in favour of Rathbone PLC and PEV on all three points and the
grounds for this decision are explained below.
Was PEV covered when acting as a personal trustee?
The scope of the PI policy was that the Excess Insurers would indemnify any “insured” for any
loss as a result of a civil liability arising out a claim during the policy period. “Insured” parties
included any “insured company” and “insured persons” – the latter of which included, among
other defined persons, “a paid employee (full time, part time or temporary) working under the
direct control or supervision of an insured company”. The policy further required that an “insured
person” means “exclusively those persons employed by an insured company in the performance
of professional services”.
“Professional services” was defined in the PI policy as “the financial services…performed
by or on behalf of an insured company pursuant to an agreement with a third party…for
compensation…”.
The Excess Insurers’ argued two distinct reasons as to why PEV was not an insured person.
Firstly, he was not performing his duties as a personal trustee in the capacity of a “paid
employee” as defined in the PI policy. Secondly, PEV was not performing “professional services”
as defined in the PI policy.
The Court of Appeal rejected the Excess Insurers’ arguments. In summary, it held (in respect of
various “limbs” of the two grounds argued by the Excess Insurers) as follows:
(i)The argument that PEV was not a “paid employee” during the term of his contract
of employment (on the alleged basis that he was not under Rathbone Jersey’s direct
supervision or control when acting as a personal trustee) was not convincing.
(ii)
PEV’s conduct was under the control and/or supervision of Rathbone Jersey.
(iii)PEV continued to act as a “paid employee” of Rathbone Jersey during his role as a
consultant (for the purposes of the definition under the PI policy and not the common
law concept of an “employee”) since his role did not change in any substantive way.
(iv)PEV was acting “for and on behalf of” Rathbone Jersey during his role as a personal
trustee. The PI policy would have required very clear words to exclude personal
trustees acting for the Rathbone group.
(v)PEV was appointed as a trustee by a trust deed to which Rathbone Jersey was not a
party. The Excess Insurers argued that the PI policy required PEV to act on Rathbone
Jersey’s behalf pursuant to an agreement and that Rathbone Jersey must be a party to
this agreement. The Court of Appeal held that it did not matter that Rathbone Jersey
was not a party to any agreement between the Walker Trust and PEV, that there was
no need to read such a limitation into the PI policy and that, even if this was required
on the face of the PI policy, the Court of Appeal would have been willing to imply an
agreement between Rathbone Jersey and the Walker Trust.
Did the PI policy apply secondary to the Rathbone Indemnity?
Clause 5.14 of the PI Policy provided that:
“Insurance provided by this policy applies excess over insurance and indemnification available
from any other source”.
The Excess Insurers relied on this excess clause for their argument that the PI policy applied
secondary to the Rathbone Indemnity.
The Court of Appeal held that, although the wording of the clause was wide enough to capture
both insurance policies and non-insurance indemnities, the Excess Insurers were not entitled to
rely on an indemnity given by one co-insured to another as that would significantly undermine
the protection afforded by the PI policy. The PI policy would have required very clear wording to
treat the Rathbone Indemnity as the primary source of cover.
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Did the Excess Insurers have a right of subrogation against the Rathbone
Indemnity?
The Court of Appeal outlined the right of subrogation, quoting Lord Bingham in Caledonia North
Sea Ltd v British Telecommunications plc (Scotland) & Others21:
“The law has long been settled in England and Wales…an insurer who has fully indemnified an
insured against a loss covered by a contract of insurance between them may ordinarily enforce,
in the insurer’s own name, any right of recourse available to the insured…”.
The Court of Appeal further explained that a right of subrogation could be excluded in two ways:
(i)
by way of a waiver of the right in the policy itself; or
(ii)under the terms of the underlying contract between the insured and the third party
preventing the exercise the right.
The Court of Appeal discussed the arguments raised by Rathbone PLC and PEV which it
described as running both grounds for exclusion i.e. that an implied waiver should be read into
the PI policy and that, in any event, on the proper construction of the contract providing the
Rathbone Indemnity it is clear that the parties intended to treat the PI policy as the primary
cover.
The Excess Insurers argued that the terms of the PI policy were unambiguous and provided that
the parties had specially addressed the issue of exclusion and chose not to exclude the right of
subrogation.
The Court of Appeal held (by 2:1 majority) that, although the PI policy plainly did not include an
express waiver of a right of subrogation with respect to the Rathbone Indemnity, a term should
be implied into the PI policy that the Excess Insurers would not seek to be subrogated to PEV’s
right to sue on the Rathbone Indemnity. Such an implied term was, in the Court’s view simply
making clear what the parties must have intended (as opposed to the Court deciding on how
the risks ought to have been allocated). The Court of Appeal decided that not implying such a
waiver would defeat the very benefit which the PI policy was intended to confer (and for which
Rathbone PLC had paid the premiums). The parties could not reasonably have intended to give
priority to the Rathbone Indemnity over the PI policy and it was “pure happenstance” that the
Rathbone Indemnity was in place.
The Court of Appeal further held that, even if an implied waiver was incorrect, the terms of
the contract for the Rathbone Indemnity precluded the exercise of the right of subrogation.
Rathbone PLC had, in substance, made two forms of cover available to PEV and PEV would
have been indifferent to how he was protected, provided either the Rathbone Indemnity or
the PI policy applied. The Court of Appeal held that, in the circumstances, it would have readily
implied a term into the contract for the Rathbone Indemnity to the effect that the PI policy was
intended as the primary cover.
Beatson LJ provided a minority opinion in that, while he agreed with the majority’s overall
conclusion (i.e. that there was no recourse available to the Excess Insurers against the Rathbone
Indemnity), he did not consider an implied waiver in the PI policy to be appropriate. Very clear
words would have been required to remove the right of subrogation from the PI policy in all but
exceptional cases, given the nature of such an important right. However, he agreed that the
terms of the contract for the Rathbone Indemnity could be construed such that PEV would have
no claim against the Rathbone Indemnity in respect of sums received from the Excess Insurers.
As a result, the Excess Insurers would, in principle, have a right of subrogation but there would
be no claim to which the right could attach.
21 [2002] UKHL 4
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Damages / Quantification
of Claim
The relevance of events subsequent to
valuation date when quantifying under a
Warranty and Indemnity Policy
Ageas (UK) Ltd v Kwik-Fit (GB) Ltd and AIG Europe Ltd22
High Court, 4 July 2014
The High Court has held that when assessing damages for breach of warranty in a sale and
purchase agreement (and a resulting claim under a warranty and indemnity policy), subsequent
events can only be taken into account, where necessary, to give effect to the compensatory
principle where it does not contradict the parties’ contractual allocation of risk.
Background
Ageas entered into the agreement to purchase the full share capital of Kwik-Fit Insurance
Services Ltd for £215m. Ageas valued the company on the basis of the accounts provided by
Kwik-Fit.
Kwik-Fit gave warranties that the audited accounts were prepared in accordance with
professional standards, and gave a true and fair view of the assets, liabilities and financial
position of the company and its subsidiaries. In addition to this Kwik-Fit warranted that they did
not materially misstate the assets or liabilities. At the same time as entering into the agreement,
Ageas entered into a warranty and indemnity policy (“W & I Policy”) with AIG to protect it
against losses resulting from breaches of warranty in excess of a £5m cap. The measure of loss
recoverable by Ageas under the W & I Policy is that which would be recoverable from Kwik-Fit
under the SPA, subject to one £5m excess.
