UK: A Summary of Recent Developments in Insurance, Reinsurance and Litigation Law : 26 April 2010

Last Updated: 27 April 2010
Article by Nigel Brook

National Farmers Union v HSBC

Whether Double Insurance Arose in this Case

Double insurance arises when the same party is insured with two (or more) insurers in respect of the same interest on the same subject-matter against the same risks. The general rule is that (subject to the terms of each policy), the insured can recover in full from either insurer and the paying insurer is entitled to a contribution from the other insurer.

In this case, following exchange of contracts on a property, the risk of damage to the property passed to the buyers (under common law). The buyers therefore took out a policy with NFU, which insured them against damage by fire. The policy provided that if there was insurance covering the same damage, the insurer would only pay its share (ie its rateable proportion). Following a fire at the property 17 days after exchange of contracts, NFU paid out and the issue then became whether there was any "other insurance", and so whether it could claim a contribution from the other insurers.

The sellers were insured by HSBC at the time of the fire against damage to the building, and the policy contained an extension covering anyone buying the property (until completion of the sale or the end of the policy, whichever was sooner) but provided that the insurer would not pay "if the buildings are insured under any other insurance".

The judge (Gavin Kealey QC) held that the only policy covering the buyers in respect of the fire was the NFU policy: "the grant of buildings cover by HSBC to buyers...was directly qualified by the proviso [i.e. that there is no other insurance in place]: the one cannot properly be separated from the other". Accordingly, this was not a case of double insurance (the buyers were never covered under the HSBC policy) and NFU was not entitled to a contribution from HSBC. In reaching this conclusion, the judge had regard to the primary purpose of the policy extension: it was intended to provide valuable protection to HSBC's own original insured (the sellers), in the event that the buyers were otherwise uninsured (and so the cover would enable or encourage the buyers to complete the property purchase following damage to the property post-exchange but pre-completion).

It was also held that general Claims Condition 2 in the HSBC policy (which provided "we will not pay any claim if any loss...covered under this policy is also covered...under any other insurance except in respect of any excess beyond the amount which would have been covered under such other insurance") was overridden by the special clause in the HSBC policy referred to above, to the extent of any conflict between the two terms.

The judge also commented (obiter) on the case of Austin v Zurich [1944]. It is an established principle that where there is double insurance, if both policies (which would otherwise cover the loss) purport to exclude indemnity altogether in the event of other insurance, the two exclusions cancel each other out and liability is therefore shared between the insurers (see Weddell v Road Transport & General [1932]). In Austin v Zurich, one policy ("A") provided that in the event of other insurance, the insurer would only pay its rateable proportion. The other policy ("B") provided that it would only pay in excess of any sums recovered from the other insurance. The judge concluded that each insurer was liable for 50% of the loss (the two "escape" clauses cancelling each other out). Kealey QC said that in his view it would have been more correct to say that policy A was liable to the full extent of its limits and that policy B only provided excess cover.

COMMENT: It might be difficult in practice to distinguish between a condition in a policy which provides that it will cover a loss but will not pay out in the event of double insurance and a condition which provides that there will be no cover at all if another policy covers the same risk and subject matter. Care should therefore be taken to ensure that the exact nature of the condition is spelt out when drafting the insurance policy.


Challenging the Jurisdiction of the Court and Section 44 of the Arbitration Act 1996 ("the Act")

The parties had entered into an agreement which was to be governed "in accordance with Kazakhstan legislation" but which contained an arbitration clause which was governed by English law. The arbitration clause provided (broadly) for disputes to be settled in accordance with the ICC rules in an arbitration to be conducted in England. After JSC commenced proceedings against AES in Kazakhstan, AES obtained an anti-suit injunction from the English courts. This was challenged by the JSC, which also challenged the jurisdiction of the English courts to hear the proceedings brought against it by AES. Burton J held as follows:

  1. AES had not been entitled to an anti-suit injunction under section 44 of the Act. This section provides that, if a case is one of urgency (which, JSC accepted it was) "the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets". In this case, AES had not commenced arbitral proceedings yet and in fact had said that it did not intend to do so (because it believed that it was for JSC to bring its claim in arbitration). Accordingly, it was not a party or a "proposed party" to arbitral proceedings.

    However, the judge went on to hold that the court had jurisdiction to entertain a claim for an anti-suit injunction under section 37 of the Senior Courts Act 1981 (which provides that "the High Court may by order (whether interlocutory or final) grant an injunction ... in which it appears to the court to be just and convenient to do so"), even if there were no actual or intended arbitral proceedings. Although the relationship between section 37 and section 44 has yet to be fully worked out, section 37 may be available when section 44 is not. Burton J did, however, stress that there should not be any "usurpation or ouster" of the very arbitration jurisdiction which AES is anxious to enforce and so he ordered that JSC could not bring its claim otherwise than by commencing arbitration in London.
  2. Service out of the jurisdiction. Under CPR r62.5, the court can give permission to serve an arbitration claim form out of the jurisdiction if "the claimant (i)... requires a question to be decided by the court affecting an arbitration (whether started or not) or an arbitration agreement...; and(ii) the seat of the arbitration is or will be within the jurisdiction". The judge held that AES had a good arguable case that it fell within this gateway, as well as PD6B para 2.1(20), which provides that there may be service out of the jurisdiction where "a claim is made (a) under an enactment which allows proceedings to be brought and those proceedings are not covered by any of the other grounds referred to in this paragraph". In this case, the relevant enactment would be section 37 of the Senior Courts Act 1982. (The judge did not decide whether AES could also rely on PD6B para 3.1(6)(c) (which refers to a claim made in respect of a contract where the contract is governed by English law) because the arbitration clause in this case was governed by English law).

