UK: (Re)Insurance Weekly Update 41 - 2018

Last Updated: 7 December 2018
Article by Nigel Brook
Most Read Contributor in UK, November 2018

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

Aspen Insurance v Sangster & Annand Ltd: Judge confirms that insurer is not liable under a public liability insurance policy

Clyde & Co (Victor Rae-Reeves and Jana Zaujecova) for claimant

The insured contractor carried out hot works on the roof of a Britannia hotel and shortly afterwards the roof caught fire, causing extensive damage. Britannia commenced proceedings against the insured in Scotland. The contractor's insurers then commenced proceedings in England for declaratory relief and when the insured failed to file an acknowledgment of service in time, the insurers applied for judgment in default. At that point, Britannia sought to persuade the court not to grant judgment in default and to allow it to be joined to the proceedings. HHJ Waksman QC has now held as follows:

  1. The appropriate test to be applied to Britannia's application was whether there was "real utility" in it being joined. That utility "can only be achieved if is there at least a seriously arguable defence which could be put forward so as to avoid the policy being repudiated after trial". That is more than barely, or speculatively, arguable.
  2. The policy had a number of "exclusions" which, in reality, defined the scope of the insurance cover. One example of that was the hot works "exclusion" which excluded cover for such work unless various precautionary measures (reflecting typical industry guidance) were taken (and such precautions had not been taken, on the facts of the case). The judge held that there was no need to construe this type of clause narrowly or contra proferentem.

    Nor was it necessary to imply into the clause a need for recklessness by the insured to be demonstrated. Although there is a principle that a general clause requiring an insured to take "reasonable precautions" will only be breached if the insured is reckless (because indemnity policies are intended to insure against the insured's negligence), that principle did not apply where there is "a highly defined and circumscribed set of particular safeguards which have to be put in place". This was not a case of giving cover and then taking it away: hot works would only be covered if certain pre-conditions were complied with.
  3. Since the policy in this case was issued before the Insurance Act 2015 came into effect, there was no need to demonstrate that the failure to comply with the pre-conditions had caused the damage in question: "Even if it is to be regarded as a straight exclusion clause, there is no basis at all for implying a causative test".
  4. Nor did it matter that the insured had given a contractual indemnity in its contract with Britannia. The hot works exclusion would apply even if there was a contractual claim covered by the policy. Furthermore, Tesco Stores v Constable & Ors [2008] has confirmed that typical public liability insurance clauses are designed to cover only tortious claims: "A public liability policy provides cover against liability to the public at large. By contrast private liability arises from contracts entered into between individuals. Public liability in this sense arises in tort; it does not and cannot arise only in contract". Nor do such policies generally cover liability in contract for pure economic loss.

The judge concluded that there was "really no case whatsoever" to avoid the consequences of the hot works exclusion, and no chance of Britannia succeeding. Accordingly, Britannia would suffer no injustice if default judgment is granted.

COMMENT: This case follows the position adopted by the Supreme Court in Impact Funding v AIG (see Weekly Update 38/16) that there is no requirement for exclusions to always be construed narrowly. As the judge in Crowden v QBE Insurance (see Weekly Update 37/17) explained, unlike exemption clauses in ordinary contracts, "The position in respect of insurance contracts is wholly distinguishable in that an exclusion clause in an insurance policy is not designed to exclude, restrict or limit a primary liability on the part of the insurer; instead, it is intended to define the risk which the insurer is prepared to accept by way of the insurance contract". The exclusion in this case was an exclusion of that nature.

Griffin Underwriting v Varouxakis ("Free Goddess"): Judge holds director of insured out of time to challenge jurisdiction/considers whether insurer's claim can be brought In England

http://www.bailii.org/ew/cases/EWHC/Comm/2018/3259.html

The claimant insured a shipowner under a policy of kidnap and ransom insurance for a 30 day voyage. While carrying a cargo from Egypt to Thailand, the ship was seized by pirates. The claimant insurer paid out under the policy (including ransom payments) and the vessel continued to Oman. The insurer and insured then entered into a settlement agreement, which provided that the insurer was now subrogated to the rights of the insured and that the insured would account to the insurer for any recoveries it made.

When the vessel failed to continue to Thailand to discharge the cargo, the insurer claims that it lost its rights to recover general average, on a subrogated basis, against the cargo interests ("the lost general average claim"). Furthermore, the insurer alleges that amounts which were received by the insured from the vessel's P&I club and cargo interests were not accounted to the insurer ("the accounting claim").

