1 The Taylor Wessing Insurance and Reinsurance Review of 2014 January 2015
2 Contents Law and Jurisdiction... 5 The Starlight Shipping saga: decisions following the Supreme Court s ruling on 6 November High Court challenges the Financial Ombudsman Service s jurisdiction in relation to a Directors and Officers policy...7 Procedure 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 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 The relevance of events subsequent to valuation date when quantifying under a Warranty and Indemnity Policy...24 Fraud and Avoidance 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 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
3 Brokers Duties 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 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 The Federal Court of Justice on the German Insurance Act Belgian Insurance Development An ageing population and complementary insurance in Belgian Social Security...42 International insurance team... 43
4 4 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 4 February Co SA BGH v 12/03/2014 IV ZR 306/13 12 March Alan Bate v Aviva Insurance UK Ltd 21 March Milton Furniture Ltd v Brit Insurance Ltd 1 April Assuranceforeningen Gard Gjensidig v International Oil 7 May Pollution Compensation Fund 1971 Mitsui Sumitomo Insurance Co (Europe) Ltd and Others 20 May v Mayor s Office for Policing and Crime Federal Mogul Asbestos Personal Injury Trust v Federal- 27 June Mogul Ltd (formerly T&N Plc) Tokio Marine Europe Insurance Ltd v Novae Corporate 2 July Underwriting Ltd Ageas (UK) Ltd v Kwik-Fit (GB) Ltd and AIG Europe Ltd 4 July Beacon Insurance Co Ltd v Maharaj Bookstore Ltd 9 July Starlight Shipping Co v Allianz Marine & Aviation 18 July Versicherungs AG Amlin Corporate Member Ltd v Oriental Assurance Corp 7 August Dowdall v Kenyon & Sons 12 August BGH v 10/09/2014 IV ZR 322/13 10 September Eurokey Recycling Ltd v Giles Insurance Brokers Ltd 12 September Versloot Dredging BV v HDI Gerling Industrie 16 October Versicherung AG (The DC Merwestone) R (on the application of Bluefin Insurance Services Ltd) 20 October v Financial Ombudsman Service Ltd Plevin v Paragon Personal Finance Ltd 12 November Rathbone Brothers plc and Michael Paul Egerton- Vernon v Novae & Others 14 November
5 5 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 others 1 Court of Appeal, 18 July High Court, 26 September 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 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 See our previous commentary summarising the decisions of the High Court ( EWHC 3361 (Comm)), the Court of Appeal ([2012 EWCA Civ 1714) and the Supreme Court ( UKSC 70) at page 1 of our Annual (Re)insurance Review 2013 available here: 2  EWCA Civ  EWHC 3068 (Comm)
6 6 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 Privalov 4 (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  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.
7 7 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 Ltd 5 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  EWHC 3413 (Admin)
8 8 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 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 Council 6. While the FOS has compulsory jurisdiction to 6  1 WLR 2557
9 9 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.
10 10 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.
11 11 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) & Others 7 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 20 th century, and which was subsequently acquired by Federal-Mogul Corporation in 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  EWHC 2002 (Comm)
12 12 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 Meadows 8 case. The Trust relied on the principles summarised by Aiken LJ in Rolls Royce Plc v Unite the Union 9 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 Meadows Indemnity Co Ltd v Insurance Corp of Ireland Plc  2 Lloyd s Rep 298; which held that 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  1 WLR 318
13 13 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 Ltd 10 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  EWHC 2822 (QB)
14 14 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 Limited 11 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 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  UKHL 22
15 15 Law Life Assurance Society Plc 12. 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 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  UKHL 15
16 16 Policy Interpretation / Scope of Coverage Co-insurance: Interpretation of a Follow Clause San Evans Maritime Inc & Ors v Aigaion Insurance Co SA 13 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: 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? 13  EWHC 163 (Comm)
17 17 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 Assurance 14 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 Others 15 and Youell v Bland Welch 16 where the agency analysis was accepted, and the case of Unum Life Insurance v Israel Phoenix Assurance 17 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 Sveriges 18 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  Lloyd s Rep. I.R  2 Lloyd s Rep  2 Lloyd s Rep  Lloyd s Rep I.R  2 Lloyd s Rep 123
18 18 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 Limited 19 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  EWHC 965 (QB)
19 19 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.
20 20 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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Australian Institute of Professional Photography Please Return the Completed Application to: Marsh Pty Ltd Consumer Professional Photographers Insurance GPO Box 1229, Melbourne Vic 3001 Telephone: 1300
PROPERTY DEVELOPMENT CONTINGENCY INSURANCE Your Policy Terms and Conditions September 2013 Edition WELCOME TO AXA Introducing AXA One of the world s largest insurers With more than 50 million customers
Loan Car Legal Cover Terms and Conditions As a Loan Car Driver, you also benefit from legal expenses cover. Legal expenses cover pays the legal costs and expenses of any legal proceedings to recover uninsured
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