Kwik-Fit breached the warranties by failing to treat properly certain aspects of projected bad
debt, including “Time on Cover Bad Debt” (“TOCBD”) (bad debt which arises out of customers
remaining on cover for a period that they have not paid the premium). This resulted in the
profits and assets in the warranted accounts being overstated.
Ageas’ claim against Kwik-Fit settled and AIG admitted liability under the W & I Policy. Ageas
claimed that the total loss for breach of warranty amounted to £17.6m (and its claim under the
W & I Policy was, therefore, £12.6m); this figure was calculated on the basis of TOCBD rates as
at the date of completion in 2010. AIG contested this figure on the basis that it would “overcompensate” Ageas because it failed to take account of events that followed post-acquisition.
Essentially, the figure relied upon those 2010 TOCBD rates continuing to apply in future,
whereas those rates represented an historical peak and subsequently fell. AIG claimed that, with
reference to hindsight, the amount overstated was lower and so the damage claim should be
limited to £8.7m.
With two qualifications, the Court held that it was “consistent with principle and justice” that,
when assessing damages for breach of contract by reference to the value of a company at
the date of the breach, whose value depends on a future contingency, account can be taken
of what is subsequently known about the outcome of the contingency as a result of events
subsequent to the valuation date (see The Golden Victory23). The qualifications were that this
approach:
22 [2014] EWHC 2178 (QB)
23 [2007] 2 AC 353
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„„
„„
Can only be justified where it is necessary to give effect to the overriding compensatory
principle. The starting point is that damages should be assessed at the date of the breach.
Should not run contrary to the parties’ contractual allocation of risk.
Here, the defendants had not shown that assessing damages as at the date of the breach
offended the compensatory principle. In addition, post-acquisition events were part of the
contractual risk assumed by Ageas. Ageas’ claim against AIG was therefore entitled to succeed in
the principal sum of £12.6m.
This decision reaffirms the overriding compensatory principle which dictates that in breach of
warranty claims damages are generally assessed as at the date of breach; the principle also
encompasses the proposition that to give effect to the principle hindsight can be taken into
account, but only if justified and necessary.
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Fraud and Avoidance
Court of Appeal upholds Commercial Court
decision concerning avoidance of residential
insurance policy
Alan Bate v Aviva Insurance UK Ltd 24
Court of Appeal, 21 March 2014
Background
We previously commented on the High Court decision in our Annual (Re)insurance Review
201325. The Appellant, Mr Alan Bate, appealed against HHJ Mackie QC’s decision to dismiss his
claim against the Respondent insurers, Aviva, for damages and an indemnity arising out of a fire
to his property. The judge held that the insurers were entitled to rescind the policy by reason
of non-disclosure, material misrepresentation and breach of condition. The judge also dismissed
a claim for damages pursuant to s.150 FSMA 2000 and explained that, in its rejection of the
claim, the insurers had not, as alleged by Mr Bate, acted in breach of Rule 7.3.6 of the Insurance
Conduct of Business (ICOB) Rules (now ICOBS 8.1).
Appeal Dismissed
The Court maintained that the description given by Mr Bate did not give Aviva a fair
presentation of the risk. Arguments that such statements did not amount to misrepresentation
were incomprehensible and the Commercial Court’s decision that the statements made by Mr.
Bate “constituted a material representation which could have affected the terms on which the
insurance would have been given was fully justified, measured and inevitable”.
The Court also confirmed that Aviva had not acted in breach of Rule 7.3.6 of the ICOB rules. The
misrepresentation which Mr Bate relied upon was negligent and so, pursuant to Rule 7.3.6(2)(b),
Aviva could refuse to meet M. Bate’s claim. Tomlinson LJ distinguished for the purposes of Rule
7.3.6 an claim which is fraudulent and that which showed “evidence of fraud”. A fraudulent claim
relates to a claim which dishonestly asserts that an insured peril has occurred when it has not.
Tomlinson LJ explained that there was no doubt that Mr Bate’s claim related to an accidental
fire and so was by that meaning genuine, not amounting to a fraudulent claim. “Evidence of
fraud”, however, relates to fraud used in pursuing a claim, as was the case in the actions of Mr.
Bate. For these two reasons, Aviva was not required under Rule 7.3.6 of the ICOB rules to meet
the claim of Mr Bate.
It is worth noting that ICOBS 8.1, which applies to policies entered into from 6 April 2013, also
permits a consumer’s claim to be rejected if there is evidence of fraud, and, as such, the case
remains relevant to the application of the revised rule.
24 [2014] EWCA Civ 334
25 S
ee page 25 of our Annual (Re)insurance Review 2013 available here:
http://www.taylorwessing.com/fileadmin/files/docs/Insurance-and-Reinsurance-Review-2013.pdf
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No forfeiture of benefit where no dishonest intent
Beacon Insurance Company Ltd v Maharaj Bookstore Ltd26
Privy Council, 9 July 2014
The Privy Council held that, in the absence of any dishonest intent, the insured’s alterations
to invoices submitted in processing its coverage claim did not constitute a “fraudulent device”.
The Privy Council’s decision overturned the judgment of the Court of Appeal of the Republic of
Trinidad and Tobago.
Background
A bookstore owner, Maharaj Bookstore Ltd (“Maharaj”), took out a policy with Beacon Insurance
Company Ltd (“Beacon”) in respect of fire damage and other perils. A fire broke out at the
bookstore during the policy period which destroyed stock and other property on the premises.
Maharaj sought indemnification under the policy and, as a part of the quantification of its losses,
submitted numerous invoices to Beacon.
The loss adjustors acting on behalf of Beacon repudiated liability under the policy, alleging that
Maharaj had made false or fraudulent declarations in particular invoices for purchases of stock.
They relied on condition 8 of the policy which stated:
“If any claim be in any respect fraudulent, or any false declaration be made or used in support
thereof, or if any fraudulent means or devices are used by the insured or anyone acting on his
behalf to obtain any benefit under this policy…all benefits under this policy shall be forfeited”.
Maharaj conceded that it made errors in respect of certain invoices but that other invoices were
genuine. Maharaj explained that it had bought books through intermediaries as it had faced
difficulties sourcing stock directly from suppliers and that the alterations to the invoices by
replacing the intermediaries’ names with its own was intended to reflect that Maharaj was the
owner of the goods which had been purchased for it. Maharaj submitted testimony to Beacon
from the intermediaries in support of this explanation. Beacon remained unsatisfied with these
explanations and, as a result, Maharaj commenced proceedings against Beacon.
First Instance and Court of Appeal decisions
The First Instance Court held in favour of Maharaj on the basis that the testimony in support
of Maharaj’s claim was convincing and that Maharaj had not made a fraudulent claim or used
fraudulent devices in seeking coverage.
On appeal by Beacon, the Court of Appeal overturned the first instance decision on three
principal grounds. We discuss in detail further below two key grounds which were as follows:
„„
„„
the trial judge failed to distinguish between a “fraudulent claim” and a “fraudulent device” and
failed to address the latter allegation; and
the trial judge failed to draw proper inferences from the evidence.