Since the insured appeared to no longer have any assets, the insurer commenced proceedings in England against the sole director of the insured for inducing breaches of the settlement agreement by the insured. The defendant director filed an acknowledgment of service indicating an intention to contest jurisdiction. He had 28 days to then challenge jurisdiction, but one day before the expiry of that deadline, the parties agreed a moratorium, terminable on 48 hours' notice. That moratorium was terminated by the insurer some 6 months later. Males J has now held as follows:

  1. PD58 para 7 requires parties who agree an extension of time in Commercial Court proceedings (even if that extension is for up to 28 days, in accordance with the "buffer rule" of CPR r3.8)  to notify the court in writing, giving brief written reasons for the agreed variation. The judge said that "I would hold that the failure to notify the court meant that the moratorium was not effective to extend the time for the defendant to challenge jurisdiction". (The judge appears to have left open the question whether the moratorium was effective to extend time, but only for 28 days – on the facts, the challenge to jurisdiction would still have been out of time). The judge refused to grant relief from sanctions and accordingly, the defendant's challenge to jurisdiction had been brought too late.
  2. Nevertheless, the judge went on to consider the merits of the jurisdictional challenge, had the challenge been brought in time. He concluded as follows:

(a) In relation to the lost general average claim, the damage was suffered by the insurer when its contractual rights (to receive general average contributions from the cargo interests) were lost, and not when there was subsequent non-payment of those contributions. Accordingly, the damage was suffered in Oman, where the voyage was abandoned. Accordingly, damage had not occurred in England.

(b) In relation to the accounting claim, the damage had occurred in England. The settlement agreement had provided that the insured had to account to the insurer by paying recovered monies to the average adjusters. Prior caselaw has demonstrated that for the purpose of a claim under article 7(2) of the recast Brussels Regulation 1215/2012 (which enables a claimant to sue in the courts for the place where it has suffered damage even if the event which gave rise to the damage occurred elsewhere), what matters is where the payment would in fact have been made, rather than whether there was an obligation to make payment in that place. Here, the claim that the defendant had procured the non-payment of money which ought to have been paid to the average adjusters in London meant that the English courts had jurisdiction.

(c) This was not a "matter relating to insurance", such that Article 14 of the recast Regulation would have applied. Not all claims brought by a claimant who happens to be an insurer fall within Article 14. The test is whether "the nature of the claim made by the insurers was so closely connected with the question of liability under the contract of insurance that it could fairly and sensibly be said that the subject matter of the claim related to insurance or, in other words, whether consideration of the insurance contract was indispensable to the determination of the claim". That was not the case here, and a consideration of the insurance policy would not be required to determine the claim.

Finally, since the claim did not fall within Article 14, it was unnecessary for the judge to consider whether the defendant here was a "weaker party". Last week's decision in Aspen Underwriting v Credit Europe Bank (see Weekly Update 40/18) had held that  the defendant bank could not rely on Article 14 on this basis. In this case, the insurer had raised the argument that the defendant could not rely on Article 14 because he is a member of a class of "substantial shipowners", but the judge did not need to consider that argument.

Lloyd's Insurance Co SA, Re: Judge confirms there is no roadblock to Lloyd's Brexit scheme

http://www.bailii.org/ew/cases/EWHC/Ch/2018/3228.html

In preparation for Brexit, Lloyd's has established an authorised insurance company in Belgium ("LIC"), which will establish branches in other EEA countries and the UK. LIC will write all relevant business written in the EEA (ie business where the risk or policyholder is situated in the EEA) from 1 January 2019 onwards, and will reinsure that business with Lloyd's members. Lloyd's will also transfer all current relevant business with an EEA element for the years of account 1993 to 2018 to LIC, with reinsurance back to the Lloyd's market.

After the Council of Lloyd's passed an ordinary resolution authorising itself to act in connection with this Part VII transfer, a claim form was issued, seeking an order sanctioning the Part VII transfer.

In the present case, an order was sought giving some preliminary indications about how the claim might progress. Norris J was therefore required to consider to what extent the court could participate in the formulation of issues and in guiding the shape of the scheme which it will ultimately be asked to sanction. He concluded that he was not comfortable with giving "a provisional view", but would instead be prepared to express a view whether "the proposed courses of action are, even if agreed by the Regulators, obviously incapable of satisfying some criterion established by statute or authority.  To put it in more picturesque terms, whether, even at this early stage in the journey, it is apparent that there is a roadblock".

He concluded that there was no such roadblock and he gave his view on the following issues:

  1. There was a "real prospect of an affirmative answer" to the question whether LIC could be said to be carrying on business at an EEA "establishment", even if much of the servicing activity is in fact carried on from London.
  2. With some revisions to the definition of "transferring policy", it will be possible to create sufficient certainty of concept to enable the proposed scheme to be workable.
  3. Even though the scheme employs a "splitting" of policies (with some risks transferred to LIC and some retained by syndicate members), that was not "obviously fatal".
  4. There was nothing so obviously wrong with the proposals that the court could not be satisfied that a transfer order would achieve a substantial purpose.

The judge further commented that it seemed likely that some form or dispensation in relation to notification to policyholders would be required.

PJSC Tatneft v Bogolyubov: Commercial Court judges orders list of issues for disclosure ahead of pilot scheme

http://www.bailii.org/ew/cases/EWHC/Comm/2018/3249.html

One of the changes being introduced by the Disclosure Pilot Scheme, which comes into force on 1st January 2019, is the need to produce a List of Issues for Disclosure. Issues for Disclosure will be those issues in dispute which the parties consider will need to be determined by the court with some reference to contemporaneous documents in order for there to be a fair resolution of the proceedings. Not every issue in dispute will therefore be included in this List.

