UK: Insurance And Reinsurance - 25 September 2012

Last Updated: 26 September 2012
Article by Nigel Brook

Welcome to the thirty-third 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 week's caselaw

Zeckler v Assigned Risk Pool Manager
A case on whether a partner of a solicitor firm is liable to pay the premium for a professional indemnity policy.

Ace European v Howden Group
A case on whether declaratory proceedings brought by English insurers in England served a useful purpose and whether England is the appropriate forum.

Illinois National Insurance Company v Tutor Perini & Anor
Orders made pursuant to a Letter of Request from America are set aside by the English court.

Smith v St Andrew's Insurance
A discussion of the burden of proof when insurers seek to rely on a policy exclusion and there are two possible causes (one criminal).

Zeckler v Assigned Risk Pool Manager

Whether partner of solicitor firm liable to pay premium for professional indemnity policy

The appellant (a limited partner in an LLP) appealed against a decision that he was liable to pay the premium for a professional indemnity insurance policy issued to the LLP by the respondent (the manager of a scheme providing PI cover for firms of solicitors which could not otherwise obtain such cover on normal terms). The appellant was not the partner who had arranged the PI cover.

Rule 10.3 of the Solicitors' Indemnity Insurance Rules 2009 provides that the firm, and any principal of the firm, shall be jointly and severally liable to pay the premium if an application for cover under the scheme is made. The appellant argued that this rule might found a disciplinary complaint against him but did not amount to a contract between himself and the insurers.

Strauss QC held that he was not satisfied that the appellant was personally liable for the premium: "What one would expect to find here is something in the contractual wording which makes it clear that the members of the LLP are parties to the contract, and are obliged to pay the premiums". In this case, though, there was no evidence of any such contractual provision (and no cover note or policy was produced in evidence). Nor was the judge convinced that there was an implied contract between the principals of the firm and the insurers. Accordingly, there was a "genuine dispute as to the existence of the debt" and a statutory demand obtained by the insurers was set aside.

Ace European v Howden Group

Whether declaratory proceedings brought by English insurers in England served a useful purpose/whether England the appropriate forum

The background to this case has been reported in Weekly Updates 39/11 and 27/12. Numerous suits have been brought against the insured, a US international engineering group, alleging injuries caused by exposure to asbestos products manufactured by one of its subsidiaries. The insured commenced proceedings in Pennsylvania against some of its excess insurers, who subsequently commenced two separate proceedings in England seeking a declaration that the relevant insurance policies are governed by English law and are subject to the jurisdiction of the English courts (there was no express clause to this effect in the policies). In one of those proceedings, Beatson J held that the insurers had much the better of the argument that there had been an implied choice of English law and that England was the appropriate forum. The Court of Appeal dismissed the insured's appeal against that decision. In the other set of proceedings the insured sought to rely on two arguments which it had run before:

(1) The grant of the declaration would not be of sufficient utility. Although he did not simply follow Beatson J's decision, Field J reached the same conclusion as him on this point. He found that there was a real prospect that English law will be held to be the governing law in the US proceedings, in which case it is reasonable to assume that the US court will find the English judgment to be of considerable assistance. (Although a US judge had concluded in an interlocutory hearing that it was unlikely that English law would apply, she had not heard full argument on this point). A declaration would also be useful in resisting enforcement of a judgement that ignores the implied choice of law of the parties. The insurers in this set of proceedings are all foreign companies but they are London market insurers "who have a legitimate expectation that the parties to the policies would be bound by their express or implied agreement that the policies were governed by English law".

(2) England was not the appropriate forum. This argument was also rejected by Field J. The general principle that a court applies its own law more reliably than a foreign court can pointed strongly in favour of England as the appropriate forum. Furthermore, it was likely that a judgment in England could be obtained before a final judgment in the US and trial in England would only need very limited factual evidence.

Illinois National Insurance Company v Tutor Perini & Anor

Orders made pursuant to a Letter of Request set aside by English court

This was an application to set aside orders made pursuant to a Letter of Request of the US District Court for the Southern District of New York. The US proceedings involve a complex insurance dispute. Due to time pressure, Lang J gave only summary reasons for her decision to set aside the orders. Although she rejected an argument that the orders were inappropriate because they were of an investigatory nature and amounted to a "fishing expedition" - she instead concluded that they amounted to legitimate lines of enquiry in relation to the US proceedings - she held as follows:

(1) An order for disclosure of documents by an employee of an insurance broker should have been made against the broker itself and not the individual employee. The broker had refused to allow its employee to provide the documents in her possession. Furthermore, the categories of documents listed in the order were far too broad - specific documents should have been identified instead.

(2) Orders for the oral examination of two of the broker's employees should be set aside because (a) the issues on which they were to be examined were not sufficiently pleaded; (b) the issues on which they were to be examined potentially went beyond the issues in the pleaded case; and (c) it was oppressive and unfair to examine them without giving them advance notice of the documentary evidence which is relevant to the issues on which they are to be questioned.

COMMENT: Letters of Request from US courts can prove difficult for the English courts because of the different approach to disclosure in the two countries. This case highlights how English courts are often alive to the possibility that US-based applications might seek impermissibly wide disclosure.

Smyth v St Andrew's Insurance

Burden of proof when insurers seek to rely on policy exclusion and there are two possible causes (one criminal)

The claimant sought an indemnity from his insurers following a fire at his property. The fire started in the bedroom of one of his tenants and there were only two possible causes of the fire: 1) it was started accidentally by the tenant; or 2) it was started deliberately by the claimant's partner. If it was started deliberately by the partner, insurers would be able to rely on a policy exclusion for loss or damaged caused by a member of the claimant's family (which included "a person (whether or not of the same sex) with whom you are permanently cohabiting").

Although the case turns on its particular facts, it is noteworthy because of the judge's comments regarding the burden and standard of proof. It was common ground that the burden of proof lay on the insurers who were attempting to rely on a policy exclusion. Although the standard of proof in a civil case is the balance of probabilities, in this case, one of the two possible causes of the fire would have involved the commission of a serious criminal offence (and so stronger evidence would be needed to support such a finding). In Re B [2008] Lord Hoffmann held that "there is only one rule of law, namely that the occurrence of the fact in issue must be proved to have been more probable than not. Common sense, not law, requires that in deciding this question, regard should be had, to whatever extent appropriate, to inherent probabilities".

Insurers sought to argue that although criminal acts are less likely to take place than non-criminal acts, that did not mean that the mere raising of a "possible" non-criminal cause will always suffice for a suggested criminal cause to be rejected. Although the judge accepted those submissions "so far as they go", he said that the point remained that it was less likely here that someone (in particular a resident and partner of the home owner) would deliberately start a fire than that a smoker would carelessly discard a lit cigarette. He concluded that there was no compelling evidence to displace the starting point of that common sense view and so insurers were liable under the policy.

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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Nigel Brook
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