Maharaj appealed to the Privy Council.
Privy Council decision
The Privy Council reversed the Court of Appeal’s decision and held in favour of Maharaj.
The Privy Council highlighted various cases concerning the role of an appeal court – it noted
that it should only intervene against the first instance decision if the trial judge has gone “plainly
wrong” and that “a court of appeal will only rarely even contemplate reversing a trial judge’s
findings of primary fact”.
26 [2014] UKPC 21
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The Privy Council then ruled in respect of each ground of the Court of Appeal’s decision and its
decision in respect of the two key grounds of the Court of Appeal is as follows.
1)
Distinguishing between a fraudulent claim and fraudulent device
The Privy Council rejected this ground outright. It held that the trial judge had clearly
identified the difference when he quoted provisions of the decision in Agapitos v Agnew27
which stated that “a fraudulent device is used if the insured believes that he has suffered
the loss claimed but seeks to improve or embellish the facts surrounding the claim by
some lie”.
The Privy Council held that while Maharaj altered the documents to explain the facts as it
understood them and, thus, by inference, to improve the processing of its claim, this “could
not be fraudulent absent dishonest intent”.
2) Inferences from the evidence
The Court of Appeal rejected evidence from witnesses for Maharaj and treated them as
liars on the basis that they supported an untruthful claim that Maharaj was blacklisted
from sourcing stock directly from a supplier (Maharaj had, however, conceded in crossexamination at first instance that this was not the case). The Privy Council also noted that
the Court of Appeal did not have the complete transcript of the trial. As such, the Privy
Council held that the Court of Appeal’s position was not supported by the evidence.
The Privy Council further held that the trial judge was entitled to come to the conclusion
that the alterations to the invoices had not been dishonest and that the Court of Appeal
had not exercised caution in being slow to reverse a first instance decision and primary
findings of fact. The trial judge’s finding that there was no fraudulent intention on the part
of Maharaj “could be displaced only on the clearest grounds”.
Fraudulent device rule should be followed as a
matter of ratio
Versloot Dredging BV v HDI Gerling Industrie Versicherung AG (The DC
Merwestone)28
The Court of Appeal has upheld the first instance decision of Mr Justice Popplewell29.
Popplewell J expressed reservations at the extension of the fraudulent device rule to vitiate
an otherwise valid claim and allowed the appeal. However, giving the leading judgment, Lord
Justice Clarke held that the correct test for fraudulent devices was that set out by Lord Justice
Mance in Agapitos v Agnew (The Aegeon) (No. 1)30. Clarke LJ rejected an argument that
forfeiture must be proportionate. This was on the basis that it is a proportionate means of
securing the aim of deterring fraud in relation to insurance claims, which relies on a longstanding
doctrine of good faith between an insurer and the insured. This decision will no doubt please
insurers whilst serving as a warning to insureds.
Background
The ship owners appealed against the first instance decision that they could not recover losses
from the respondent hull and machinery underwriters. Before embarking on a voyage, the crew
of the Merwestone had used the emergency fire pump but failed to empty it properly or close
27 [2003] QB 556
28 [2002] EWCA Civ 247[2014] EWCA Civ 1349
29 W
e previously commented on the High Court decision at page 6 in our Annual (Re)insurance Review
2013 available here:
http://www.taylorwessing.com/fileadmin/files/docs/Insurance-and-Reinsurance-Review-2013.pdf
30 [2002] EWCA Civ 247, [2003] QB 556
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the sea inlet valve to the pump. The result of this was that water entered the duct keel tunnel
and made its way to the engine room, which it eventually flooded, incapacitating the vessel. The
main engine was damaged beyond repair.
The alleged fraudulent statements were made in a letter that the ship owners’ general manager
wrote in April 2010, in which he referred to the bilge alarm going off, but asserted that no one
investigated because it was attributed to the rolling of the vessel. Popplewell J considered that
the general manager genuinely believed that his account of the alarm was a realistic explanation
of events, but he was reckless as to whether it was supported by the crew’s recollection, as he
was concerned to support the owner’s arguments that they did not act without due diligence.
First Instance Decision
Commercial Court, 14 June 2013
The underwriters resisted the claim under the policy for the resultant loss. They advanced three
alternative defences to the claim: (i) they denied that the loss was caused by an insured peril
asserting crew negligence and lack of due diligence by the ship owners, (ii) they contended that
the loss was caused instead by the unseaworthiness of the vessel, and (iii) alternatively, even if
the claim was covered, they asserted it was forfeited because it was supported by fraudulent
statements.
The Court conducted a detailed analysis of the law of proximate cause when determining loss
by peril of the seas. It concluded that it was concerned with a casualty in which the chain of
causation was (i) an external fortuitous event (crew negligence), (ii) unseaworthiness (but not
debility), (iii) the effect of the sea on the vessel (which was not the ordinary action of wind and
waves, meaning the wind and waves were not extraordinary but that their action on the vessel
was), (iv) ingress of seawater, and (v) damage to the subject matter insured. The casualty was
a fortuity because the crew negligence was fortuitous. The fortuitous ingress of seawater was a
peril of the seas, which was a proximate cause of the loss and damage.
In applying the Agapitos v Agnew31 materiality test, the Court was in no doubt that the April 2010
letter was a fraudulent device. It was intended to promote the claim in the hope of a prompt
settlement. The purported factual account about the bilge alarm was part of that promotion.
The general manager was reckless as to whether or not that account was true and, therefore,
the letter amounted to an untruth told recklessly in support of the claim. The fraudulent device
met the “limited objective element” of the test of materiality. However, the Court considered the
Mance LJ test to impose a low and relatively inflexible threshold, which was unsatisfactory in a
number of respects.
Appeal
Court of Appeal, 16 October 2014
The ship owners appealed and contended that: (i) Popplewell J had erred in concluding that the
narrative amounted to a fraudulent device when it had in fact been an attempt to explain what
had happened; (ii) Popplewell J had applied the materiality test to the wrong representation;
(iii) the special common law rule of forfeiture on a fraudulent insurance claim did not apply
to fraudulent means or devices, and was a disproportionately harsh sanction; and (iv) the
application of the forfeiture rule to fraudulent devices had produced manifest injustice so that
forfeiture was neither just nor proportionate.
The Court of Appeal held that Popplewell J had been entitled to find that the ship owner had
used fraudulent devices. The insurers could reasonably expect that answers to their questions
would be based on inquiry, as opposed to a hypothesis, even if they may uncover the hypothesis
following their questioning of the crew.
The test for fraudulent devices which Mance LJ had set out in The Aegeon was that the
device must be (i) directly related to the claim, (ii) intended by the assured to promote his
31
Referred to throughout this article as The Aegeon.
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prospect of success and (iii) if believed, tend to yield a not insignificant improvement in the
assured’s prospects of success before any final determination of the parties’ rights. Clarke LJ’s
preference was that the part (iii) requirement be to demand a significant improvement in the
insured’s prospects, as opposed to the negative formulation.
