UK: 2005: insurance law roundup

Last Updated: 12 January 2006
Article by Stephen Crabb

From the market perspective 2005 will be remembered for the extraordinary number of natural disasters, the consequences of which will most probably result in a market loss for the first time since 2001 and increased capacity next year. From the legal perspective there have been no similar cataclysmic events, although a number of interesting and important developments have occurred.

To view the article in full, please see below:


Full Article

From the market perspective 2005 will be remembered for the extraordinary number of natural disasters, the consequences of which will most probably result in a market loss for the first time since 2001 and increased capacity next year. From the legal perspective there have been no similar cataclysmic events, although a number of interesting and important developments have occurred.

Contract certainty

Responsibility for the insurance industry passed to the Financial Services Authority at the beginning of 2005. Since then it has begun to implement its statutory objectives to ensure "market confidence" and "the protection of consumers". It is hardly surprising that the FSA identified inadequacies in insurance contracts and documentation as a significant risk to achieving these objectives, as these problems have bedevilled the market for many years.

This year FSA has worked with the insurance industry towards meeting its ambitious target of achieving "contract certainty" by December 2006. A contract certainty Code of Practice is now in place, which aims to standardise the way business in the London Market is conducted, so that complete and final agreement of all terms is agreed before inception. FSA has also been encouraging individual firms to establish contract certainty projects or initiatives to prepare for the inevitable changes. Firms should be prepared to meet the December 2006 deadline or face sanctions, such as restriction to business activity or additional capital weightings.

Schemes of Arrangement – BAIC and DAP

The British Aviation Insurance Company Limited ("BAIC") decision in July 2005 cast doubt on the practice of insurers using solvent schemes of arrangement to terminate direct books of business (instead of waiting years for the run-off of business to be completed), but the recent decision in the Dutch Aviation Pool ("DAP") case proves that such schemes are still possible.

In BAIC the court refused to sanction a solvent scheme. The two most important points to emerge from the decision were: first that in a solvent scheme, where the alternative is a continuation of the solvent run-off, IBNR creditors must be in a separate class from creditors with accrued claims, and second, that it could be unfair for direct policyholders to have to estimate their future claims and be paid a figure based on an estimate, rather than receiving a full indemnity if and when the claims materialised, thus enabling the court to refuse a scheme, even if approved by creditors.

In DAP the scheme was revised to address these points, although since the scheme was insolvent IBNR creditors did not have to form a separate class as the rights of all creditors were viewed in the context of the company wind-up rather than in the context of run-off continuation. Direct policyholders were also excluded from the scheme.

The DAP decision confirmed that the insurance industry can use schemes of arrangement; although it would appear that certain restrictions remain, namely not to include direct policyholders in any scheme, and to have a separate class of IBNR creditors in solvent schemes.

Reinsured duty to Reinsurers

On 8 December 2005 the keenly awaited Court of Appeal decision in Bonner v Cox & Others (Aon 77) was handed down. Reinsurers agreed to reinsure the Cover underwriters in respect of risks attaching to business known as the '77 Cover. Reinsurers asked the Court of Appeal to reconsider whether Cover underwriters were in breach of duty of care when writing a particular loss making risk, referred to as the Oceaneering risk.

At first instance the trial judge found that there were implied terms in the reinsurance that:

  • A policy would only be declared to the Cover if it had been the subject of an underwriting judgment made by the lead underwriter;
  • The policies to be accepted to the Cover would be those which in the ordinary course of business the lead underwriter would write, taking account of its reinsurance.

The Court of Appeal concluded that the reinsurance was not subject to any of the implied terms contended for "and would reach the same conclusion in respect of any non-proportional reinsurance". The decision reiterates the widely held view that the Courts are unwilling to rescue careless reinsurers who have effectively been taken advantage of by astute reinsureds.

Obligation to produce documents in brokers' files

Whether, and to what extent, brokers were obliged to produce placing and claims/accounting documents to underwriters was considered in the case of Goshawk Dedicated Ltd & Ors v Tyser & Co Ltd & Ors [2005]. The issue for the court was whether underwriters were entitled to placing, claims and premium/accounting documents from brokers' files in circumstances client consent could not be obtained.

The Court found that an underwriter in the Lloyd's market had no "right" to see placing/claims documents already made available to him at the time of placement. When considering a request to provide such documents brokers had to place the interests of their clients above other considerations and should not necessarily disclose material other than for use in the normal course of business, unless consent is obtained or production ordered by a court. Whilst Christopher Clark J did not rule what precisely the brokers had to produce he made it clear that he would not fetter the Court from exercising its discretion independently to refuse to compel production of any documents held in broker's files if they were of limited relevance, or whether such production would involve effort and expense disproportionate to any value that the documents might have.

The decision has been appealed and the Court of Appeal's judgment is expected shortly.

Innominate terms reconsidered

The important Court of Appeal decision in Friends Provident Life & Pensions v Sirius International Insurance sounded the death knell for the "innominate term", a concept seemingly introduced into insurance contracts by Waller LJ in Alfred McAlpine v BAI (Run-Off) Ltd [2000]. In that case Waller LJ raised the possibility that a claims notification clause not expressed to be a condition precedent to liability might be an "innominate" term, the breach of which if sufficiently serious would entitle insurers to repudiate liability for the claim.

In the instant case, FP sought indemnity from excess layer cover under a PI policy. The appeal concerned a clause in the policy requiring notification of claims "as soon as possible". At first instance this clause was held to be an innominate term which FP had breached seriously enough to allow excess layer insurers to avoid. However the decision was reversed on appeal.

Mance LJ for the majority stated in forceful terms "[there is] no justification for the introduction, whether as an implied term or as a rule of law by a previously unknown extension of the doctrine of repudiatory breach or on any other basis, of a novel form of protection for insurers. HHJ Seymour QC has since confirmed that the innominate term is no more in Ronson International Ltd v Patrick.

Fraudulent Claims

The cases of Axa General Insurance Ltd -v- Gottlieb and DanePoint Ltd -v- Allied Underwriting Insurance Ltd have reinforced the obiter dicta of Mance LJ in Agapitos -v- Agnew [2002] that the remedy available to insurers for a fraudulent claim is for forfeiture of the relevant claim, rather than avoidance of the whole contract "ab initio". However the Court in these cases did not have to decide (and thus left unanswered) whether a fraudulent claim brought the policy to an end. Thus, it is still not clear whether insurers can refuse to pay a legitimate claim that is made after a claim tainted by fraud.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 12/01/2006.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions