UK: Insurance And Reinsurance - 21 August 2012

Last Updated: 28 August 2012
Article by Nigel Brook

Welcome to the thirtieth edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2012.

These updates are aimed at keeping you up to speed and informed of the latest developments in caselaw relevant to your practice.

This weeks caselaw

AXA Insurance v Thermonex
A case on whether a claim fell within the scope of a public liability policy and the requirements of a notification condition.

Peaktone v Joddress
A Clyde & Co case on whether an action brought after a company has been dissolved can be retrospectively validated when the company is restored to the register.

Global Maritime Investments v STX Pan Ocean
Contract interpretation and the use of background material.

AXA Insurance v Thermonex

Whether claim fell within scope of a public liability policy and notification condition html

The claimant insurer sought a declaration that it was not liable to the defendant insured (an English company). The insured had taken out a Commercial Combined insurance policy with the insurer (which included a public liability ("PL") section). The insured designed and installed some basements in a development in Ireland. The main contractor (an Irish company) commenced proceedings against the insured in Ireland for breach of contract and negligence arising out of its work. After the insured went into liquidation the main contractor advised the insurer that it intended to join it to the Irish proceedings (pursuant to the terms of an Irish statute which is the equivalent of the Third Parties (Rights against Insurers) Act 1930). The insurer therefore sought a declaration from the English courts that it was not liable under the policy. Brown J held as follows:

(a) The PL section provided cover for damages which the insured became legally liable to pay as damages in respect of accidental "loss or damage to material property". The policy excluded loss or damage to "property comprising the undertaken by the Insured in the course of any contract..." The judge agreed with the insurer that on a true construction of this section, the insurer was liable to indemnify the insured against all sums which it was liable to pay as damages for accidental injury to third parties or for accidental damage to property other than that being constructed by the insured. The indemnity did not extend to liability for economic loss.

(b) The territorial limits of the policy did not include the Republic of Ireland and an extension for EC countries did not apply because the damage did not arise "in connection with temporary visits undertaken in the course of the Business" by the insured.

(c) The claim was never notified by the insured. It had taken the view that only its separate professional indemnity policy would respond to any claims against it. Several years after leaks in the basement were first discovered (and over a year after proceedings in Ireland were commenced against the insured) the solicitors for the main contractor wrote to the insurer seeking confirmation of cover under the policy. Brown J held that such notification would not suffice because the policy required notification by the insured itself: "The recent trend of authorities suggests that the formal requirements of notification are fairly undemanding but that where they do impose specific requirements they have to be met".

In any event, there had been a breach of the requirement to give immediate notification. Although that requirement was not expressly stated to be a condition precedent, a separate clause in the policy provided that due observance of the conditions of the Policy is a condition precedent to the liability of the insurer. The judge noted that "It is well-established that such general provisions in insurance contracts are effective to create conditions precedent".

Accordingly, the insurer was entitled to the declaration which it sought.

COMMENT: There have been conflicting views on whether a notification under a policy must be made by the insured itself. In Barrett Bros v Davies [1966] the Court of Appeal held that notice from a third party (the police) absolved an insured from giving notice and Lord Denning has also stated that "the law never compels a person to do that which is useless and unnecessary". However, other cases have held that the insurer can rely on the breach of a condition precedent even if it suffers no prejudice. This case is therefore interesting in that it has found that only the insured itself can give notice to the insurer.

Although the insured here could have given notice before going into liquidation, the case highlights the problems for third parties seeking to bring a claim under the 1930 Act if the courts insist on notice being given by the insured and not a third party. The 2010 Act was intended to address this issue (it specifically provided that if an act by a third party fulfils a policy condition, it is to be treated as if done by the insured (see section 9(2)) but that Act is not yet in force and, indeed, may now never come into force.

Peaktone v Joddrell

Whether action brought after company dissolved can be retrospectively validated when company restored to register Civ/2012/1035.html&query=peaktone&method=boolean

Clyde & Co for appellant

The defendant company was struck off the Register of Companies and dissolved pursuant to section 652 of the Companies Act 1985 (thus losing its legal personality). The claimant then commenced proceedings against it and obtained an order from the Companies Court restoring the company to the Register (pursuant to section 1029 of the Companies Act 2006).

Section 1032(1) of the 2006 Act provides that "The general effect of an order by the court for restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register". The defendant sought to argue that the proceedings were a nullity when first issued and section 1032(1) cannot be read as retrospectively validating those proceedings - a claimant should always restore a company before issuing proceedings.

The Court of Appeal has now rejected that argument. It held that the precise route to an order for restoration in any particular case cannot affect the meaning and effect of the order once it is made. Section 1032(1) has sweeping effect and retrospectively validates an action purportedly commenced by or against a company during the period of its dissolution.

Global Maritime Investments v STX Pan Ocean

Contract interpretation and use of background material EWHC/Comm/2012/2339.html&query=STX+and+pan&meth od=boolean

This case involved an appeal from an arbitration award. One of the issues was whether the arbitrators had erred, when interpreting the contract in dispute, by taking into account (as part of the relevant background) a circular drafted by an industry body some 20 years prior to the contract. Lord Hoffmann in ICS v West Bromwich [1998] said that interpretation was the ascertainment of "the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract". One of the parties sought to rely on dictum in Scottish Power v Britoil [1997] that any material relied on should be limited to "what the parties had in mind and what was going on around them at the time when they were making the contract". Clarke J said that that dictum was not a qualification of Lord Hoffmann's observation - "the parties can reasonably be expected by their counterparties to know that which was reasonably available to them". Hence, reference could be made to the circular.

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Nigel Brook
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