UK: Insurance And Reinsurance Weekly Update - 30 September 2014

Last Updated: 13 October 2014
Article by Nigel Brook

Starlight Shipping v Allianz

Whether the reference to "Underwriters" in a settlement agreement included a reference to employees and agents

Clyde & Co (Mike Roderick Angela Haylett and Sophie Shiffman) for certain parties

This case has been previously reported in Weekly Updates 46/11, 46/12, 40/13 and 28/14. The insured's claim for damages (after its insurers refused to pay) failed in English court proceedings. The parties then entered into two settlement agreements which provided for English law and jurisdiction and contained an indemnity agreement, whereby the insured agreed to indemnify the insurers against any claim brought by the insured's companies. Three years after the settlement, the insured commenced proceedings in Greece against the insurers, seeking compensation for loss of hire and loss of opportunity. The insurers commenced proceedings in England alleging a breach of the settlement agreements and/or exclusive jurisdiction clauses in the policy and settlement agreements and the Court of Appeal ruled in favour of the insurers.

This issue in this case was who exactly was covered by those settlements agreements: was it the Underwriters alone or also the individual underwriters and employees of those insurers (the insured having made certain allegations against these individuals). The relevant wording in the settlement agreement had referred to "full and final settlement of all and any claims" that the insured may have "against the Underwriters [i.e. the Hellenic] and/or against any of its servants and/or agents".

However, the insured sought to rely on the fact that there had been no reference to agents or servants of the insurers in the preamble to the settlement agreement, arguing that where a contract contains a defined term which clearly in the preamble means one thing (i.e. the corporate entities or Lloyd's syndicates and not their employees, servants or agents), the court will not conclude that the defined term must mean something else when it is used elsewhere in the contract, unless that construction would be absurd.

That argument was rejected by Flaux J. It would result in an absurd commercial result if the insured was still, post-settlement, entitled to sue the insurers' employees who would then seek an indemnity from those insurers (thus leaving the insurers still exposed to liability following the settlement). It is a principle of English law that general releases are intended to provide a clean break (as supported by the use of the words "full and final settlement" in the agreement). Furthermore, under the joint tortfeasor rule, the insured must be taken to have intended to settle against both the insurers and their employees.

Furthermore, the lawyers who acted for the insurers at the time of the settlement agreement also fell within the meaning of "servants and/or agents" and were entitled to enforce the terms of the settlement by a claim for damages pursuant to the Contracts (Rights of Third Parties) Act 1999.

Marley v Rawlings

Supreme Court makes costs order against a non-party's insurers

Litigation between two parties was, it was held, due to an error for which a non-party (a solicitor) was responsible. It was argued that the solicitor (and hence his insurers) should pay all of the parties' costs. The solicitor's insurers raised certain defences:

(1) A court should be wary before making a costs order against a non-party. The Supreme Court held that it is "by no means unusual to make an order for costs against a party who was funding the litigation or who was responsible for the litigation". Here, the insurers funded the litigation because the insurers had accepted liability for the claimant's costs of the two appeals and the solicitor has been responsible for the whole problem giving rise to the litigation.

(2) It was not the solicitor's fault that the defendant chose to fight this case. The Supreme Court held that it was both foreseeable to the solicitor and his insurers that the defendant would contest the claim and it was not unreasonable for it to do so (especially since it won in the High Court and Court of Appeal).

Accordingly, the insurers were ordered to pay all the costs of the parties.

Hurley Palmer v Barclays

Whether third party rights could be enforced through adjudication

Section 1(4) of the Contracts (Rights of Third Parties) Act 1999 provides that a third party can only enforce a term of a contract in accordance with the other terms of that contract. Thus, a third party could only enforce a term of the contract in accordance with any arbitration clause in the contract. However, the difficulty is that the third party will not have been a party to any such arbitration clause and section 8 of the 1999 Act therefore specifically provides that a third party shall, for the purposes of the Act, be treated as if it is a party to the arbitration clause.

The issue in this case was whether the same principle applies to an adjudication clause in the contract. Ramsey J concluded that it does not. He drew a distinction between arbitration and adjudication on the basis that arbitration is mandatory if chosen by the parties, whereas adjudication is voluntary, "in the sense that one party to a contract may, but is not obliged to, have a dispute temporarily resolved, pending a final determination by the courts or, if applicable, arbitration". Furthermore, there is no provision in the 1999 Act similar to section 8 for adjudication. Accordingly, the third party was not obliged to have its dispute in relation to the contract determined by adjudication rather than litigation.

COMMENT: Although this decision is concerned with adjudication, the same principle would arguably apply to other forms of ADR, including mediation (for which no special provision is made in the 1999 Act).

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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