UK: Insurance And Reinsurance Weekly Update - 11 February 2014

Last Updated: 10 March 2014
Article by Nigel Brook

Welcome to the fifth edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2014.

A summary of recent developments in insurance, reinsurance and litigation law.

This week's caselaw

  • San Evans Maritime v Aigaion
    A case on follow the lead clauses and whether a following underwriter is bound by a settlement which is expressed not to be binding on him.
  • Deutsche Bank AG v Sebastian Holding
    A decision on whether the court should allow service out of the jurisdiction by an alternative method.
  • Murrills v Berlanda & Anor
    A case on service of a claim form and whether an individual is being sued in the name of a business.
  • Dass v Beggs & Anor
    An application for a security for costs order and whether a claimant had taken steps in relation to his assets to make it difficult to enforce against him.

San Evans Maritime v Aigaion

Follow the lead clauses and whether a following underwriter is bound by a settlement which is expressed not to be binding on him

http://www.bailii.org/ew/cases/EWHC/Comm/2014/163.html

The insured's vessel was covered by two insurance policies: (1) a policy issued by three Lloyd's syndicates covering 50% of the interest in the vessel; and (2) a policy issued by the defendant covering 30% of the interest in the vessel (the remaining 20% interest was uninsured). The policy issued by the defendant contained a Follow Clause which read as follows: "Agreed to follow [two of the Lloyd's syndicates] in claims excluding ex gratia payments" (thus, although the syndicates were not expressly referred to as lead underwriters, this was in effect a follow the lead underwriter clause).

Following damage to the vessel and a claim under both policies, a settlement agreement was entered into between the three syndicates and the insured. The loss was agreed by those parties to be USD 1.5 million and the syndicates agreed to pay their respective shares of an aggregate sum of USD 779,500 (ie just over 50% of the loss). The insured argued that the defendant was bound by this settlement to pay 30% of the agreed loss (i.e. USD 450,000). However, the defendant argued that it was not obliged to follow this settlement for the following reasons:

  1. The Follow Clause only authorised the Lloyd's syndicates to act on the defendant's behalf to settle claims and did not bind it to the follow any settlement. That argument was rejected by Teare J. The insured's interpretation of the clause was said to "ignore, and add to, the simple words of the Follow Clause". Nor was there any need to introduce a concept of agency into the clause. Although there is uncertainty as to the basis on which a follow clause operates, the issue of what duty the Lloyd's syndicates owed to the defendant did not fall to be decided in this case.
  2. The settlement agreement contained the following clause (Clause 7): ""The settlement and release pursuant to the terms of this Agreement is made by each Underwriter for their respective participations in the Policy only and 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 ... cover in respect of [the vessel]."

    Teare J accepted that the insured had, by virtue of Clause 7, agreed that the settlement agreement would not be binding on the defendant (and this conclusion was unaffected by the absence of a reference to the Follow Clause in Clause 7). However, the defendant had not been a party to the settlement agreement. The judge went on to find that it was unable to rely on the Contracts (Rights of Third Parties) Act 1999 because Clause 7 did not purport to confer a benefit on it. It has been previously held that a contract does not confer a benefit on a third party just because the third party's position is incidentally improved by the contract – instead, it must be shown that one of the purposes of the contract was to confer that benefit (see Dolphin Maritime v Sveriges [2009]).

    Tear J held that the purpose behind Clause 7 was the protection of the syndicates from any possible liability to the defendant (in light of the current uncertainty as to what duty a lead owes to a following underwriter when entering into a settlement with the insured). The judge said that even if he was wrong in that conclusion, although the syndicates had acknowledged, by the inclusion of Clause 7, that the settlement was not binding on the defendant, that did not prevent the insured from relying on the Follow Clause against the defendant (which was contained in the policy entered into between the insured and the defendant). Clear words would be needed to show that the insured was giving up the benefit of the Follow Clause
  3. The Follow Clause was not triggered by the settlement agreement. The judge rejected an argument that it was an implied term of the Follow Clause that it would not apply to settlements which have been expressly agreed not to be binding on the defendant: "The lead underwriter is, in my judgment, unable to countermand the effect of the Follow Clause if, as I have held, the effect of such clause is to oblige the following underwriter to follow any settlement made by the lead underwriter, whether or not the lead underwriter purported to act as agent from the following underwriter".

COMMENT: This case confirms that, once a Follow the Lead clause has been included in a policy, nothing in a later settlement agreement will prevent a following underwriter being bound by that settlement, even if the lead purports to agree that the following underwriter would not be bound. The following underwriter might attempt to circumvent this position by asking to be joined to the agreement, but it would be arguable that there has been no consideration provided from the following underwriter in return for an agreement that the settlement will not bind him (especially where, as here, the leads were settling only their share of the loss).