For several reasons, the Court of Appeal held that the decision in The Aegeon should be
followed as a matter of ratio (it had been obiter dicta in The Aegeon). These reasons included
that The Aegeon is authoritative, albeit not binding. A fraudulent device is a subspecies of a
fraudulent claim and thus the application of the rule to fraudulent devices is consistent with
its application to fraudulent claims, providing a coherent whole. The foundation of the rule is
the obligation of the utmost good faith between insured and insurer; its effect being that if the
insured lies to its insurer in respect of anything significant in the presentation of the claim, it will
not recover anything. There is a public policy justification for the rule as applied to both claims
and devices, since its draconian consequences only apply to those who are dishonest.
This was supported by the Law Commissions of England and Scotland’s review of the
fraudulent device doctrine between 2010 and 2012. The final Insurance Bill presented to
Parliament in July 2014 provides that “If the insured makes a fraudulent claim under a contract
of insurance – (a). The insurer is not liable to pay that sum”. Fraudulent claim is not defined in
the bill, but the notes to the initial draft indicated that one of the fraudulent acts which made a
claim fraudulent would be the use of a fraudulent means or device to support a genuine claim.
The ship owners argued that the extension of the forfeiture rule should either be just and
proportionate as a requirement of its extension or by virtue of Article 1 of the First Protocol of
the European Convention of Human Rights. Article 1 provides for the protection of property and
that “Every natural or legal person is entitled to the peaceful enjoyment of his possessions”.
The Court of Appeal rejected this because the critical question was whether the “bright line
rule” that the use of a fraudulent device forfeits the claim is, looking at the matter overall, a
proportionate means of securing the aim of deterring fraud in relation to insurance claims.
The Court of Appeal considered it was. The fact that forfeiture was harsh, and in some
circumstances very harsh, did not mean it was disproportionate to the legitimate aim of
deterring fraud in relation to insurance claims.
The appeal was unanimously dismissed on all grounds. This judgment is a strong marker in the
ground for the strict and uncompromising stance the courts are likely to take where there is
any fraud in relation to insurance claims. However, it should not be forgotten that a fraudulent
device must still be proven on the facts and the Privy Council case of Beacon Insurance v
Maharaj Bookstore32 (reported on in this review) shows that this can be difficult to achieve.
32 [2014] UKPC 21 - reported on page [X] of this review
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Insurers’ Recovery Actions
No immunity for international compensation
fund from freezing order relief sought by insurer
in the UK
Assuranceforeningen Gard Gjensidig v International Oil Pollution Compensation
Fund 197133
High Court, 7 May 2014
This judgment provides specific guidance on the interpretation of the immunity provisions
under Article 5 of the UK Headquarters (“HQ”) Agreement and section 6 of the International
Oil Pollution Compensation Fund (Immunities and Privileges) Order 1979 (the “Order”). More
generally, however, the case also demonstrates the willingness of English courts to look behind
winding up orders, granting freezing injunctions when satisfied that there is a real risk of
dissipation of assets.
In this case, the respondent tried to argue that the English Court did not have jurisdiction to
grant a freezing order against it as it had immunity from ‘suit and legal process’ under the Order
as interpreted in accordance with the HQ Agreement.
Mr Justice Hamblen disagreed because the Order only permitted immunity against freezing
orders in respect of claims which did not fall within listed exceptions. As the UK claim did fall
within one of the listed exceptions, the power to award such relief remained.
Background
The P&I club, Gard, applied for a freezing order against funds held by the respondent
international fund providing for compensation for oil pollution (the “Fund”). The Venezuelan
criminal courts had found that the owners of the vessel Nissos Amorgos and Gard, their insurer,
were liable for over US$60m in respect of Venezuela’s claims for pollution damage arising out
of the vessel’s grounding off the Venezuelan coast in 1997 and subsequent escape of 3,600
mt crude oil from it. Gard and the Fund had already paid approximately US$6.5m in respect
of the claims made between June 1997 and December 2000. Thereafter the Fund had paid
approximately US$18.5m.
Gard brought claims in the UK and in Venezuela against the Fund. The claim in Venezuela, which
is ongoing, seeks a declaration that the Fund is liable for Venezuela’s claim and reimbursement
of any money paid by Gard. The claim in the UK contended that pursuant to arrangements made
between Gard and the Fund, Gard had a right of indemnity from the Fund in respect of any
liability that Gard has to Venezuela in excess of the limit under the Convention on Civil Liability
for Oil Pollution Damage of 1969 (“CLC”).
The need for a freezing order application arose because of the imminent winding up of the Fund.
The Fund asserted that the English court had no jurisdiction to make the freezing order.
Immunity
The Fund asserted that it had immunity from the grant of freezing order relief based on section
6 of the Order and the HQ Agreement.
Section 6 of the Order provides:
“(1) Within the scope of its official activities the Fund shall have immunity from suit and legal
process except:…
33 [2014] EWHC 1394 (Comm) | 32
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(b) in respect of actions brought against the Fund in accordance with the provisions of the
Convention;
(c) in respect of any contract for the supply of goods or services, and any loan or other
transaction for the provision of finance and any guarantee or indemnity in respect of any such
transaction or of any other financial obligation;…”
The immunity set out in the HQ Agreement was in similar, but not identical, terms.
Immunity in the UK
Gard argued that immunity from freezing order relief only applied if the action was one which
did not fall within one of the exceptions listed in section 6(1) of the Order. The Fund’s case was
that the words of section 6 of the Order are unclear and that, as there was ambiguity, regard
should be had to the HQ Agreement, which gave a wide immunity from “provisional judicial
constraint”, including freezing orders. Mr Justice Hamblen agreed with Gard. The immunity
under section 6(1) is a qualified immunity, which is only granted if and to the extent that the
suit or legal process does not fall within one of the listed exceptions. He found that there
was a good arguable case that the claim against the Fund was in respect of ‘a loan or other
transaction for the provision of finance’, and, therefore, under section 6(1)(c) an exception, to
the grant of immunity. The definition of legal process is wide, so that if there is no ‘immunity
from legal process’, therefore, there is no immunity from freezing orders.
He considered that the claim amounted to ‘a loan or other transaction’ on the basis that Gard
made payments of compensation up to the CLC limit (even though they were recoverable in
part from the Fund) in reliance on the Fund’s agreement, through established practice, first,
that once the shipowner’s limit was reached the Fund would take over the remaining claims and
secondly, that at the end of the case, once all claims had been dealt with, a balancing payment
would be made by the Fund to Gard.
Gard’s case was that this practice amounted to a contractual agreement. Hamblen J
considered that, despite there being no formal loan arrangement, Gard could show a good
arguable case that its claim fell within the section 6(1)(c) exception and therefore that the Fund
had no immunity in the UK.
Immunity in Venezuela
Conversely, however, Hamblen J held that the Fund did have immunity from freezing relief in
relation to the Venezuelan proceedings. Gard had submitted that it had a good arguable case
that its claim for relief fell within section 6(1)(b) of the Order, i.e. that its claim was made ‘in
accordance with the provisions of the Convention’.
Hamblen J did not accept this. There was no provision in the Fund Convention which entitled
Gard to bring a claim of this nature. The fact that the claim related to an alleged liability of the
Fund to Venezuela did not mean that the claim was made ‘in accordance with the provisions
of the Convention’. It remained a claim which was not conferred by or recognised in the Fund
Convention. In addition, the alleged liability was not a liability to the person bringing the claim
and it made no difference that the Venezuelan court had exclusive jurisdiction over Fund
Convention proceedings.
