UK: A Summary of Recent Developments in Insurance, Reinsurance And Litigation Law

Last Updated: 12 October 2010
Article by Nigel Brook

Glacier Reinsurance AG v Gard Marine & Energy

Reinsurance claim and applicable law/jurisdiction issues - meaning of "irreconcilable judgments"

Clyde & Co for respondent

The first instance decision in this case was reported in Weekly Update 39/09. Hamblen J held that the English court had jurisdiction to hear the claim brought by the claimant (a Bermudian company) against the defendant (a Swiss reinsurer). The claimant was reinsured under two excess of loss reinsurance slips with 1) London market underwriters (one of which was Advent) and 2) the Swiss reinsurer. Hamblen J held that English law was the applicable law and that the English court had jurisdiction under Article 6(1) of the Lugano Convention (the applicable jurisdiction regime as between the UK and Switzerland). The Swiss reinsurer appealed. The Court of Appeal has now held as follows:

  • The applicable law was English law. The Swiss reinsurer had participated as part of a London market placement and not a separate placement in the Swiss market. It would make no commercial sense for one part of the reinsurance to be governed by one law and another by a different law. Furthermore, the underlying policy was governed by English law and the form of slip used in the London market was used for both the main and the Swiss reinsurer's slip. (Even if that was wrong, the contract had its closest connection with England).
  • Article 6(1) of the Convention provides that a person domiciled in a Contracting State may also be sued "where he is one of a number of defendants, where any one of them is domiciled". It was common ground that the condition stipulated by the ECJ in Kalfelis [1988] also applied - namely that it must be "expedient to hear and determine them together in order to avoid the risk of irreconcilable judgments resulting from separate proceedings". The Swiss reinsurer sought to argue that "irreconcilable judgments" should be interpreted narrowly and meant that the decisions had to be "mutually exclusive". The Court of Appeal rejected that argument. It was only required that there "may be a divergence in the outcome where there is "the same situation in law and fact"". It was not necessary to decide the precise meaning of "irreconcilable judgments" in this case.
  • As the participations of Advent and the Swiss reinsurer in the excess of loss reinsurance are governed by English law and are on the same terms and part of the same placement, there would be a risk of irreconcilable judgments if the primary issue, namely the construction of the excess of loss reinsurance, was decided by different courts.

The appeal was therefore dismissed.

Travelers Insurance v Countrywide Surveyors

Whether court has jurisdiction to order pre-action disclosure if matter is to be arbitrated

The claimant insurer believed that it might have grounds to avoid the defendant's professional indemnity policy on the ground that one of the defendant's former surveyors may have committed fraud. However, in order to reach a concluded view, the insurer sought various documents from the defendant. When it failed to receive full disclosure, it brought this application pursuant to CPR r31.16 for pre-action disclosure. Three issues arose:

Three issues arose:

  • If the insurers sought to avoid, in which forum would the dispute be determined? A special condition in the policy provided that the insurer could only avoid for fraudulent non-disclosure. In the event of any dispute "regarding the application" of the special condition, the dispute was to be referred to arbitration. The insurer sought to argue that there was no dispute as to whether the special condition applied, instead it was disputed what the effect of that special condition was, and hence the dispute did not have to be referred to arbitration. That argument was rejected by Coulson J. It would be very rare for there ever to be a dispute simply about the application of the condition. The clear commercial purpose of the condition was that all disputes about non-disclosure and fraud would be dealt with by arbitration (and thus in a confidential forum).
  • If the underlying dispute will be decided in arbitration, does the court have jurisdiction to order pre-action disclosure? Coulson J held that it did not. The power to order preaction disclosure in accordance with s) 33(2) of the Senior Courts Act 1981 can only be invoked by an applicant who "appears to the High Court [to be] likely to be a party to subsequent proceedings in that court". Nor could s) 37 of the Senior Courts Act (which gives the court jurisdiction to make certain orders where it is "just and convenient to do so") be invoked in circumstances where there is otherwise no express jurisdiction. Coulson J repeated earlier comments in Elektrim v Vivendi [2007] that the courts do not have a general supervisory power to intervene in arbitrations before an award is made.
  • Could the claimant rely on s) 44(3) of the Arbitration Act 1996? This provides that, if the case is one of urgency, the court may (on the application of a party or proposed party to arbitral proceedings) make such order as it thinks necessary to preserve evidence or assets. Although he accepted that a claim is an "asset" for this purpose, the judge said that s) 44(3) could be invoked only in exceptional circumstances. In the absence of any express evidence as to a particular risk of lost documents (and not just the usual risk that documents will be lost or mislaid over time), there is no urgency and hence the court has no power to make an order. Instead, it is for the arbitrators to make orders for disclosure once the arbitration proceedings have started.

