UK: (Re)insurance Weekly Update 16- 2016

Last Updated: 16 May 2016
Article by Nigel Brook

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

Late Payment Damages and Rights of Third Parties:

The Enterprise Bill received Royal Assent on 4th May 2016. The late payment provisions, which are drafted as an amendment to the Insurance Act 2015, will therefore come into force on 4 May 2017.

The Third Parties (Rights against Insurers) Act 2010 has now been updated by regulations (the Third Parties (Rights against Insurers) Regulations 2016) to reflect changes in insolvency law. The 2010 Act will come into force on 1 August 2016.

This week's caselaw:

Greenway v Johnson Matthey: Court of Appeal decides whether employees had suffered actionable personal injury – of possible interest to employers' liability insurers

The first instance decision in this case was reported in Weekly Update 44/14. The claimant employees were exposed to complex halogenated platinum salts and as a result had developed sensitivity to platinum. Since this sensitivity can, with further exposure, lead to an allergy, the employees were removed from their regular posts and eventually handed in their notice. The claimants sought to argue that they had sustained actionable injury because the sensitivity had led directly to a reduction in their earning capacity. That argument was rejected by Jay J, who held that the progression to an allergy would not occur if the employee is removed from the source of the sensitisation. Although such a removal may result in economic loss for the employee, that is not the same as an injury. The sensitivity in itself is not harmful.

The Court of Appeal has now dismissed the appeal from that decision.

In order to establish liability, the Court of Appeal confirmed that the claimants had to show that they had suffered actionable physical injury. They were unable to do so, since, on the medical evidence, platinum sensitisation is not harmful: "It is a physiological change analogous to the development of pleural plaques in the lungs in the Rothwell case, and hence does not constitute actionable damage or injury. Unlike the lung scarring from pneumoconiosis in Cartledge, platinum sensitisation is not a "hidden impairment" which has the potential by itself to give rise to detrimental physical effects in the course of ordinary life".

Nor could the claimants bring a claim for breach of contract, on the basis that the defendant had failed to take all necessary and reasonable steps to ensure that the appellants were safe while at work. That claim failed because the employer has a duty to protect an employee from physical injury and not from economic harm. Nor could a claim be brought in tort for damages for pure economic loss. There was no implied contractual term, nor any duty inherent in the contractual relationship between the parties, to protect the employee from financial harm.

The Court of Appeal concluded that: "At the heart of this case is an attack by the appellants, from various different directions, on the conventional view that under the law governing the relationship between employer and employee, whether in contract or in tort, an employee needs to show that he has suffered physical injury in a case such as this in order to be able to claim substantive damages which cover also the financial losses he has suffered as a result of such injury". The various arguments raised by the claimants were rejected because the need for actual physical injury is "deeply embedded in the law".

The Copenhagen Reinsurance Co (UK) Ltd & Anor, Re: Sanction of insurance business transfer scheme – should guarantees for the benefit of the transferring company's policyholders be replaced?

The court made an order sanctioning an insurance business transfer scheme (pursuant to Part VII of the FSMA 2000). One issue which the court was required to consider was the treatment of two guarantees, entered into in 1989 and 1995, in favour of the Institute of London Underwriters ("ILU") for the benefit of policyholders in the transferring company (whose policies were signed and issued through the ILU). Under the guarantees, if the transferor company had been unable to make full payment to the policyholders covered by the guarantees, the guarantor would pay the outstanding balance. When the transferor company was sold to Enstar in 2009, the guarantors were not released. However, they now argued that they should not be covered by the scheme, but instead they should be replaced with guarantees from Enstar (on the basis that the scheme was being proposed for the benefit of the Enstar group).

That argument was rejected by Snowden J. The variation of the guarantees should not be treated in the same way as the transfer of outwards reinsurance protection (which are routinely transferred under a scheme). Instead, it was necessary for the court to rely on section 112(1)(d) of FSMA, which allows the court to make an order "with respect to such incidental, consequential and supplementary matters as are, in its opinion, necessary to secure that the scheme is fully and effectively carried out". The writing of policies with the benefit of the ILU guarantees was an integral part of the transferor's business and it was part of the policyholder's legitimate expectations that those guarantees should continue to be available: "In such circumstances, it seems to me an entirely natural use of language, and in accordance with the overall purpose of Part VII FSMA, which clearly requires the court to have regard to the interests of policyholders, to conclude that the Scheme would not be fully and effectively carried out if the benefit to policyholders of the ILU Guarantees associated with their policies was lost as a result of the transfer".

Furthermore, the judge said that section 112(1)(d)  should not be read narrowly. It did not matter that the PRA, FCA and Independent Expert had not indicated that discontinuation of the guarantees was a matter which required them to object to the scheme. Section 112(1)(d) empowered the court to do what was necessary to secure that the scheme was "fully" carried out ie the court can go beyond the bare minimum without which the Independent Expert would withdraw his support.

Standard Chartered Bank v Independent Power Tanzania Ltd: Court of Appeal approves judgment on clause waiving jurisdictional arguments

The parties entered into various agreements, which contained non-exclusive English jurisdiction clauses as well as forum non conveniens ("FNC") waiver clauses ("Each party irrevocably waives any objection which it may at any time have to the laying of the venue of any Proceedings in [any other court of competent jurisdiction] and any claim that any such Proceedings have been brought in an inconvenient forum").

Proceedings were commenced in Tanzania, and when (four years later) further proceedings were commenced in England, an application for a stay of the English proceedings was made. At first instance, Flaux J held that it is possible for the English court to grant a stay on the basis that England is not an appropriate forum (notwithstanding the FNC waiver and non-exclusive jurisdiction clause) if very strong or exceptional grounds are demonstrated, provided that such grounds "can properly be described as unforeseen and unforeseeable at the time the agreement was made. In other words, the bargain which the defendant makes in entering a contract with an FNC waiver is that he will not seek to argue that England is not an appropriate forum in relation to forum non conveniens grounds which were foreseeable at the time that the relevant agreement was made." The judge went on to find that it had been foreseeable that proceedings might take place in Tanzania as well as in England and so no stay was justified.

The appellant accepted that the judge's conclusions on the law were correct. However, it sought to argue on appeal that a stay should be granted because so much time and money had already been spent on the Tanzanian proceedings before the English proceedings were commenced. That argument was rejected by the Court of Appeal. The judge had been justified in concluding that the sums spent in Tanzania had been spent "essentially on interlocutory battles" and that both the English and Tanzanian proceedings were still in their preliminary stages, and nowhere near ready for trial.

The Court of Appeal also rejected the argument that there should be a stay of the English proceedings on case management grounds (ie because the Tanzanian proceedings were more advanced and so should be the main proceedings). Although it was held that a FNC waiver clause does not preclude an application for a  case management stay in "rare and compelling cases" (especially if such a stay will promote "an orderly process of litigation"), there was no reason to interfere with the judge's exercise of his discretion in refusing such a stay. The question should also be looked at at the time the stay application is made, and not when it is determined.

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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