Accordingly, Gard could not show it had a good arguable case that the Venezuelan proceedings
fell within an immunity exception, meaning the Fund, in turn, had immunity in respect of the
application for freezing relief made in relation to those proceedings.
Freezing order relief
Gard could satisfy the good arguable case threshold regarding its claim in the UK. There was
a real risk of dissipation of the Fund’s assets, since resolutions were to be put to the Fund
shortly for its winding up and the return of funds currently held to contributory oil receivers
in contracting states. This is of particular interest, and must have been persuasive since
insolvency is not normally sufficient to justify a finding of a real risk of dissipation. Freezing
order relief was granted in respect of the claim made by Gard in proceedings in the UK, but not
in respect of the claim made in the Venezuelan proceedings.
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Consequential losses arising from riot damage
held to be recoverable by insurers
Mitsui Sumitomo Insurance Co (Europe) Ltd and Others v Mayor’s Office for
Policing and Crime34
Court of Appeal, 20 May 2014
The Court of Appeal has overturned the High Court’s decision that consequential losses were
not recoverable under the Riot (Damages) Act 1886 (the “Act”) and has held that the Mayor’s
Office for Policing and Crime (the “MOPC”) was liable for such consequential losses arising out
of damage caused by riotous behaviour. This liability arose in respect of uninsured claimants as
well as insurers claiming in relation to sums paid out under policies.
Background
On 8 August 2011, during the 2011 riots in London (and other cities across the UK), a gang of
youths looted and set fire to a Sony distribution warehouse in Enfield. Sony (the occupier of
the warehouse) claimed under its insurance policy for damage to the contents and business
interruption losses while Cresta Estates Ltd (the owner of the warehouse) claimed under its
insurance policy for physical damage to the warehouse and loss of rent. The insurers, Mitsui
Sumitomo Insurance (Europe) Ltd, Tokio Marine Europe Insurance Ltd and Royal & Sun Alliance
Insurance PLC paid out under these policies and sought recovery against the MOPC under the
Act. The other claimants to the proceedings claimed against the MOPC for destruction of stock
stored in the warehouse (they were not insured against this loss).
The Act provides35 that:
Where a house, shop, or building in a police area has been
injured or destroyed, or the property therein has been injured,
stolen, or destroyed, by any persons riotously and tumultuously
assembled together, such compensation as hereinafter
mentioned shall be paid out of the police fund of the area to
any person who has sustained loss by such injury, stealing, or
destruction...
Where insurers have indemnified an insured against those losses falling under the scope of the
Act, they are entitled to claim compensation in place of the insured36.
At first instance, the High Court held that the gang involved in the looting and arson were
“persons riotously and tumultuously assembled” and that the MOPC was liable under the Act
to compensate the claimants for their direct losses – but that this liability did not extend to
consequential losses.
The MOPC appealed against the finding of liability while the claimants cross-appealed against
the decision on the extent of the liability. The Court of Appeal, therefore, considered two issues
in the appeal:
„„
„„
whether the perpetrators of the damage fell within the description of “persons riotously and
tumultuously assembled together”; and
whether compensation was recoverable only in respect of the physical damage/destruction,
or whether it also extended to consequential losses caused by that damage/destruction.
34 [2014] EWCA Civ 682
35 Section 2(1) of the Act.
36 Pursuant to S.2(2) of the Act.
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Persons riotously and tumultuously assembled
The Court of Appeal agreed with the High Court’s ruling that the perpetrators were persons
riotously and tumultuously assembled together and that the MOPC was therefore liable to the
claimants.
The Court of Appeal considered specifically the meaning of the terms “riotously” and
“tumultuously”. The MOPC argued that a “riotous and tumultuous” assembly is one which
is: (i) of considerable size; (ii) excited and emotionally aroused; and (iii) behaving in such an
agitated, volatile, noisy, angry and threatening manner that it should be obvious to the police
that something needs to be done. That definition, the MOPC argued, was to be contrasted with
a group acting secretly or furtively (which the MOPC argued was how the perpetrators of the
damage acted in this case).
However, the Court of Appeal determined that the test is not whether the perpetrators’
behaviour is such that it should have been obvious to the police that something needed to be
done, nor whether the police could notionally have prevented the incident. This would entail
a counter-factual assessment of whether the police could have prevented the damage which
comes very close to asking whether the police were in some way at fault (the Act creates strict
liability and not fault-based liability). Whether persons are riotously and tumultuously assembled
is a factual assessment which does not turn on the ability of the police. The focus of the inquiry
is, therefore, whether the property has been damaged or destroyed as a result of mob violence.
This is a question of degree and it is for the trial judge to carry out an evaluative exercise on the
primary facts of the case.
The Court of Appeal determined that the High Court judge had directed himself correctly in law
and that the conclusion which he reached on his evaluation was one to which he was entitled
to come. The Court of Appeal was reluctant to reassess such an evaluation and dismissed the
appeal on the question of liability.
Consequential losses
The Court of Appeal overturned the High Court’s findings that consequential losses were not
recoverable under the Act.
The High Court considered the wording in the preamble to the Act (which has since been
repealed but the High Court took it as indicative of what Parliament had intended) and S.7 of
the Act (which deals with the persons deemed to have sustained the loss in relation to damage
to particular buildings) and came to the conclusion that recoverable loss under the Act was
limited to physical damage. In particular, the High Court judge considered that the preamble
wording “…which property is damaged…liable in certain cases to pay compensation for such
damage…” indicated that compensation was only available “for” damage to property.
The Court of Appeal noted that the purpose of compensation under the Act was remedial and
that it should therefore receive a “liberal interpretation” – it did not see any reason to construe
the preamble of the Act in the limited way the High Court had done. Further, the Court of
Appeal considered that the purpose of S.7 of the Act was simply to identify who may be the
claimant (and not the type of losses which are recoverable). Therefore, the Court of Appeal
held that there was nothing in the Act which showed that consequential losses could not be
recovered.
The MOPC also submitted that if a police authority is strictly liable for the consequences of
riotous behaviour it could only be because it was fair and appropriate for them to be notionally
and collectively responsible for failing to prevent those consequences – and that it was one
thing to be taken to have knowledge of, for example, the property about to be attacked but
quite another to suggest that it should also have knowledge of a private citizen’s economic
affairs (and thus be liable for consequential losses). The Court of Appeal rejected this appeal to
fairness. It noted that the law as well as the liberal interpretation of the law on this matter was
well established. Even if it was unfair, it was for Parliament to change this position and, although
Parliament could have excluded consequential losses from the Act, it had not done so.
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Brokers’ Duties
Insurance broker not liable despite providing
inadequate insurance cover to a commercial
client
Eurokey Recycling Ltd v Giles Insurance Brokers Ltd37
High Court, 12 September 2014
The Court held that an insurance broker was not liable under contract or in tort despite the
fact that one of its commercial clients was found to be grossly underinsured following a fire.
The broker had adequately explained the business interruption cover to be provided and had no
reason to believe the figures, provided by the client, and on which the cover was based, were
inadequate.
Background
Giles acted for Eurokey, a waste recycling company, in placing its business interruption cover.
