UK: HFW Insurance & Reinsurance Bulletin - January 2010

Last Updated: 18 January 2010

The Financial Services Bill
By Graham Denny

On 19 November 2009 the Government introduced the Financial Services Bill (the "Bill") to Parliament, to provide greater rights and information for consumers and stronger financial regulation to make banks more robust in the future. It follows the "Reforming Financial Markets" White Paper of July 2009, which considered the causes of the financial crisis, action to be taken to restore financial stability and possible regulatory reforms.

The Bill will not become law unless and until it undergoes the necessary Parliamentary process, but of particular note in the Bill are the extensions of the disciplinary, enforcement and information gathering powers of the FSA and the implementation of a new collective redress system for financial services claims. These are potentially significant issues for the financial services industry and insurers.

Disciplinary, enforcement and information gathering

The extensions to the FSA's disciplinary and enforcement powers for those who have breached the rules include penalties for those who perform controlled functions without having the required FSA approval, but lack of knowledge that the function was a controlled one could be a defence.

The FSA will have extensive powers to obtain and require information or documents it considers relevant to the stability of one or more aspects of the UK financial system. This power extends to managers of investment funds and persons connected to them, as well as service providers who provide services to an authorised person. A service provider is likely to include professional advisers. The Bill does provide for safeguards in relation to the exercise of these powers by the FSA.

Collective redress

The potential impact of the collective redress proposals in the Bill cannot be overstated and follows a considerable amount of debate over the last few years concerning the existing collective redress mechanisms in England and Wales, the primary fear being a move towards the US class action system. The Bill proposes significant changes in this area for "financial services claims", which are defined broadly in the Bill.

Amongst the proposals are: that claims need not be brought by those individuals in whom the cause of action rests but can be brought by representatives who have no interest in the proceedings; the courts are to decide as to whether collective actions can be brought on an opt-in or opt-out basis; and, the courts are permitted to make an award of damages without undertaking an assessment of the amount recoverable in each individual claim. The collective redress proposals will require a new set of procedural rules to be created by the court or at the very least an update to the current rules.


The threat of the introduction of a US class action system was hitherto considered unlikely primarily because the current system in England and Wales does not provide for class actions on an opt-out basis and there is also a different attitude in the US to litigation funding and costs. The Bill proposes changes potentially paving the way for collective redress actions for financial services claims on an opt-out basis, subject to the court's consent, and so the immediate focus of the debate is likely to turn to Lord Justice Jackson's review on costs and his final report expected out this month.

Whilst the Bill's proposals may have a considerable impact upon the regulation of the financial services sector and the increased threat of collective redress actions against it, the Bill may well undergo further amendment and in any event it may still not become law if it is not brought in before the general election.

The Third Parties (Rights Against Insurers) Bill
By Saman Salimi-Pou

The Third Parties (Rights Against Insurers) Bill (the "Bill") had its second reading in the House of Lords on 7 December 2009. The Bill, with some changes, follows the 2001 Law Commission report on third parties' rights against insurers.

Why reform?

The Bill aims to enhance the current rights of third parties where an insured purchases insurance in respect of its liability to such third parties. Normally, the insured claims under the policy and the insurer pays the claim subject to the loss being covered. A problem arises when, before the third party is paid in respect of the liability by the insured, the latter becomes insolvent with the proceeds of the claim becoming part of the insured's insolvent estate to be paid out to all unsecured creditors after payment of secured and ringfenced creditors, according to the insolvency rules. Although the Third Parties (Rights against Insurers) Act 1930 aimed to resolve the problem by passing the insured's rights under the policy to the third party, it has proved to be expensive and time consuming to use and it is ill-equipped to deal with the modern laws of insolvency, since it requires that the claimant third parties must establish the defendant's liability prior to commencing a separate claim against the insurers.

The Proposed Bill

In summary, the proposed Bill:

  1. Permits third parties to pursue claims directly against the insurers in the court, which would deal with all the issues arising in respect of the claim. Third parties will no longer be required to prove the defendant's liability first (although such a liability must still be proved),
  2. Permits third parties to know about the rights under the insurances passed on to them from the outset. It is hoped that this additional information will enable the third parties to consider the option to litigate and pursue claims more carefully with a resulting reduction in the volume of the claims without merit,
  3. Gives third parties exceptions to the defences available to the insurers. The aim of this is to prevent the third parties' claim being defeated by the insurers based on technical defences in the insurance,
  4. Allows insurers to set off the money/premiums owed to them under the insurance contract against the sums payable to the third parties.

The Bill also provides that it is irrelevant whether or not the liability of the insured was incurred voluntarily without the express consent of insurers. The Bill does not apply to reinsurance contracts. Therefore, the current problems and uncertainties in relation to the reinsurance cut-through clauses will remain unresolved. It is anticipated that the Bill, if passed, will result in an increase in the claims made by third parties and a reduction in legal expenses due to streamlining of legal proceedings into one rather than two causes of action.

Credit insurance, no more credit
By Saman Salimi-Pour

In our June 2009 bulletin, we reported on the government backed top-up scheme in place for businesses, who found it difficult to obtain credit insurance due to the economic climate. The scheme was designed to run until 31 December 2009.

According to the recent pre-budget report, the government has decided not to extend the scheme beyond the above date. Approximately Ł18.5m worth of credit insurance was approved for businesses under this scheme. Not extending the scheme is likely to have an adverse effect on the companies especially in the export sector, who find it hard to obtain credit insurance cover elsewhere. This can be particularly problematic in hard market conditions, where the credit insurance offered is restricted due to the stringent criteria that businesses generally need to satisfy before cover is approved.

