Two recent decisions have provided further assistance on the application of claims control and claims co-operation clauses.

In the Winter 2009 edition of Reinsurance notes, we discussed the effect of claims control and claims co-operation clauses. The judiciary, who are undoubtedly avid readers of Reinsurance notes have, helpfully for the benefit of our wider readership, commented on the application of such clauses in two recent judgments.

Widefree Ltd v Brit Insurance Ltd (2009) considered a jeweller's block policy including an unexplained loss exclusion and a claims co-operation clause requiring Widefree to provide information and evidence as to lost/damaged property as "Insurers may reasonably require and as may be in the Insured's power."

Widefree discovered that a £100,000 ring was missing only when attempting to show it to a customer. It was believed that the ring had been stolen from Widefree's shop around two weeks prior to discovery and, although five CCTV cameras were operating on the day of the suspected theft, only Camera 2 showed the incident which gave rise to suspicions of theft. The police advised Widefree that Camera 2 was the only relevant camera and to download the footage. Loss adjusters subsequently visited the shop and asked to see the Camera 2 footage. Thereafter, the other footage was wiped.

Insurers denied liability on the grounds of the unexplained loss exclusion and breach of the claims co-operation clause (in that Widefree had not retained footage from all cameras). The court held that Widefree was entitled to recover where it had been able to prove, on the balance of probabilities, the date and circumstances of the loss and there was no breach of the claims co-operation clause. Whilst it was Widefree's duty not to destroy evidence which insurers might reasonably require, insurers had not asked for footage other than from Camera 2 and, following the loss adjusters' visit, it was reasonable for Widefree to have wiped the other cameras.

Horwood & Ors v (1) Land of Leather Ltd (in administration) (2) Zurich Insurance Plc & Ors (2010) was concerned with preliminary issues arising from so called 'toxic sofa' cases commenced by claimants alleging that they suffered dermatological injuries from exposure to Chinese-manufactured furniture (containing mould inhibitor DMF) which had been purchased from Land of Leather (LoL).

Following LoL's administration, the claimants sought to claim against LoL's product liability insurer, Zurich. The subject insurance policy contained a claims control clause (expressed as a condition precedent) which allowed insurers to control all proceedings in respect of any claims for which it might be liable and prohibited LoL settling claims.

The judgment concerned the insurer's argument that it was not liable to indemnify LoL following an agreement between LoL and Linkwise (the manufacturer) whereby LoL received US$900,000 as compensation for damage to its reputation and other costs incurred as a result of the complaints. The agreement also recorded that LoL would make no further claim on Linkwise in respect of alleged allergic reactions to its products.

The court decided in favour of the insurer, holding that LoL had reached a binding settlement with Linkwise without the knowledge or consent of the insurer. It held that LoL had breached the claims control clause by taking steps to settle its claim for an indemnity against Linkwise and that the prohibition extended to claims against third parties made by LoL as well as those made against it.

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.