Published in Insurance/Reinsurance Bulletin April, 2010.
Widefree Ltd v Brit Insurance Ltd [2010] All ER (D) 14 February
The claimant jeweller was insured under a Jewellers' Block Insurance Policy. The claimant realised that a valuable ring was missing and suspected that it had been stolen. The claimant notified its insurers. There were five CCTV cameras in the shop but police officers advised that only footage from one would assist. The insured kept the relevant footage and discarded the rest.
Upon reviewing the footage, the loss adjuster asked whether there were further images. He was informed that the other footage was no longer available. The insurers declined coverage, claiming a breach of a condition precedent which required the insured to provide all available information and evidence reasonably required by the insurers.
The burden was on the insurers to prove that the condition precedent had not been complied with. The court also applied the rule that any ambiguities in the wording would be interpreted against the insurers. On this basis, the court decided that although the policy required the claimant to preserve relevant CCTV footage, it had been reasonable to follow the police advice as to which footage should be retained. The clause only required the insured to provide the insurers with evidence and information regarding the loss insofar as this was within the insured's power when a request was made. The claimant was therefore not in breach of the condition precedent and the loss was covered.
Clare Harwood & Others v Land of Leather (in Administration), Zurich Insurance Plc & Others [2010]
This case provides a stark warning to commercial insureds to fully understand their insurance obligations and ensure that any action taken in respect of claims or in seeking an indemnity/contribution from third parties is undertaken with the full knowledge and consent of insurers.
Background
Consumers who had suffered burns and allergies caused by certain leather sofas claimed against supplier the Land of Leather ("LOL"). LOL went into administration and so the consumers brought a statutory claim directly against Zurich, LOL's product liability insurers.
Agreement with Linkwise
LOL had been supplied with the sofas by a company called Linkwise. Following complaints, LOL stopped selling the products in Autumn 2007. LOL incurred significant costs including return of stock, sourcing alternative products and dealing with the adverse media coverage. LOL had sought to recover these costs from Linkwise. In February 2008 LOL and Linkwise reached an agreement over these costs.
Teare J construed the February 2008 agreement as a settlement agreement compromising any potential claims for indemnity that LOL may have against Linkwise. The agreement did not fail for lack of consideration.
Teare J had to decide whether such agreement was a breach of a policy condition precluding LOL (and therefore the consumers) from claiming against Zurich.
Policy construction
Teare J conducted a detailed review of the Zurich policy. Clause 1 provided that the due observance of any condition by the insured shall be a condition precedent to any liability. Clause 3 required the insured to obtain Zurich's consent before compromising any claim, including any claim for an indemnity. LOL had not sought Zurich's consent before entering into the February 2008 agreement. LOL had thereby breached a policy condition which by virtue of clause 1 was condition precedent to liability. Zurich was therefore entitled to refuse cover, although leave to appeal has been granted.
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