INSURANCE: An Introduction

Written by Sarah Martin of 7 King's Bench Walk

Judicial consideration of the Insurance Act 2015, which reforms the law governing the duty of fair presentation of the risk, breaches of warranty, the insurer’s remedies for fraudulent claims and the insured’s remedies for late payment of insurance claims, has been keenly anticipated by the insurance market. In Young v Royal and Sun Alliance plc, a decision of the Scottish Court of Session, the insurer declined the claim, inter alia, on the basis that the insured had breached his duty under section 3(1) of the 2015 Act to make a fair presentation of the risk, by neglecting to disclose his directorship of companies that had been dissolved or placed into insolvent liquidation. However, the case turned on the issue of whether the insurer had waived disclosure of the undisclosed information, and the Court found that the Act had not altered the law in this area. Accordingly, the guidance provided on the provisions of the Act was limited.

Some of the most important insurance cases to come before the courts in recent months have concerned marine insurance. In Sveriges Angfartygs Assurans Forening (The Swedish Club) v Connect Shipping Inc, the Supreme Court concluded that the “cost of repairing the damage” for the purpose of determining whether the vessel was a constructive total loss under section 60(2)(ii) of the Marine Insurance Act 1906 included all the reasonable costs of salving and safeguarding the vessel, from the time of the casualty, including those incurred before notice of abandonment had been given. In a further marine insurance dispute, the Commercial Court trial of the long-running ‘scuttling’ case Suez Fortune Investments Ltd v Talbot Underwriting Ltd (‘The Brillante Virtuoso’) took place over the course of some five months in the first half of 2019. Judgment is awaited.

In the non-marine context, the Insurance Bar has been involved in a broad range of cases, raising issues such as notification under professional indemnity insurance (the Court of Appeal decision in Euro Pools Plc (In Administration) v Royal & Sun Alliance Insurance PLC), alleged non-disclosure of material facts (the Court of Appeal decision in Friends Life Ltd v Miley), whether the reinstatement basis was the proper measure of indemnity for a fire-damaged property which had not been reinstated (Sartex Quilts & Textiles Limited v Endurance Corporate Capital Limited), and whether payment of an insurance claim would expose insurers to US and/or EU sanctions against Iran, triggering an exclusion clause (Mamancochet Mining Ltd v Aegis Managing Agency Ltd).

Substantial changes to the law have occurred in the reinsurance field, with the Court of Appeal on 17 April 2019 handing down its long-anticipated judgment in Equitas Insurance Ltd v Municipal Mutual Insurance Ltd. The Court concluded that while the practice of ‘spiking’– whereby the employer is entitled to present its mesothelioma claims to any employers’ liability insurer who was on risk during the exposure period – was permissible for the reinsured as a matter of contractual construction, that right was not absolute. A novel duty of good faith was to be implied, requiring the reinsured to spread its claim across its reinsurance programme by reference to each year’s contribution to the risk. The respondent reinsured has been granted permission to appeal to the Supreme Court.

Alongside the judicial route, arbitration remains a popular choice for the resolution of insurance and reinsurance disputes, with international arbitrations being conducted under institutional rules such as those of the LCIA, ICC, SIAC and HKIAC, as well as by ad hoc arbitration. Very substantial claims arising from liabilities, across an assortment of industries, continue to be resolved in Bermuda Form arbitrations.

In the conflicts of law sphere, the courts have been confronted with a number of insurance disputes concerning the application and scope of jurisdiction and arbitration clauses, including the Court of Appeal in Airbus SAS v Generali Italia SPA (enforceability of jurisdiction clause against subrogated insurers), the Queen’s Bench Division in A v B (application of arbitration clause to director covered by directors and officers policy), and the Court of Appeal in Aspen Underwriting Ltd v Credit Europe Bank NV (enforceability of jurisdiction clauses in insurance policy and separate release agreement against loss payees and assignees). Significantly, the latter case also addressed the meaning of “matters relating to insurance” in Section 3 of the Recast Brussels Regulation.

Consumer insurance claims continue to occupy the Insurance Bar, with the issue of committal for contempt of court in the context of personal injury claims coming twice before the Court of Appeal, in Zurich Insurance Plc v Romaine and in Liverpool Victoria Insurance Co Ltd v Zafar. There has also been consideration of several motor insurance claims at the appellant level – see, in particular, the Supreme Court’s decision in Cameron v Liverpool Victoria Insurance Co Ltd preventing a motorist injured in a hit-and-run collision from bringing an action against a person identified only as “the person unknown,” the Supreme Court’s decision in R&S Pilling (t/a Phoenix Engineering) v UK Insurance Ltd on the meaning of section 145 of the Road Traffic Act 1988, and the Court of Appeal’s decision in Motor Insurers’ Bureau v Lewis on the direct effect of EU Directive 2009/103/EC relating to compulsory motor insurance against the Motor Insurers’ Bureau as an emanation of the state.

As well as insurance coverage disputes, insurance cases before the courts have included subrogated proceedings, a dispute concerning liability for mis-selling of payment protection insurance, and claims against insurance professionals. The latter category includes the important decision on the proper approach to causation in cases of brokers’ negligence in Dalamd Ltd v Butterworth Spengler Commercial Ltd, where the Court held (inter alia) that to establish causation, an insured had to show that a claim on its policy would have failed as a result of the broker’s negligence; it was not sufficient to show simply that the negligence had impaired its claim.

Recent litigation, therefore, has seen a number of significant developments in the domains of insurance and reinsurance law, though the wait for substantive consideration of the Insurance Act 2015 continues.