A summary of recent developments in insurance, reinsurance and litigation law.
This week's caselaw:
Cape Distribution v Cape Intermediate Holdings: Whether company was a co-insured and whether a subrogated claim could be brought against it/whether policy was continuous
http://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/QB/2016/1119.html&query=(cape)
Weekly Update 14/12 referred to the earlier decision in this case (Chandler v Cape Plc), in which it was held that a parent company ("the parent company") was (on the facts of the case) liable to the employees of its wholly-owned subsidiary ("the subsidiary") who had contracted asbestosis as a result of working for the subsidiary. The subsidiary's employers' liability insurer therefore sought to bring a subrogated claim against the parent company, seeking a contribution under the Civil Liability (Contribution) Act 1978.
In 1964, the subsidiary had sold all its assets to the parent, in return for an indemnity from the parent company. Some months later, an endorsement was added to the subsidiary's employers' liability policy which, it was argued, precluded the subrogated claim because the parent company had been added as an insured. Various issues fell to be considered in this case, including the following:
1) Picken J rejected an argument that the indemnity in the sale agreement between the parent company and the subsidiary was available only insofar the subsidiary's liability was not made good by insurance recoveries. The subsidiary was under no obligation in the sale agreement to maintain its insurance coverage (employers' liability insurance not being compulsory in 1964) and there was no express agreement that the indemnity would be net of insurance recoveries.
2) Had there been a single employers' liability policy from 1956 until 1966? The judge held not. The policy had provided that the Period of Insurance would be for a specified 1 year period and then "any subsequent period for which the [subsidiary] shall pay and the [insurer] shall agree to accept a renewal premium". The judge held that accordingly there was no automatic right to extend the policy on expiry and so there had been a series of contracts which came into existence on each renewal. It made no difference that the policy number remained the same throughout the 10 year period.
3) Had the parent company become an insured on the policy? The judge held that although the wording could have been clearer, the phrase in the endorsement that "all interest in this Policy is now vested in [the parent company]...who shall be deemed henceforth to be "the Insured"" was enough to make the parent company an insured and the endorsement did not merely note that the parent company had an interest.
4) The policy indemnified against "liability at law for damages" and contained an exclusion for "liability which attaches by virtue of an agreement but which would not have attached in the absence of such agreement".
Applying prior caselaw, Picken J held that "liability at law for damages" included the parent company's liability to make a statutory contribution under the 1978 Act. However, if the parent company is eventually found to only be liable because of the indemnity in the sale agreement, the exclusion would apply.
5) Is the employer's liability insurer entitled to bring a subrogated claim against the parent company, which is a co-insured under the policy?
The judge examined earlier caselaw on the issue of whether an insurer can bring a subrogated claim against a co-insured. He held that the fact that two parties are named as co-insureds will usually be enough (without more) to prevent a subrogated claim: "in the present case, the interests of [the subsidiary] and [the parent company] under the policy were coterminous. Put another way, the same damage that was visited upon [the subsidiary] as a result of employees' claims is now sought to be visited upon [the parent company] through the subrogated claims brought by [the insurer] in the [subsidiary]'s name. The policy responds to bodily injury suffered during the course of employment. The fact that the relevant employees were employed by [the subsidiary] rather than by [the parent company] seems to me to be immaterial. What matters is that the employees who were claiming compensation were doing so. Nothing else matters. It is that claim which the Policy covers. The position of [the parent company] is, for relevant purposes, coterminous with that of [the subsidiary]. Their interests are "inseparably connected". They are "pervasive"." It therefore made no difference that the parent company's liability would arise only from vicarious liability: "the relevant question is not how the liability arises but what the underlying claim is, in the sense of what the individual employee alleges is the bodily injury which has been suffered".