Goel & Anor v Amega Ltd Whether arbitrator was biased

The claimants applied for an order removing an arbitrator for alleged bias, pursuant to s) 24 of the Arbitration Act 1996. The Court of Appeal formulated the test to be applied in cases of bias in Re Medicaments and Related Classes of Goods (No.2) [2001) as whether the circumstances "would lead a fair- minded and informed observer to conclude that there was a real possibility or a real danger, the two being the same, that the tribunal was biased". For applications under s)24, there is no separate or supplemental requirement to show substantial injustice: evidence of apparent bias is, in itself, substantial injustice. Applying these principles, Coulson J examined the particular allegations in this case which included:

  • The arbitrator should have adjourned a meeting when he discovered that, not only would the claimants not be present but also their solicitors did not have instructions. Coulson J considered this argument "fanciful". If it were right, an unscrupulous party could spin out arbitration indefinitely by simply not giving his solicitors the necessary instructions. In any event, directions which were to be discussed at the meeting would have been entirely procedural and so the solicitors could and should have attended anyway.
  • The arbitrator should not have continued with a second meeting when he learnt that neither the claimants nor their solicitors would attend. That, too, was an unsustainable argument. The arbitrator was entitled to conclude that any nonattendance and non-representation on their part was deliberate and that the proper case management of the arbitration required the meeting to go ahead anyway.
  • The arbitrator should not have recorded the conduct of the preliminary hearing with comments such as "Mr Taylor and I were satisfied.." (Mr Taylor being the defendant's lawyer). That argument was also rejected by the judge. The "loose language" arose directly from the claimant's insistence that the dispute be resolved by a surveyor and not a lawyer.

Association Belge des Consommateurs & Ors

Whether it is incompatible with EU law to take the sex of an insured person into account as a risk factor

Article 5(2) of Directive 2004/113 (one of the "anti-discrimination directives") allows Member States to permit differences related to sex in respect of insurance premiums and benefits if sex is a determining risk factor and that can be substantiated by relevant and accurate actuarial and statistical data. This directive has been the subject of much debate, with some Member States questioning if it's compatible with higher-ranking EU law, insofar as it relates to private insurance contracts.

Advocate General Kokott considered the issue and concluded as follows:

  • The ECJ has consistently stressed the fundamental importance of the principle of equal treatment for men and women. With Directive 2004/113 (particularly Article 5), the Council made a conscious decision to adopt anti-discrimination legislation in the field of insurance. However, "such provisions must, without restriction, withstand examination against the yardstick of higher-ranking European Union law, in particular against the yardstick of the fundamental rights recognised by the Union".
  • Article 5(2) permits differences in insurance contracts, which are directly linked to the sex of the insured person. However, just as it would be inappropriate to take into account skin colour in the context of medical insurance, so it is inappropriate to link insurance risks to a person's sex. The use of actuarial factors based on sex is incompatible with the principle of equal treatment for men and women.
  • It was therefore proposed that the ECJ should declare Article 5(2) of Directive 2004/113 to be invalid due to infringement of the prohibition of discrimination on grounds of sex, which is enshrined as a fundamental right. Even if the article were to be held to be valid, it ought to be interpreted restrictively.

It has been pointed out (in particular by the UK government) that many, presumably even millions, of insurance contracts based on sex-specific risk assessments have been concluded since the entry into force of Directive 2004/113 (in 2008 in the UK). Accordingly, Advocate General proposed that:

  • sex-specific differences in respect of insurance premiums and benefits should not be called into question with regard to the past; and
  • insurance companies would have a transitional period (it was suggested that this should be 3 years from a judgment by the ECJ in this case), to adjust to the new legal framework conditions and adapt their products. However, that does not apply to persons who, prior to the date of delivery of the judgment of the Court in the present case, have initiated legal proceedings or raised an equivalent claim under the applicable national law.

Finally, it was concluded that no distinction should be made for life insurance policies.

The European Insurance and Reinsurance Federation (CEA) has published a press release criticising the opinion and noting that the ECJ is not expected to give its final judgment until 2011:

Masri v Consolidated Contractors

Committal proceedings against the alleged director of a judgment debtor/failure to name director in penal notice

The third respondent applied to strike out a committal application brought by the claimant. The claimant obtained judgment against two Lebanese companies. A number of orders which were made in aid of execution of the judgment have not been complied with and so the claimant applied to commit the third respondent to prison, on the basis that he was an alleged director of the companies and instigated the breaches of the court's orders.

The third respondent argued that he was not a "director" of the judgment debtors (never having been the director of one company and having resigned from the other company shortly before judgment against it on liability). The claimant argued that he should be held responsible for breach of the orders because he was either a de facto director or a shadow director. Blair J concluded that the emphasis in caselaw was "arguably" on the role played by the individual in a company rather than his or her status as an employee. Accordingly, the claimant's contentions as to the meaning of a "director" were arguable and it would be wrong to strike the case out on that basis.

Another argument raised was that the third respondent had not been named in the penal notices in the various enforcement orders. The judge found that there was no requirement to name an individual director but that as a matter of practice, the order should be endorsed with a penal notice including the name of the particular director to be served. However, since the court has power to dispense with service of the order, it also has power to proceed to consider an application to commit notwithstanding the absence of a penal notice. On the facts of this case, it was inconceivable that the third respondent did not in fact know about the relevant orders or the potential consequences of a breach.

The application was dismissed

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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