A separate problem is that a lead underwriter might potentially leave himself exposed to a claim by the following underwriter for a breach of the duty of care which might be owed by the lead to him when reaching the settlement (although it is unclear at present whether leads do indeed owe such a duty to the following market). Accordingly, the lead might, in such a situation, seek to agree directly with the following underwriter that no breach will occur if the settlement with the insured is concluded.

Deutsche Bank AG v Sebastian Holding

Whether court should allow service out of the jurisdiction by an alternative method

http://www.bailii.org/ew/cases/EWHC/Comm/2014/112.html

CPR r6.15(1) provides that, where there is "good reason", the court can order service by an alternative method.

Weekly Update 24/13 reported the Supreme Court decision in Abela & Ors v Baadarani, in which permission was given to serve out by an alternative method was given. There, Lord Sumption said it was "no longer a realistic view of the situation" to describe service out of the jurisdiction as an "exorbitant" jurisdiction and "it should no longer be necessary to resort to the kind of muscular presumptions against service out which are implicit in adjectives like "exorbitant". Furthermore, although the fact that the claim form has been brought to the attention of the defendant cannot constitute a good reason in itself, it will be a "critical factor".

In this case, the claimant obtained an order for service out by an alternative method from the court, and the defendant argued that permission should not have been given. Cooke J held that, although notice is a "prime purpose" of service, "there is more to it than that". After reviewing the decision in Abela, he concluded that there had been no good reason to make the order in this case. Questions of convenience and possible speed were not sufficient in themselves to justify service by alternative means: "Whilst I am conscious of accusations of "uncommerciality" or "technicality" in this approach, in my judgment service not only requires more than the giving of notice but is also not to be seen as not just a matter of speed and convenience, particularly where the court's powers to permit service out of the jurisdiction are invoked. There must be some good reason beyond speed and convenience..." What was required instead was something like evidence that the defendant was seeking to evade service or that it was proving difficult to serve by conventional means.

Murrills v Berlanda & Anor

Service of claim form and whether individual being sued in the name of a business

http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Civ/2014/6.html&query=murrills&method=boolean

The defendant is an Italian cosmetic surgeon who has lived at an address in Trento, Italy, for some 30 years. He worked for the second defendant at its clinic in London for 3 or 4 days every 15 days (staying in a hotel when he did so). The claimant was operated on by the defendant at the second defendant's clinic. She subsequently issued a claim form against the defendant and sought to serve him within the jurisdiction by posting the claim form to the defendant at an address in England where he had worked after leaving the second defendant's employment. In so doing, the claimant argued that it could rely on CPR r6.9 which provides that "an individual being sued in the name of a business" may be served at the "usual or last known residence of the individual; or principal or last known place of business".

The Court of Appeal upheld the decision at first instance that the defendant had not been validly served. The defendant was being sued as in individual in his personal name. Although a person practising medicine may be carrying on a business, within the meaning of CPR r6.9, that will not be the case if he is an employee working in someone else's business: "whether the [defendant] worked as an employee or was self-employed, he was not sued in the name of a business. An individual is sued in the name of a business when he is sued in the name of a business which is not his personal name".

Accordingly, the defendant ought to have been served out of the jurisdiction, in Italy.

Dass v Beggs & Anor

Security for costs order and whether claimant had taken steps in relation to his assets to make it difficult to enforce against him

http://www.bailii.org/ew/cases/EWHC/Ch/2014/164.html

The defendant obtained an order for security for costs against the claimant for GBP 5,000 on the ground set out in CPR r25.13(2)(a) (on the basis that the claimant is resident in the USA). However, the amount recoverable under this ground has been limited by caselaw (broadly, to the extra cost of enforcing in the other jurisdiction). Therefore, the defendant applied under CPR r25.13(2)(g) which provides that an order can be made if "the claimant has taken steps in relation to his assets that would make it difficult to enforce an order for costs against him".

The judge, Donaldson QC, referred to prior caselaw which has confirmed that it is the step which is relevant, rather than the claimant's motivation (although the claimant's motives may be relevant to the issue of whether it is just to make the order). Nor does evidence of dishonesty suffice if that dishonesty does not relate to the step taken in relation to the asset. There is also no requirement that the step must be taken at a time when the proceedings are in contemplation.

However, the judge added that there must be a nexus between the step and the difficulty in enforcement of a later costs order against the claimant, and "that lapse of time may lead to the causal effect being spent".

The step in question in this case was a payment of just under GBP 200,000 made by the claimant to his son. In the circumstances of this case, that payment did not make it difficult to enforce the order – in fact, if the claimant had had the money in his account instead, it would have subsequently passed to his trustee-in-bankruptcy. Accordingly, it was held that there was no basis for making the further security for costs order.

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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