6) Although not required to decide the point, in view of his finding above, the judge also considered what the situation would have been had the parent company not been a co-insured but the subsidiary had bought the policy (paid for by the parent company) for the joint benefit of both companies. The parent company sought to rely on Mark Rowlands v Berni Inns [1986]. In that case, a landlord took out a policy in his name alone (but the tenant paid the landlord towards the premium). The lease contained a clause that the tenant would have no liability to repair building if there was a fire (instead, the landlord would claim under the policy). As a result, it was held that the insurer couldn't subrogate against the tenant. This case was said to differ from Berni Inns though: here, crucially, there had been no mention of insurance at all in the sale agreement, and no obligation on the part of the subsidiary to maintain insurance.
COMMENT: The judge's conclusion on the reason why the subrogated claim could not be pursued is interesting. Recent caselaw has tended to focus on the underlying contract between the insureds (the insurer having no better rights than the co-insured into whose shoes the insurer is subrogated), rather than on the terms of the insurance policy. For example, in Tyco Fire v Rolls Royce (see Weekly Update 14/08) Rix LJ noted that it was said that the true basis of the "rule" lies in the contract between the parties. He said that it is possible for that underlying contract to provide that a co-insured may still be liable to another co-insured for negligence, and hence an insurer can bring a subrogated claim against a negligent co-insured for recovery of the insurance proceeds. In Gard Marine v China National Chartering (see Weekly Update 4/15), the Court of Appeal held that, "the prima facie position where a contract requires a party to that contract to insure should be that the parties have agreed to look to the insurers for indemnification rather than to each other".
That approach has attracted some academic criticism, though, and in this case there was no focus on the sale agreement to explain why a subrogated claim could not be made (perhaps because the subrogated claim relied (in the alternative) upon a statutory indemnity, rather than the underlying contract). Instead the focus was on what the policy itself was intended to cover, namely, a claim against personal injury. That, said the judge, was what the insurer was "on the hook" for.
Personal Touch v Simplysure: Whether insurer entitled to terminate Appointed Representative agreement/exercise of "opinion"/when renewal commissions earned
http://www.bailii.org/ew/cases/EWCA/Civ/2016/461.html
In ordinary (ie non-insurance) contract law, a breach of a condition allows the innocent party to terminate the contract. The main issue in this case was whether an insurer was entitled to terminate an Appointed Representative agreement with the defendant, such that commission was no longer payable. However, some more general points were also discussed.
1) Clause 7 of the agreement provided that it was a condition that the Appointed Representative abide by the rules of the regulator (here, the FSA at the relevant time). At first instance, the judge found that non-authorised advisors working for the defendant had carried out regulated activities and so the defendant had breached FSMA 2000 (although he also found that clause 7 was not a condition). The Court of Appeal agreed that there had been a breach of FSMA. It also held that clause 7 was a true condition which entitled the insurer to terminate the agreement.
2) Clause 32 of the agreement provided, in relevant part, as follows: "This agreement terminates automatically on...the commission of any...act which in the [insurer's] opinion precludes the Appointed Representative from a position of trust.."
Although not required to decide the point in light of the conclusion on clause 7, the Court of Appeal held that the judge had erred in reaching his own decision about a loss of trust, as if the clause made no reference to the insurer's opinion. Instead, the correct question was whether the Appointed Representative could show that the insurer's decision was perverse or irrational.
3) Entitlement to renewal commissions: The Court of Appeal also held that the judge had erred in finding that the Appointed Representative had a right to receive renewal commissions after the agreement was terminated because the right to receive that commission had accrued before the termination. The Court of Appeal held that: "the right to a renewal commission cannot accrue unless and until the policy is renewed. The right does not accrue when the policy is originally taken out. For post-termination renewals to result in a right to commission, it is necessary to find an implied term to that effect, and, moreover, a term that survives termination for repudiation".