By Edward Rushton

Deutsche Bank AG v Sebastian Holdings Inc

The ability of English Courts to refuse jurisdiction on the grounds of forum non conveniens (inappropriate forum) has been hotly debated since the 2005 ruling of the European Court of Justice (ECJ) in Owusu v Jackson (Case C-281/02). Following the Owusu decision, English Courts cannot apply the doctrine of forum non conveniens in cases where jurisdiction is vested in them by virtue of the domicile of the defendant pursuant to Article 2 of the Brussels Regulation. However, the Owusu decision left doubt as to whether forum non conveniens could be applied in cases where jurisdiction was vested in English Courts on different grounds.

Article 23 of the Brussels Regulation vests jurisdiction in the courts of a Member State where the parties have agreed to a jurisdiction clause in its favour. In Deutsche Bank AG v Sebastian Holdings Inc., [2009] EWHC 3069, SHI applied to the Court to decline jurisdiction (or stay proceedings) relating to a dispute arising from multiple contracts which contained competing choice of jurisdiction clauses. SHI relied on the doctrine of forum non conveniens arguing that it would be more convenient for all complaints to be heard in a single forum, and that New York was to be the preferred forum because of the location of witnesses and because it had already commenced proceedings there. Deutsche Bank resisted SHI's application, and argued that even if SHI was correct the English Court was bound to follow the Owusu decision. It therefore could not refuse jurisdiction.

Burton J. held that it was not obvious that New York was the most appropriate forum. He therefore refused SHI's application. This meant that he did not have to decide whether the Owusu decision would have precluded him from applying the doctrine of forum non conveniens where a particular contract contained an English jurisdiction clause. Nevertheless, the judge did provide a helpful comparison of the types of the jurisdiction clauses. Exclusive jurisdiction clauses, which were present in two of the five contracts, were the strongest. At the lower end of the hierarchy were nonexclusive jurisdiction clauses. These did not provide that the parties would not raise forum non conveniens arguments. However, even non-exclusive jurisdiction clauses would require an applicant to show that an alternate jurisdiction was clearly and distinctly the more appropriate forum in order for English Courts to decline jurisdiction.

Australia – "Other Insurance" clauses – Section 45 of Insurance Contracts Act
By Richard Jowett and Celina Fang

A recent High Court case sheds light on the scope of section 45 of the Insurance Contracts Act 1984 and illustrates that the use of "other insurance" clauses by some insurers to avoid double insurance is still effective.

It is common for insurance policies to contain a clause whereby the insurer limits or excludes its liability in respect of a loss for which the insured is covered under some other insurance. However, the effectiveness of these provisions has been curbed by section 45 of the Insurance Contracts Act 1984 which renders such clauses in general insurances void except in cases where the clause is required to be effected by law or appears in a genuine excess policy. The rationale for this is that an insured who has paid two sets of premiums is entitled to recover his/her loss from any one of the insurers, who is then entitled to seek contribution from the other insurers. The section's operation is limited to cases where the insured has "entered into" the contract of insurance that contains the "other insurance" clause.

In a recent work-related injury case, Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd [2009] HCA 50, the High Court elaborated on the meaning of the words "entered into". The case involved injuries sustained by employees of Speno Rail Maintenance Australia Pty Ltd (Speno) while performing work under a contract between Speno and miner Hamersley Iron (Hamersley). In accordance with the contract, Speno arranged public liability insurance on behalf of Hamersley with Zurich Australian Insurance Ltd (Zurich). The contract also contained a provision requiring Speno to indemnify Hamersley against all claims occurring as a result of anything done in the performance of the contract causing death or injury to any person.

Following a District Court trial in which Speno and Zurich were both ordered to indemnify Hamersley against its liability to the injured workers, Speno failed to make any payments while Zurich paid Hamersley $1.2 million. Precluded from pursuing Speno due to contractual waivers of subrogation in its policy, Zurich sued Hamersley's own insurer, Metals and Minerals Insurance, for contribution under the principles of double insurance. The High Court ruled that Zurich was not entitled to claim for contribution because the insured was not a party to another contract of insurance – rather, it had been added as an insured. Section 45 should be construed on the basis that it is the objective of the legislature only to avoid provisions which are covered by reference to a contract into which the insured had entered, and not upon the basis of some wider objective. Therefore, where the party has not entered into another policy of insurance but had been added as an insured person, section 45 does not apply in respect of the "other insurance" provision.

Key implications arising from this case include:

  • Insurers who rely upon "other insurance" provisions referring to parties who have "entered into" a contract of insurance need to be aware that a party who is added as an insured in a policy that has been contracted by another, did not "enter into" the contract within the meaning of section 45, and thus the section is not engaged and the "other insurance" provision would not be void by virtue of section 45.
  • When one party is taking out insurance on behalf of another (and the latter already has insurance), caution needs to be exercised in order to avoid claims of double insurance made by the latter's insurer.
  • A carefully drafted "other insurance" clause need not be void under section 45 and may be used by insurers to avoid double insurance claims.

Conferences and Events

Equitas v R&Q Re: Practical Justice?
Andrew Bandurka will discuss this case at a meeting of the London Reinsurance Group, at 2.30pm on 26 January, in the Swiss Re building. By invitation only: enquiries to

Contractual Liabilities and Indemnities
Marsh's National Oil Companies Conference, Dubai (22-24 February 2010) Paul Wordley

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.