Welcome to the thirteenth edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2015
The Law Commissions have issued revised proposals for the reform of insurable interest. It is seeking views on the following proposed reforms:
- An insurance contract should be valid if the insured has at the outset of the policy a reasonable prospect of acquiring an insurable interest during the life of the policy;
- The crucial issue is whether there is an insurable interest at the time of the loss (although for contingency insurance (mainly life and personal accident insurance), insurable interest must be present at the time of the contract);
- A refund of premiums should always be available where the contract is void;
- There should be no statutory limit on the amount for which the insured may obtain insurance over the life insured;
- Co-habitants (living together as spouses) should have an insurable interest in the life of the other, irrespective of whether they can show economic loss;
- Parents should be able to take out insurance on the lives of their children of any age, without evidence of economic loss;
- Trustees should have an unlimited interest in the lives of the members of any group scheme;
- Employers should have an unlimited interest in the lives of their employees (when entering into a group scheme whose purpose is to provide benefits for the employees or their families).
The closing date for responses is 29th June 2015.
http://lawcommission.justice.gov.uk/docs/insurable_interest_issues.pdf
This Week's Caselaw
Hayward v Zurich Insurance
Court of Appeal holds that insurer is unable to set aside settlement of fraudulent claim because reliance could not be demonstrated
http://www.bailii.org/ew/cases/EWCA/Civ/2015/327.html
Weekly Update 20/11 reported the earlier Court of Appeal decision in this case. The claimant commenced proceedings for personal injury against his employer. The employer's insurers suspected that he was exaggerating his injuries and investigated further. A settlement agreement was then reached. Three years later they received further information that the claimant had been dishonest and commenced proceedings to recover the sums paid. The Court of Appeal allowed the action to continue and held that insurers were not estopped from relying on the subsequently discovered fraud (even though fraud had been alleged in the earlier proceedings).
The case then went to trial and the trial judge held that the settlement should be repaid. Although it is normally necessary to prove reliance on a fraudulent misrepresentation, the judge held that the position in a litigation context is different. In litigation, parties suspect that the other side may be lying, but when settling they take into account the risk that the other side may be believed. Hence they need to show that they are "influenced" by the fraud, rather than that they believed it.
The claimant appealed and the Court of Appeal has now unanimously allowed that appeal.
Underhill LJ held that in deciding to settle, a defendant takes the risk that the claimant's statements are false and he agrees to forego the opportunity to disprove those statements at trial. Where the statements are fraudulent, rather than merely false, though, sums will be recoverable: "while it may be fair to treat the defendant as having taken the risk of the claimant's statements in support of his claim being wrong, it will not – absent any indication to the contrary – be fair to treat him as having taken the risk of them being dishonest" (emphasis added). Here, though, there was "indication to the contrary", because allegations of fraud had already been made by the insurer prior to the settlement.
However, Underhill LJ recognised that this reasoning might not be reconcilable with the earlier Court of Appeal ruling in the case that the claim could proceed. Accordingly, he said that "the fair thing is to park that question and consider whether my reasoning can be re-cast in a form which, albeit perhaps less satisfactory, avoids the potential conflict".
Accordingly, the Court of Appeal's decision is based on the reliance point instead. Being influenced by the possibility that statements may be believed by the court does not constitute "reliance" on misrepresentations. To rescind an agreement for misrepresentation, "the claimant must have given some credit to its truth, and been induced into making the contract by a perception that it was true rather than false". In this case, the insurers had not merely disbelieved the claimant's assertions about his injuries, they had also pleaded (under a statement of truth) that they were fraudulent. Accordingly, the settlement agreement could not be rescinded.
COMMENT: Had the insurer in this case not investigated and discovered a suspected fraud prior to the settlement, the later discovery of proof of fraud would have allowed it to rescind the settlement agreement. However, having already believed that the claim was fraudulent prior to settlement, the insurer was stuck with its bargain. That result could have been avoided by drafting the settlement in such a way that discovery of further evidence would have allowed the insurer to terminate the agreement (whether the claimant would have agreed to such a term, though, is doubtful).
Litaksa UAB v BTA Insurance Company
ECJ confirms that motor insurers cannot increase a premium on the basis that a vehicle will be used in another Member State
http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1427794026980&uri=CELEX:62013CJ0556
Article 2 of the Third EU Motor Insurance Directive provides that "Member States shall take the necessary steps to ensure that all [compulsory motor insurance] policies ...cover, on the basis of a single premium...the entire territory of the European Union". In this case, a Lithuanian road haulage company bought compulsory motor insurance from the defendant for two vehicles. It was stipulated that the vehicles would only be used for transporting goods in Lithuania and that if the vehicles were to be used in another Member State for more than 28 days, the insurer must be informed and a premium supplement paid.
The vehicles were involved in accidents in the UK and Germany. The insurer compensated the victims and then sought reimbursement from the insured. The issue which was appealed to the ECJ was whether the charging of a higher premium depending on where in the EU the vehicles were being used contravened Article 2 of the Third Directive.
The ECJ concluded that it did. The provisions of the Directive are aimed at giving greater protection not just to the victims of accidents but also to insureds: "In particular, those provisions imply that, in return for payment by the party insured of the single premium, the insurer assumes, in principle, the risk of compensating the victims of any accident involving the insured vehicle, regardless of the EU Member State in whose territory that vehicle is used or the accident takes place". Accordingly, a premium which varies according to where in the EU the insured vehicle is being used does not fall within the concept of a "single premium" as referred to in Article 2.
COMMENT: Although insurers cannot charge more premium for a vehicle on the basis that a vehicle is to be used in another Member State, this judgment does not appear to preclude insurers from charging a higher single premium at the outset of the policy on the basis that a vehicle might be used in other countries in the EU.
Ellam v Ellam
The Court of Appeal clarifies the test for the court's discretion to disapply a limitation period
http://www.bailii.org/ew/cases/EWCA/Civ/2015/287.html
Section 33 of the Limitation Act 1980 gives the courts a discretion to disapply a limitation period "if it appears to the court that it would be equitable to allow an action to proceed" having regard to the degree of prejudice which would be suffered by both the claimant and the defendant. The section also provides that the court shall have regard to all the circumstances, and lists various factors which should be taken into account.
In this case, the claimant's claim for sexual abuse was time barred and at first instance the judge declined to exercise his discretion under section 33. The claimant appealed. One of the grounds of the appeal was that the judge had applied the wrong test as to the exercise of his discretion by not considering whether a fair trial was still possible, but instead asking whether it was fair to the defendant to face such a trial.
The Court of Appeal rejected that argument. Although the issue of whether a fair trial can still take place is "undoubtedly a very important question", that fact that a fair trial can still take place "is by no means the end of the matter" (although, conversely, if a fair trial cannot take place, it is very unlikely to be "equitable" to expect the defendant to have to meet the claim"). Nor had the judge erred in determining that the discretion was only to be exercised "in exceptional cases". The Court of Appeal held that the judge had been saying no more than that the claimant was asking for the "exceptional indulgence" of proceeding outside the limitation period. The judge had accepted that he had a wide and unfettered discretion.
Accordingly, the claim was time-barred.
Please note that there will be no Weekly Update for the next 2 weeks.
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.