Wigley-Foster v Wilson: Whether MIB required to compensate injured party where foreign insurer has become insolvent
http://www.bailii.org/ew/cases/EWCA/Civ/2016/454.html
The Fourth Motor Insurance Directive gives injured parties in a car accident a direct right of action against the insurer of the vehicle which is insured and normally based in another Member State. Here, the English resident was a passenger who was injured in a Greek-registered car, insured by a Greek insurer. The Directive also provides that, if the foreign insurer has not provided a reasoned reply to a claim for compensation within 3 months, the compensation body in the injured party's own country (here, the Motor Insurers' Bureau ("the MIB")) must take action within 2 months. If the foreign insurer still does not pay, the MIB will compensate the injured party and then bring a subrogated claim against the foreign insurer for reimbursement.
In this case, the injured party made a claim for compensation against the Greek insurer in May 2009. No reply was received within 3 months. Accordingly, she had a right to pursue a claim against the MIB from the beginning of September 2009. However, when the Greek insurer became insolvent in February 2010, the MIB advised that it was no longer able to intervene in the matter because the Greek insurer was no longer authorised and it argued that the injured party should instead claim against the Greek Auxiliary Fund (which deals with claims from policyholders entitled to compensation following the insolvency of a Greek insurer). At first instance, the judge agreed that the MIB was not liable to compensate the injured party because the Fourth Directive did not provide protection where an insurer has become insolvent and the right to claim against the MIB was a purely procedural facility and did not give the injured party a substantive claim in the event of the Greek insurer's insolvency.
The injured party appealed and the Court of Appeal has now allowed that appeal.
It held that a right to notify and pursue a claim against the MIB had arisen in September 2009 because the circumstances specified in the Fourth Directive had occurred, and not because of the Greek insurer's insolvency (which in fact did not occur for another a few months). The time at which an insurer must have official authorisation is only at the time of the accident. If an insurer subsequently ceases to be authorised, that does not terminate the rights of the injured party. There was no need to imply into the Directive a requirement that the insurer has not entered into a formal insolvency process at the date when a claim is made to the MIB.
Hayden v Maidstone & Tunbridge Wells: Judge considers whether to allow defendant to rely on late surveillance evidence
http://www.bailii.org/ew/cases/EWHC/QB/2016/1121.html
Liability to the claimant for her personal injury claim was admitted, but quantum was disputed. The defendant's expert suggested in May 2015 that the claimant was exaggerating her continuing symptoms. However, instructions were given to a surveillance company only in February 2016, shortly before trial. The defendant applied for permission to rely on the surveillance video when it was received, and the judge held that as a result the trial date would have to be vacated.
As to the application, the judge noted that it is generally in the interests of justice to allow the defendant to cross-examine a claimant on video evidence which may undermine the claimant's case, provided that that does not amount to "trial by ambush". Foskett J agreed with earlier caselaw that an "ambush" means where a claimant has not had a fair opportunity to deal with the evidence (and so there is no need to find some sinister motive on the part of the defendant, ie to deliberately wrong-foot the claimant at the last minute).
The judge made a general observation that "more liberal use" should be made by the courts at the case management stage of orders requiring the application by a defendant to rely on surveillance evidence by a certain specified date (in situations where the claimant perceives a risk of this kind of evidence being relied on (especially if medical advisers have expressed reservations about the claimant's symptoms)). The judge also noted that "A very significant factor in deciding whether to accede to a late application, in my judgment, is the time when a defendant ought reasonably to commission such evidence. Once the claimant's case, both in relation to the disabilities relied upon and their consequences, is clearly articulated and the defendant is possessed of an opinion from an expert upon whom it relies that the claim is "suspect", it seems to me that the obligation actively to obtain surveillance evidence arises if it is considered a proportionate approach to adopt in the particular case. The longer it is left and the nearer the time gets to trial, the more likely it is that the court will regard the delay as culpable".
On the facts of this case, the judge was critical of the defendant's delay in obtaining the surveillance evidence but "with considerable misgivings", he granted permission for it to be received at trial, in the overall interests of justice. The defendant should be responsible, though, for the additional costs of instructing the claimant's experts to consider the new material and for those experts to discuss it with their counterparts in order to make a new joint statement.
(Re)insurance Weekly Update 18-2016
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