UK: Insurance And Reinsurance Update - 24 February 2015

Last Updated: 26 February 2015
Article by Nigel Brook

Welcome to the seventh edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2015.

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

  • A further update on the Insurance Act 2015
    A link to a our article on all the main changes being implemented in the Insurance Act 2015, together with details of possible future developments.
  • IHC v Amtrust Europe Ltd
    A case on whether an insurer was estopped from relying on its right to avoid.
  • The Home Department v Raytheon Systems
    A judge decides whether an arbitration award should be remitted or set aside.
  • Hither Green v David Frank de Vere
    A look at the attitude of the courts to applications for alternative service of the claim form.

A further update on the Insurance Act 2015

The Insurance Act 2015: Please click here for our update on all the main changes being implemented in the Act, together with details of possible future developments

IHC v Amtrust Europe Ltd

Whether insurer was estopped from relying on right to avoid

An insured under an After The Event insurance policy brought unsuccessful proceedings against a third party (its insurance broker) and was ordered to pay the third party's costs. The insured became insolvent and so the third party claimed (pursuant to the Third Parties (Rights against Insurers) Act 1930) against the ATE insurers. It was accepted that the insurers had been entitled to avoid the policy because of a serious fraudulent misrepresentation. However, the third party alleged that insurers were estopped from relying on that right.

It has been established by prior caselaw that, in order to establish a waiver by estoppel, there must be a clear and unequivocal message from the insurer to the insured that it will not exercise its relevant rights and the insured must rely on that message in a manner making it inequitable for the insurer to go back on it.

It is clear that the insurer must know about the relevant facts before it can be said to be estopped. However, there has been some caselaw debate as to whether an insurer must also know that those facts give rise to the relevant rights. Although there is textbook commentary to the contrary (eg see Good Faith and Insurance Contracts, Eggers and Foss, paras 17.71-2), in this case the judge (Richard Seymour QC), said that the "insurer need not necessarily know that those facts give rise to the relevant rights". However, he added that "nonetheless, to be effective the relevant message must show an awareness of the relevant rights and an intention not to rely upon them" (ie apparent, rather than actual, awareness). In reality, as the judge recognised, it will be difficult for an insurer to give that message without actually being aware of the those rights (as was also recognised by Tuckey LJ in HIH v AXA [2002]).

It was argued in this case that the insurer had given an unequivocal message by: (1) making an interim payment; and (2) agreeing to increase the policy limit. The judge described that argument as "pure Alice in Wonderland". It was plain that neither "representation" carried with it any "apparent awareness" of the insurer's right to avoid. Furthermore, the insurer had been unaware of the insured's fraudulent misrepresentation at the time. It could not be implied, either, that the insurer had not cared about the insured's truthfulness when completing the proposal form. Accordingly, the insurer had been unaware of the relevant facts and so could not be said to be estopped from relying on its right to avoid.

The Home Department v Raytheon Systems

Whether an arbitration award should be remitted or set aside

A section 68 Arbitration Act 1996 challenge to an award on the ground of serious irregularity had succeeded in this case. Section 68(3) provides that in such cases, the court may remit the award or, if it is inappropriate to do so, set the award aside (or declare it to be of no effect – in practice, this remedy is of little or no difference to setting aside though). Accordingly, remission is the "default" option and is the one most often adopted by the courts. However, in this case, Akenhead J ordered that the award should be set aside instead. His reasoning was as follows:

  1. When deciding what to do, the court should consider all the circumstances and background facts relating to the dispute, the award, the arbitrators and the overall desirability, and ramifications of either remission or setting aside. There is no "weighting" for or against any of the particular grounds for challenge set out in section 68 and, in particular, "there is no authority which suggests that it will invariably be inappropriate to set aside the award where the serious irregularity ground is the section 68(2)(d) one" (ie failure by the tribunal to deal with all the issues that were put to it) - which was the relevant ground in this case
  2. Textbook commentary has suggested that setting aside may be appropriate where, for example, the arbitrators cannot reasonably be expected to approach the matter afresh or one or both of the parties has justifiably lost confidence in the arbitrators. Akenhead J added that, whilst there is no prior authority on the point: "I do consider that the more serious the irregularity the more likely it is that setting aside may be the appropriate remedy. There are shades of serious irregularity"
  3. The relevant factors for setting aside in this case were as follows:

    1. The case was "towards the more serious end of the spectrum of seriousness in terms of irregularity"
    2. If the tribunal, "albeit conscientiously and competently" was to reach the same conclusion as before, that might lead to a strong objective belief that justice had either not been done or had not been seen to have been done
    3. The extra cost of re-opening an arbitration before a new tribunal would not be significantly greater than remission to the current tribunal; and
    4. The current tribunal would be unlikely to have any significant recall of the evidence by the time any reconsideration takes place (the judge noted that: "Given the logistics involved with busy international arbitrators, there is, at least, a very real risk that it could not re-convene substantive hearings or otherwise move to a stage at which they could produce an award ... for as much as a further 12 months if not more. If that is right, it will be closer to 3 years since the evidence was given")

Hither Green v David Frank de Vere

Attitude of the courts to applications for alternative service of the claim form

The solicitors in this case served a claim form by email but that was not valid service because the defendant had not indicated in writing that he would be willing to accept service in this way. A judge made an order pursuant to CPR r6.15(1) permitting service by an alternative method but that order was not complied with. When the claimant applied for default judgment, the defendant argued that the claimant had not served him correctly yet. That argument was rejected by the court and default judgment was entered. The defendant then appealed against that order.

In considering this matter, Langstaff J reviewed the attitude of the courts to applications under CPR r6.15. He noted that prior caselaw demonstrates that there will be very few, if any, acceptable excuses for failure to observe the rules for service of claim form. In Brown v Innovatorone (see Weekly Update 23/09) Smith J was not persuaded that the power conferred by CPR r6.15 should be exercised only in exceptional circumstances, but he did accept that the court should adopt a rigorous approach. In particular, the absence of prejudice to a defendant was relevant but not sufficient itself for an order. However, the judge also noted a "second strand of authority" which has a "different emphasis". This authority supports the view that there is no useful purpose in forcing a claimant to start fresh proceedings where the relevant limitation period has not yet expired.

In this case, though, the judge had been wrong to take account of a failure to file a certificate of service in time and so the appeal was allowed. Exercising his discretion anew here, Langstaff J held that he should make an order pursuant to CPR r6.15(2) (which allows a court to order that steps already taken to bring the claim form to the attention of the defendant by an alternative method should be good service).

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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