NB: This is the second time in the past few months that the English courts have alluded to the "unresolved debate as to the co-existence or precise relationship" between section 44 and section 37- in SAB Miller v East African Breweries, the Court of Appeal refused to comment further on the issue.

Yukos Capital v OSJC Rosneft & Ors

Scope of Court's Jurisdiction to Grant Freezing Orders Against Third Parties

The respondents were joined as parties to this action because it was alleged (broadly) that they were controlled by the principal defendant to the action (and thus funds which they held in bank accounts in this jurisdiction would be available for enforcement). The respondents applied to discharge or vary a freezing order made against them. The claimant argued that although the respondents are third parties, they have no independent purpose of their own and only exist to pass money to the principal defendant. The respondents argued that, in the absence of beneficial ownership (ie the principal defendant is the beneficiary of the money held in the London bank accounts under a trust), the court has no jurisdiction to freeze assets held by them.

Steel J conducted a thorough review of the caselaw on this point and held that it was not necessary to establish beneficial ownership in the strict trust law sense. The court has a jurisdiction to freeze the assets of a third party where the defendant has some right in respect of, or control over, or other rights of access to the assets (see Dadourian Group v Azury Ltd [2005]). He disagreed with Aikens J in C Inc v L [2001] that there had to be "a causal link between the fact that the claimant has obtained a judgment against the principal defendant and thus has a legal right as a consequence of that liability giving rise to the judgment, to go against the assets of the third party". Instead, a question of connection or causation was relevant to the general discretion of the judge to grant a freezing order.

As there was no "causative link" or connection in this case between the claimant's claim and the assets in the third party's hands, some other interest over the assets by the defendant had to be shown. In this case, it was just and convenient to continue the freezing order because the respondents were special purpose vehicles with no business or assets of their own. The respondents had no interest or control over the monies, except to provide a portal for the transfer of sale proceeds.

Shepherd Construction v Berners

Proving Risk of Dissipation for a Freezing Order

The defendants sought to discharge a freezing order made against them, on the basis that there was no good and arguable case for a risk of dissipation. The defendants argued that the court should not have taken into account certain communications which they believed were made "without prejudice" and were therefore privileged. Coulson J noted that various emails had been marked "without prejudice" but said that in this context the label was meaningless. The communications were not made in the course of negotiations for settlement. Here, there was nothing to settle and there had already been a full admission of liability. Instead, the defendants had repeatedly promised the overdue sums.

The judge concluded that the communications were relevant and part of the material which led to the conclusion that there was a real risk of dissipation. Either the promises were made in the knowledge that they would not be kept or the promises were genuine but the money intended for the claimant had gone elsewhere and the defendants' assets were being dissipated. Further evidence arose from the fact that one of the defendants was said to have extensive worldwide assets: "it is a factor against the defendants that, notwithstanding that alleged value, these comparatively modest sums have simply not been paid to the claimant. Again, that disparity suggests a very real risk of dissipation so as to avoid payment altogether". Other factors too supported a finding that there was a risk of dissipation and so the freezing order was continued.

Williams v Lishman

Limitation Issue Where There Has Been Concealment of One But Not Both Losses

Section 32 of the Limitation Act 1980 provides for postponement of the limitation period in the case of fraud, concealment or mistake. If (inter alia) "any fact relevant to the plaintiff's right of action" has been deliberately concealed by the defendant, the period of limitation will not begin to run until the claimant has discovered the concealment (or could with reasonable diligence have discovered it). The issue in this case was as follows: If, in a claim in negligence, the first (ie first in time) loss which completes the claimant's cause of action is deliberately concealed by the defendant, does that loss remain a "fact relevant to the plaintiff's right of action" even after the occurrence of a second (ie second in time) source or head of loss which the defendant has not deliberately concealed (and so time does not begin to run until the claimant discovers the first concealed loss)?

On the facts, the Court of Appeal found that the factual premise on which the section 32 submission was based was not made out (because the concealed loss and the non-concealed loss occurred simultaneously). However, if that had not been the case, the Court of Appeal would have concluded that the original concealment was a relevant fact: "If time in respect of a cause of action "shall not begin to run" until the concealment has been discovered, ...ultimately I see no compelling reason why a defendant responsible for the deliberate concealment which marks the original accrual of a right of action should not have to take the rough with the smooth: and so find that he has to answer for a (second) loss which he has not concealed and about which his claimant has known for too long together with the (first) loss which he has deliberately concealed and about which his claimant has only more recently discovered".

Elias LJ proposed a different approach (not advanced by either side) which, in effect "discounts as a relevant fact any loss which, although recognised by the law, is not part of the "gist" of the claim which the claimant wishes to maintain".

Other News

The Law Commissions recently issued their sixth issues paper on insurance contract law reform. This paper examines whether a policyholder ought to be entitled to damages where an insurer has refused to pay a valid claim or has only paid out after considerable delay. The current position under English law is that an insured is not entitled to damages in such circumstances (see the Court of Appeal decision in Sprung v Royal Insurance [1999]). The Law Commissions have "tentatively" concluded that Sprung is out of line with the principles of ordinary contract law and so if an insurer fails to pay valid claims, it should pay damages for foreseeable losses. The Law Commissions have therefore recommended either: (a) an amendment to section 17 of the Marine Insurance Act 1906 in order to provide policyholders with damages where an insurer has acted in bad faith (in refusing a claim or delaying payment); or (b) a reversal of Sprung, so as to make an insurer liable for a failure to pay a valid claim within a reasonable time. The duty of good faith should also be non-excludable and guidelines should be produced on the extent of the insurer's duty of good faith.

Click here for a link to the Issues Paper:

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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