Eurokey’s main premises in Leicestershire were destroyed by fire in 2010. When Eurokey sought
to claim under the insurance, the combined commercial insurers threatened to avoid the policy
by reason of gross underinsurance. While Eurokey had declared turnover of £11 million it should
have been £17 million; this had thereby altered the cover required for the company. A settlement
was reached with insurers and Eurokey claimed the shortfall plus consequential losses from Giles.
Eurokey alleged that Giles had, among other things:
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Given no explanation of how to calculate the appropriate BI sum insured;
Incorrectly sought cover for turnover of £11m, when in fact Eurokey’s turnover was more like
£17 million; and
Not paid attention to Eurokey’s accounts, provided after the policy had been placed, which
showed the turnover at over £17 million.
Mr Justice Blair dismissed the claim in its entirety. He held that Giles had acted upon the
instructions given by Eurokey regarding its required insurance. Giles had been entitled to do
so because it had given a proper explanation of the insurance and had no reason to doubt
the figures which had been provided by Eurokey for the calculation. There were a number of
mistakes in the records and presentations carried out by Giles but the Court was able to see past
them and get to the core issue of why the cover in place was for the sums it was.
Although not relevant given the finding, Mr Justice Blair also said, obiter, that a contributory
negligence deduction of 50 per cent would have applied had he found Giles negligent. This was
because Eurokey had to take responsibility for providing incorrect figures; indeed they provided
the same incorrect figures to alternative insurers when trying to obtain cheaper insurance.
A Useful Test
The judgment contains a number of interesting points on the duties of an insurance broker:
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A broker is not expected to calculate the business interruption sum insured or to choose a
maximum indemnity period. These are matters for the client.
The client must, however, be given an adequate explanation of how to calculate the sum
insured and choose a maximum indemnity period. The broker should take reasonable steps to
ensure that the client fully understands this.
37 [2014] EWHC 2989 (Comm.)
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A broker must take reasonable steps to ascertain the nature of the client’s business and its
insurance needs, but is not required or expected to conduct a detailed investigation into the
client’s business.
The nature and scope of a broker’s obligation to assess a commercial client’s business
interruption insurance needs will depend upon the particular circumstances of the case,
including the client’s sophistication and the number of times the broker has met the client in
the past.
A client may not need annual repetition of advice previously given and understood – this is
assuming that the responsible personnel remain the same.
If an apparently sophisticated client provides a broker with information, the broker is not
expected to verify that information unless he has reason to believe that it is not accurate.
Where a broker is given express instructions as to the cover to be obtained, he must
exercise reasonable care to adhere to those instructions.
The Supreme Court hands down judgment on
PPI mis-selling and unfair relationships under
the CCA
Plevin v Paragon Personal Finance Ltd38
The Supreme Court, 12 November 2014
This case revisited the issue of unfair relationships in payment protection insurance (PPI) misselling claims in respect of S.140A Consumer Credit Act 1974 (CCA) and focussed on two key
issues:
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Whether the failure to disclose the amount of commission paid in respect of the PPI created
an unfair relationship; and
Whether the broker’s failure to assess and advise upon the suitability of the PPI for Mrs
Plevin’s demands and needs was something done or omitted on “behalf of” the lender for
the purposes of the CCA.
The Supreme Court ruled that the non-disclosure of the amount of commission (at 71.8%) had
the result of making Paragon’s relationship with Mrs Plevin unfair. The Court also clarified that
the failure to conduct a demands and needs appraisal did not apply here and that Paragon was
under no obligation to do so.
Background
Mrs Plevin was a 59 year old lecturer and a widow. She lived in her own house with a mortgage
and unsecured personal debt; she had no dependents and had generous sickness cover
provided by her employer.
Mrs Plevin received an unsolicited leaflet from a broker called LLP Processing UK (LLP) a broker
authorised by the FSA (now the FCA) to be an insurance intermediary subject to the FSA’s
Insurance Conduct of Business sourcebook (ICOBS). The offer was to refinance Mrs Plevin’s
debts with security provided by her home.
Mrs Plevin called LLP and expressed an interest in the offer and LLP assessed her demands
and needs as required by ICOBS. During the call a quotation for a product was made by LLP to
Mrs Plevin. The proposal was for her to borrow £34,000 from Paragon Personal Finance Ltd
(Paragon). Alongside the loan a PPI policy was offered paid as a single premium added onto the
loan. After the call, LLP provided an application form and a ‘Key Facts’ document to Mrs Plevin.
38 [2014] UKSC 61
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Paragon then contacted Mrs Plevin for a “speak with” in line with their anti-money laundering
policy. This, along with the cheques sent by Paragon as part of the refinancing was the only
contact Mrs Plevin had with Paragon.
In a unanimous decision, the Supreme Court overturned the leading authority on S.140 CCA;
the case of Harrison and Harrison v Black Horse39. Here the Court of Appeal had ruled that a
relationship could not be found to be unfair where there had been no breach of the relevant
statutory regulations.
In his sole judgment Lord Sumption provided that the ICOB rules (now ICOBS) “impose a
minimum standard of conduct” and that a relationship could be unfair for reasons “which do not
have to involve a breach of duty”. Rather, the assessment of fairness requires “a wide range of
considerations” including:
The characteristics of the borrower, her sophistication or
vulnerability, the facts which she could reasonably be expected
to assume, the range of choices available to her, and the degree
to which the creditor was or should have been aware of these
matters.
In ruling that the relationship was unfair, Lord Sumption held that the non-disclosure of
commission was unfair because it led to a “sufficiently extreme inequality of knowledge and
understanding”. He stated that there is a “tipping point” at which commissions become so large
that it renders the relationship as such. Here, he identified the 71.8% commission charged as well
beyond this tipping point but did not define when this would occur.
In respect of the failure of Paragon to assess the suitability of the PPI provided to Mrs Plevin,
the Supreme Court held that Paragon could not have been expected to carry out its own
suitability assessment. This is because this statutory obligation was expressly assigned to LLP
and the key question was, therefore, whether the acts or omissions of LLP were done or not
done “on behalf of” Paragon. Lord Sumption gave the term its ordinary meaning and confined it
to agency and deemed agency relationships. Here, LLP was not acting as Paragon’s agent.
The appeal was dismissed, although for reasons different to those given by the Court of Appeal,
and the case will be remitted to the County Court at Manchester to decide what (if any) relief
under S.140B CCA should be ordered.
Conclusion
It is now apparent that the fairness of a debtor-creditor relationship will be fact specific and
involve an assessment of “a large number of forensic factors”. Indeed, codes of conduct are just
that and no more; while they provide the minimum standards to be expected they do not create
legal relations. Thus, while compliance with regulatory obligations is a factor it is not the deciding
factor.
It is thus less apparent at what point a debtor-creditor relationship becomes unfair. Lord
Sumption provided that there is a “tipping point” but where that may be remains undefined.
Here, the commission rate of 71.8% was deemed unfair and it likely that cases of a similar nature
will be hotly contested where the commission was below this level. Further, this case does little
to clarify what remedy can be expected in circumstances where the relationship has passed that
tipping point.