In this Commercial Court case, a List of Common Ground and Issues was produced in accordance with the Commercial Court Guide, setting out the main issues of fact and law in the case. One of the issues in this case was whether the issues should be further clarified through an amendment to the List of Common Ground and Issues. The defendant argued that the list of issues is a reference point both for disclosure and for evidence and it would be sensible therefore to incorporate the additional issues into the general document.  However, the judge held as follows: "having regard to the approach which this court will be adopting from 1 January when the pilot scheme on disclosure comes into operation I can see merit in having the scope of disclosure set out in a separate document, particularly in a case like this where the list of issues would otherwise become so lengthy it risks losing utility for other purposes".

COMMENT: Accordingly, this is the first reported decision to date where a document which is in effect the List of Issues for Disclosure has been ordered, in advance of the pilot scheme. Although the scheme does not officially start until 1st January 2019, this case indicates that the judiciary is already prepared for it and may, in appropriate cases, adopt some of the changes in advance of the official start date.

Sotheby's v Mark Weiss Ltd: Judge rules that litigation privilege cannot be claimed

http://www.bailii.org/ew/cases/EWHC/Comm/2018/3179.html

The claimant sought to claim litigation privilege in respect of correspondence passing between it and two expert advisers. Teare J has now held that litigation privilege could not be claimed over that correspondence.

The judge rejected a suggestion that the recent Court of Appeal decision in SFO v ENRC (see Weekly Update 31/18) had changed the law where a document has been brought into existence for two purposes (one of which is for litigation). The court must still ascertain whether the dominant purpose of the document was obtaining information or advice in connection with, or of conducting or aiding the conduct of, litigation.

Here, the correspondence had taken place for two purposes: the first, whether the claimant had to rescind the sale to its buyer (a commercial decision); the second, whether the claimant could then sue the defendant in respect of its sale to the claimant. The judge held that both purposes were of equal importance and relevance and it was unable to conclude that the pursuit of litigation had been the dominant purpose. Nor did it matter that litigation would inevitably follow from the commercial decision: "I do not read the ENRC case as deciding that whenever litigation is the "inevitable" consequence of taking a particular commercial decision, the dominant purpose of documents produced for the making of that decision is necessarily their use in the contemplated litigation".

Bank of New York Mellon v Essar Steel: Service of claim form on process agent who is no longer authorised to act

http://www.bailii.org/ew/cases/EWHC/Ch/2018/3177.html

In the contract entered into between the parties, there was a clause which provided that the defendant irrevocably appointed a certain process agent to receive service of any claim form on its behalf. When the claimant subsequently served its claim form on that process agent, it was informed by it that its appointment by the defendant had been terminated over 10 years ago. The issue therefore arose whether the defendant had been validly served.

The judge held that it had. The clause in the agreement constituted an irrevocable promise as between the claimant and the defendant that service on the process agent was good service for the purpose of proceedings in England. Service in accordance with this clause was therefore good service, and it made no difference that the defendant had withdrawn its authority from the process agent to accept service on its behalf.

COMMENT: This case therefore serves as a reminder that parties will need to amend contracts containing a process agent service clause where the relationship between a party and its process agent has been terminated. There has been conflicting caselaw on the issue of whether the CPR still applies where a contract contain provisions regarding how a claim form is to be served in the event of a claim under the contract.

Mark v Universal Coatings & Services: Court considers effect of failing to serve medical report with particulars of claim in a personal injury case

http://www.bailii.org/ew/cases/EWHC/QB/2018/3206.html

PD 16 para 4.1 provides that, in relation to personal injury claims, the claimant must attach to his/her particulars of claim a schedule of loss and a medical report (detailing the personal injuries which he/she alleges). One of the issues in this case is that the claimant, who claims to have contracted silicosis as a result of inhaling silica dust during his employment, did not attach the schedule of loss or medical report to his particulars of claim. After his claim was struck out on that basis, he appealed and Spencer J allowed that appeal and reinstated the case.

The judge held that breach of PD 16 para 4 did not require relief against sanction. Although some rules or practice directions do not expressly lay down a sanction for non-compliance, a sanction is nevertheless implied. For example, if a litigant fails to serve and file a notice of appeal in time, without an extension of time, the litigant will be unable to appeal and the judgment in the court below will stand. However, the judge held that the practice direction here did not fall within that category. PD 16 para 4 is really aimed at simple personal injury actions such as a road traffic accident claim. By contrast, in the more complicated personal injury cases, a schedule of loss and medical report served with the particulars of claim will usually be "unhelpful and uninformative". Nor did it make any difference that the practice direction used the word "must": "I would observe that this is a characteristic of the drafting of the CPR and the word "must" is used liberally".

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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