UK: (Re)insurance Weekly Update 38 - 2018

Last Updated: 16 November 2018
Article by Nigel Brook
Most Read Contributor in UK, November 2018

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

Stronghold Insurance Co Ltd, Re: Judge decides whether an insurance company proposing a scheme of arrangement should convene a single class meeting of creditors

The applicant in this case is an insurance company with long-tail exposure (mostly in the US) which is currently unable to meet the minimum capital requirements imposed by Solvency II. It applied to the court for an order allowing it to convene a single meeting of all its creditors for the purpose of approving its proposed cut-off scheme of arrangement pursuant to Part 26 of the Companies Act 2006. The key issue in this case was whether it would be appropriate to have a single meeting where some of the creditors have incurred but not reported ("IBNR") claims (ie an event has occurred to which the policy should respond but no claim has been reported to the policyholder yet).

Having reviewed prior caselaw, Hildyard J noted that "What is now ordinarily adopted as the starting point is to identify the appropriate comparator: that is, what would be the alternative if the scheme does not proceed". Although the company had assumed that the appropriate comparator is liquidation, the judge concluded that it was, instead, continued solvency.

On that basis, taking into account the particular facts involved, the judge went on to conclude that "the irreducible inherent uncertainties in the estimation of IBNR claims, where solvent run-off is still the most likely alternative and comparator, and the indications from objectors as to their concerns of being deprived of coverage in return for an estimation of value which may prove deficient, remain such that the proper course is to require separate class meeting for policyholders with IBNR claims".

He rejected the argument, though, that there should be a further separate class for scheme creditors with rights requiring the company to provide third party security to protect them in the event of insolvency.

Furthermore, the company had reinsurance claims against reinsurers and a small proportion of those reinsurers also had claims against the company (as reinsureds) and an issue arose as whether those reinsurers should be entitled to vote at the class meeting only on the value of their claims after set-off. The judge considered that the company's preference for adopting a "net value" approach was "proper".

Terry v BCS Corporate Acceptances: Court of Appeal rejects attempt to strike out a claim after judgment allegedly obtained by fraud

Prior caselaw has established that, where it is alleged that judgment was obtained by fraud, a fresh action may be brought to set aside the judgment. In an appropriate case, an appeal may also be brought seeking to rely on fresh evidence and to obtain an order for a retrial (see Noble v Owens (Weekly Update 10/10)). Unless the fraud is admitted, or incontrovertible, the issue of fraud must be both properly particularised and proved. However, in this case, the appellant/defendant sought to argue that the Supreme Court decision in Summers v Fairclough (see Weekly Update 23/12) provided an alternative procedure, namely, an application to strike out the claim for abuse of process under CPR r3.4.

The Court of Appeal has now rejected that argument. It held that, although some of the statements made by the Supreme Court were expressed in general and seemingly unqualified terms, they had to be considered in context. The case did not support the argument that an application for strike out could be brought after final judgment: "The time at which the exercise of the power to strike out was being considered in Summers v Fairclough was therefore before final determination of the claim; a time at which there remains a choice between strike out and complete or partial dismissal of the claim. That is not the case once final judgment has been given". In other words, that case had concerned whether the power to strike out could be exercised after trial, rather than after judgment.

Furthermore, CPR r3.4 is a case management power, and once judgment had been perfected, there is no longer any case. The Court of Appeal said it was for the Supreme Court to decide whether the concept of merger of a cause of action with the judgment applies only against a claimant or whether cause of action estoppel prevents a defendant from applying for strike out following judgment. Nor were there any grounds to apply to set aside the judgment under CPR r3.1(7).

Richards v Secretary of State for Transport: Judge rejects request for a stay pending MIB appeal in another case

The earlier decision of Lewis v Tindale was reported in Weekly Update 33/18. In that case, the judge found that, although the Road Traffic Act 1988 only requires a policy to cover liability which may be incurred in respect of the death of or bodily injury to any person or damage to property caused by, or arising out of, "the use of the vehicle on a road or other public place", the Motor Insurers' Bureau ("MIB") was nevertheless liable (at least to the extent of the minimum requisite cover of EUR 1 million per victim), because of the 2009 EU Motor Directive, which had a direct effect on the MIB (because it was held to be an "emanation of the state"). The Directive imposes an obligation on all member states to take appropriate measures to ensure compulsory insurance "in respect of the use of vehicles normally based in its territory" and, since the ECJ decision in Vnuk (see Weekly Update 34/14) (which implicitly held that the obligation of compulsory insurance extends to the use of vehicles on private land – and later cases have held that explicitly), the UK has not completely implemented the obligation imposed by the Directive. Because the MIB was held to be liable, the claimant's further claim that he was entitled to Francovich damages against the Secretary of State for Transport for failing to implement the Directive was stayed. (It has been held in Roadpeace v Secretary of State for Transport (see Weekly Update 40/17) that UK law is no longer compatible with the Directive following Vnuk).

Similar issues arose in this case, in which the claimant was injured in an accident on private land caused by the alleged negligent use of a vehicle by her mother. The claimant sought Francovich damages but the defendant argued that that claim should be stayed pending the outcome of the appeal in Lewis v Tindale. That was rejected by the judge. Currently in the QBD, cases of 4-5 days duration are being listed 12 months from now: "If that remains the position, it means that, if there is a stay, the earliest that the issue due to be tried in December will be heard (on the assumption that Lewis ends in the Court of Appeal) would be during the Summer (more likely, the Autumn) Term 2020 and thus some two years hence".

Given that the claimant has suffered serious injuries, and the rate of interest at the moment would not adequately compensate her for this further delay, it should be up to her legal team to decide whether it is in her interest to proceed.

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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