39 [2012 Lloyd’s Rep IR 521
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Reinsurance
Court grants reinsurer’s application for summary
judgment – retrocessionaire’s defence had no
reasonable prospect of success
Tokio Marine Europe Insurance Ltd v Novae Corporate Underwriting Ltd40
Commercial Court, 2 July 2014
Background
We reported last year on the Commercial Court’s ruling on a number of preliminary issues
concerning the proper continuation of a retrocession contract and, in particular, the follow-thesettlements clause41. Hamblen J rejected Novae’s construction and upheld that advanced by
Tokio.
Mr Justice Field has now granted an application for summary judgment made by reinsurer,
Tokio Marine Europe Insurance Limited (“Tokio”). It was held that the defence raised by
the retrocessionaire, Novae Corporate Underwriting Limited (“Novae”), that the underlying
settlement was entered into by the original insurer, ACE Europe (“ACE”), without ACE having
taken all “proper and businesslike steps”, had no reasonable prospect of success.
Summary Judgment
Novae’s defence stated that, applying the principles established in Insurance Company of
Africa v Scor (UK) Reinsurance42, ACE was required to take all proper and businesslike steps
in its settlement with the original insured. Novae argued that such steps were not taken by
ACE, submitting that ACE did not consider numerous factors including i) the definition of
“Occurrence” in the Master Policy, ii) the different causes of the flooding and heavy rainfall in
Thailand in 2011 and iii) whether the original insured’s losses could be attributed to different
sources.
Mr Justice Field granted Tokio’s application for summary judgment; it was held that Novae’s
defence had no reasonable prospect of success. ACE was entitled, in Mr Justice Field’s
opinion, to conclude that there was nothing additional to be gained by further investigation
into coverage under the local policy or by disputing the meaning and effect of the definition
of “Occurrence” in the Master Policy. This was principally based upon his conclusion that a
settlement of £80m net was “undoubtedly a good settlement” as it was substantially less than
the projected final adjusted loss of £90 to £100m. He found that, assuming Novae’s appeal to
the Court of Appeal on the preliminary issues is not successful, there should be no good reason
why the ordinary presumption that Novae, as the reinsurer, will follow the settlement of ACE, as
the reinsured, should not apply. The case emphasises that insurers are not obliged to ensure that
any settlement maximises returns for excess of loss reinsurers when meeting the obligation to
take such proper and businesslike steps.
40 [2014] EWHC 2105 (Comm)
41
[1985] 1 Lloyd’s Rep 312
42 See our previous commentary at page 36 in our Annual (Re) Insurance 2013 available here:
http://www.taylorwessing.com/fileadmin/files/docs/Insurance-and-Reinsurance-Review-2013.pdf
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Court of Appeal upholds Commercial Court
decision concerning typhoon warranty
Amlin Corporate Member Ltd v Oriental Assurance Corp43
Court of Appeal, 7 August 2014
Background
The Appellant, Oriental Assurance Company (“Oriental”), appealed against Field J’s decision44
that, by reason of a breach of a typhoon warranty in a reinsurance contract between the
reinsurers and the Appellant, the reinsurers were not liable to indemnify Oriental in respect of
cargo liabilities arising out of the loss of the vessel.
Appeal Dismissed
The Court considered Oriental’s argument that the typhoon warranty should be construed by
reference to the way in which typhoon warnings were generally understood and acted upon
by the maritime community in the Philippines. Oriental asserted that a circular containing
revised guidelines on the movement of vessels during heavy weather that had been issued by
the Headquarters of the Philippine Coast Guard (the “Circular”) and which provided the ship
owners and masters with a discretion as to whether or not to sail when this type of warning
was given, should be taken into account. Oriental maintained that only if an experienced insured
understood the warning as advising against setting sail in all circumstances would there have
been a breach of the typhoon warranty. LJ Gloster, however, held that on the plain reading of
the warranty used by the parties, reference was simply made to typhoon warnings and storm
warnings without distinction. If the parties intended the warranty to refer to the Circular, or what
an experienced insured would have understood the warning to prohibit, this would have been
expressly stated in the warranty itself.
With regard to whether Field J was entitled to conclude on the evidence that the intended route
was the usual route, LJ Gloster explained that such a conclusion should not be in dispute. The
relevant intention was that of the Master, and there was no documentary evidence of a voyage
plan for the alternative route having been prepared by the Master. Instead, both formulations
produced by the Master represented an intention at the relevant time to take the usual route.
43 [2014] EWCA Civ 1135
44 See our previous commentary at page 16 in our Annual (Re) Insurance 2013 available here:
http://www.taylorwessing.com/fileadmin/files/docs/Insurance-and-Reinsurance-Review-2013.pdf
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German Court Decisions
The Federal Court of Justice on the German
Insurance Act 2008
The judgments of the Federal Court of Justice (“BGH”) on the new German Insurance Act
2008 (“VVG”) are relatively sparse in numbers, albeit the VVG has been in force for nearly six
years. However, with the two judgments set out below, the BGH has shed some light on the
interpretation of two areas of law.
Wilful increase of risk
BGH, 10 September 2014 – IV ZR 322/13
The BGH had to decide on the following case regarding the interpretation of when an increase
of the insured risk was “wilful”. The insured farmer had insured a solar power system installed on
the roof of his barn. In this barn the insured stored dry hay. Subsequently, the insured parked a
tractor in the barn. A fire ensued and destroyed the barn as well as the solar power system. The
insurer refused to pay and alleged that the insured had wilfully increased the insured risk without
the insurer’s consent.
The insured’s claim for insurance benefits was dismissed by the Regional Court as well as the
Higher Regional Court. The Higher Regional Court held that the insurer was released from
liability as the insured wilfully drove the tractor into the barn and thereby wilfully increased the
insured risk.
On appeal, the BGH set aside the lower court’s judgment. It held that the insured’s knowledge
of the facts that lead to an increase of the insured risk alone is not sufficient, but that, in
addition, the insured has to realise that his actions lead to the increased probability of the
materialisation of the insured risk. The BGH reasoned that if the interpretation of the High
Court was right, cases of gross or slight negligence or even complete blamelessness would be
hardly possible as nearly every insured increasing the insured risk knows about the facts that
lead to the increase. This would go against the legislator’s intention of providing a tiered system
of partial or full exclusion of coverage depending on the degree of fault in section 26 para. 1
of VVG and abandoned its “all or none” principle of the old Insurance Contract Act that was
reformed in 2008.
Insurers’ duty to inform of the legal consequences of non-performance of
pre-contractual obligations
BGH, 12 March 2014 – IV ZR 306/13
If an insured does not fulfil his pre-contractual obligations, the insurer may withdraw
(“Rücktritt”) from or terminate (“kündigen”) the contract under section 19 of the VVG,
depending on the degree of fault, and thereby be partially or completely released from liability.
This obviously seems to be a very beneficial provision for the insurer, especially if avoiding a
policy due to fraudulent misrepresentation (“Anfechtung wegen arglistiger Täuschung”) is
not possible due to e.g. preclusion. It is, however, a requirement that the insurer informs the
insured of the consequences of any non-performance of pre-contractual obligations according
to section 19 para. 5 of the VVG. More often than not, the insurer fails to fulfil the strict
information requirements.
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With its judgment dated 12 March 2014, the BGH however held that the insurer is not obliged
to inform a fraudulent insured, thereby upholding the general principle that a fraudster shall not
be protected by the law. The decision was based on the following facts: the insured applied
for private health insurance and withheld information on pre-existing severe illnesses from the
insurer who asked for such conditions in a questionnaire. The questionnaire did not, however,
contain information about the consequences of not fulfilling the pre-contractual obligation.
After the insurer had knowledge of the pre-existing illnesses, it withdrew from the contract. A
subsequent avoidance due to fraudulent misrepresentation was time-barred. With declaratory
action, the insured claimed that the insurance contract was still in force, as he had not been duly
informed of the legal consequences of his non-performance of pre-contractual obligations.
The lower courts dismissed the claim and the BGH subsequently dismissed the insured’s appeal
against the judgment. It held that since avoidance for fraudulent misrepresentation does not
require fulfilling any duty to inform the insured, it would be inappropriate if a withdrawal for the
same reason would have to fulfil such duty. The court further held that the legislator itself stated
in its reasons for the VVG regarding a provision on contractual obligations that the fraudulent
insured does not require information on the consequences of non-performance. The BGH
applied this principle on the pre-contractual obligations accordingly. This decision of the BGH has
clearly strengthened the legal position of insurers vis-à-vis fraudulent insureds.
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Belgian Insurance
Development
An ageing population and complementary
insurance in Belgian Social Security
Following the elections that took place in Belgium in 2014, Assuralia, the Belgian professional
union for insurance companies, has published a memorandum pointing out the issues that will
have to be dealt with by the new government among which one of the major issues: pensions.
Pension, health and dependency expenditures have tremendously increased in the past years
reinforcing the role of complementary insurances in order to maintain the Social Security in
Belgium. According to a Study Commission on ageing, as from 2030, €17billion of supplemental
financial means will have to be found per year to face the effects of ageing and maintain the
Social Security as it is. Complementary insurances will play a core role in the coming years.
Currently 70% of the workers benefit from a complementary pension subscribed by their
employer, 95% of which have opted for an insurer. In order to maintain the purchasing power
of each worker after retirement, this practice will have to generalised. Such practice has been
driven by the Belgian law on complementary insurance of 2003 but it will not be sufficient.
Assuralia’s suggestions are, amongst others, the following:
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raising of awareness by social partners on the need to guarantee the purchasing power from
the age of 65 by guiding the salary standards and indexation towards supplementary pension
rather than increases of salary;
establishing free supplementary pensions for workers through the creation of an obligation
for each employer not having a pension plan to provide his workers with the necessary
structure to constitute a supplementary pension;
giving the possibility to the members of a group pension plan to increase their personal
contribution above the limit provided for in the plan; and
giving the possibility to workers of a certain age to transform a part of their gross salary in
supplementary contributions.
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International insurance team
Gisela Alsleben
Associate, Düsseldorf
+49 (0)211 8387 107
[email protected]
Torsten Braner
Partner, Budapest
+36 (0)1 327 04 07 14
[email protected]
Conrad Campos
Partner, Singapore
+65 6381 6932
[email protected]
Martin Eckel
Partner, Vienna
+43 (0)1 716 55 420
[email protected]
Mark Fraser
Partner, Dubai
+971 (0) 4 309 1004
[email protected]
Philippe Glaser
Partner, Paris
+33 1 72 74 18 27
[email protected]
Caroline Harbord
Associate, London
+44 (0)20 7300 4157
[email protected]
Christoph Janssen
Partner, Düsseldorf
+49 (0)211 83 87 147
[email protected]
Franz Janssen
Partner, Düsseldorf
+49 (0)211 83 87 174
[email protected]
Miranda Joseph
Associate, London
+44 (0)20 7300 4099
[email protected]
Gunbritt Kammerer-Galahn
Partner, Düsseldorf
+49 (0)211 83 87 106
[email protected]
Wolfgang Kapek
Partner, Vienna
+43 (0)1 716 55 422
[email protected]
Peter Kempe
Partner, London (Corporate)
+44 (0)20 7300 4695
[email protected]
Marie Keup
Associate, Brussels
+32(0)2 289 60 51
[email protected]
Claus Peter Knufinke
Partner, Frankfurt
+49 (0)69 9 71 30 225
[email protected]
Bart De Moor
Partner, Brussels
+32 (0)2 289 60 42
[email protected]
Christian Nicolai
Associate, Düsseldorf
+49 (0)211 83 87 105
[email protected]
Sami Paracha
Associate, London
+44 (0)20 7300 4279
[email protected]
Jessie Prynne
Associate, London
+44 (0)207 300 4978
[email protected]
Nandakumar Renganathan
Partner, Singapore
+65 6381 6833
[email protected]
Jonathan Rogers
Partner, London (Regulatory)
+44 (0)20 7300 4797
[email protected]
Quirin Vergho
Senior Associate, Munich
+49 (0)89 2 10 38 224
[email protected]
Susie Wakefield
Partner, London (Claims and disputes)
+44 (0)20 7300 4690
[email protected]
Dion Williams
Consultant, London (ILS)
+44 (0)20 7300 4158
[email protected]
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Our international insurance group
The Taylor Wessing International Insurance Group is drawn from experts in their fields across the
firm, all of whom have extensive knowledge of the insurance and reinsurance markets.
Our team has substantial experience of both domestic and international insurance markets with
a number of team members having worked in the markets for over twenty five years. The team
understands the commercial issues as well as the legal issues and provides a holistic approach to
legal advice for insurance market clients.
The Group includes expert lawyers qualified in the jurisdictions in which Taylor Wessing has
offices, (across Europe, the Middle East and Asia) as well as in other key insurance markets
(including New York and Bermuda). Advice (whether for risk carriers, intermediaries or other
market participants) covers the full range of requirements including:
Corporate, Commercial & Regulatory
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Transfers of businesses, key employees and teams;
Transfers of shares and capacity;
Advice on capital solvency and all aspects of regulatory compliance and supervision;
Alternative capital arrangements including ILS;
Run-off and the management of discontinued businesses; and
Direct-line business, intermediaries and other web based products and distribution methods.
Disputes & Claims
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Insurance and reinsurance claims and disputes both domestic and internationally;
Complex coverage disputes;
Bermuda form arbitration;
Disputes arising out of sale of insurance businesses;
Shareholder disputes;
Insolvency issues; and
Commercial and retail policy wording advice, compliance and drafting.
Our team has experience working across all retail and commercial lines including: property and
casualty, marine and energy, financial lines, product liability, product recall, cyber liability, tech/
media and consumer general insurance risks.
Please contact Susie Wakefield, or any of the international insurance team, if you have
any queries.
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Data
Upcoming
Conferences
Following on from our sixth annual International Insurance Day in Munich,
Germany, in November 2014, at which cyber liability was a featured topic we
will be hosting the future conferences listed below:
Annual Data Privacy Conference 2015 - Emerging Technologies & Data Risks
London, 25 February 2015
For more information or to register your interest please contact
Rebecca Atherton [email protected]
Insurance Day 2015
Düsseldorf, 7 May 2015
For more information or to register your interest please contact
Dr. Gunbritt Kammerer-Galahn [email protected]
Europe > Middle East > Asia
www.taylorwessing.com
© Taylor Wessing LLP 2015
This publication is intended for general public guidance and to highlight issues. It is not intended to apply to specific circumstances or to constitute legal advice. Taylor Wessing’s international offices operate as one firm but
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