A summary of recent developments in insurance, reinsurance and litigation law
R&Q Insurance (Malta) Ltd & Ors v Continental Insurance Company: Court decides whether reinsurance contracts had been placed and whether there had been an acknowledgement of liability
The main issue in this case was whether the defendant had entered into four reinsurance contracts with the claimants (and if so, on what basis). The contracts were said to have been made some 35 years ago. The underlying risk being insured was the liability of an Australian building company which is now the subject of very substantial mesothelioma claims arising as a result of asbestos used in its building materials.
The claimants were unable to produce the original slip, cover note or equivalent document evidencing the reinsurance in question and the defendant denied that it was a party to the reinsurance. Accordingly, that was a question of fact and the judge noted that there was no basis for saying that there should be any gloss on the normal standard of proof. So unlike cases where there are allegations of fraud (where the court bears in mind that fraud does not usually occur), there is nothing inherently unlikely about placing reinsurance.
The judge further accepted that extensive efforts had been made by both parties to find the relevant documentation, but that such documentation was genuinely unavailable and so he concluded that "the issue for me then is to weight the evidence which I do have about the existence or otherwise of the claimed reinsurance...taking into account as I do that the primary evidence is not now available".
He concluded that the defendant was a party to the reinsurance and that, furthermore, it had agreed to "front" a pool of reinsurers (ie it was liable for 100 per cent of the risk placed with the pool, but that it would then have rights of recourse against other reinsurers).
Having established that, the judge went on to consider whether the claimants' claims were now time-barred. The claimants accepted that most of the claims were time-barred, but sought to rely on what it said were two acknowledgements of liability.
Section 29(5) of the Limitation Act 1980 provides that where there is a right to recover "any debt or other liquidated pecuniary claim", and the liable person acknowledges the claim or makes any payment in respect of it, time will start running only from the date of acknowledgement or payment.
There is no particular format for an acknowledgement (other than that it must be in writing and signed by the person making it). The judge referred to prior caselaw in which it was held that a party who had said that he would "check on the amounts owed" had acknowledged the claim (and had not just acknowledged that there might be a claim): "So the question is whether the amounts owing can be ascertained by extrinsic evidence assuming there is an acknowledgement of outstanding indebtedness generally". Here, a representative of the reinsurer had referred to items which had been "agreed" and the judge said that that clearly meant that the items "at least are agreed in the sense that [the reinsurer] is liable for them", subject only to a calculation of the actual sums owed (which could be proved by extrinsic evidence). Similarly, a reference to having "booked... amounts due" amounted to an acknowledgement of those amounts.
The defendant also sought to argue that the reinsured had not provided sufficient proof that it was liable to the insured. Although the judge agreed that the reinsured must show that it was liable, and that that liability has been ascertained (here, by settling the underlying claims), he said that the suggestion that the reinsured (along with the rest of the market) had wrongly accepted liability was "absurd" in light of the reports produced by the reinsured's lawyers.
Finally, the judge held that the reinsured had been liable to pay the costs and expenses of the insured in dealing with the claim because the definition of ultimate net loss in the underlying policy had included sums "...for settlement investigation/defensive claims and excluding only the salary of the insured..."
COMMENT: There has not been any prior English caselaw on whether a claim under a (re)insurance contract is a "liquidated pecuniary claim" (ie a debt of a fixed sum, with no need for the court to assess): the hold harmless principle has the effect of a (re)insurer being liable for unliquidated damages under an indemnity policy. However, this case apparently proceeded on the basis that section 29(5) did apply to the claim, and there was no discussion of this point.
This case might also be compared with Barnett v Creggy (see Weekly Update 01/15), where the "debtor" signed a letter effectively undertaking to acknowledge a debt should funds not be paid by a third party. Richards J held that a debt could only be acknowledged if it already existed and so the letter had "necessarily acknowledged" the creditor's claim. Care should therefore be taken by (re)insurers when dealing with (re)insureds to ensure that an acknowledgement of debt is not made unintentionally.
Nori Holdings v Bank Okritie: Court holds that English Court cannot grant ant-suit injunction to restrain proceedings in another Member State court, which were brought in breach of an arbitration agreement
One of the issues in this case was whether the claimant could obtain an anti-suit injunction to restrain the pursuit of court proceedings in a Member State (Cyprus) which it alleged were brought in breach of an arbitration agreement.
Regulation (EC) 44/2001 provides that where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States, the Member State court first seised of proceedings must hear the case. The ECJ decisions in Gasser v Misat (2003) and Turner v Grovit (2004) established that the English courts cannot grant an anti-suit injunction where another Member State is first seised of proceedings, even if that breaches an exclusive jurisdiction clause (although it is still possible to obtain an anti-suit injunction to restrain proceedings outside the EU).
The West Tankers v Allianz case (see Weekly Update 06/09) confirmed that the same position applies where there is an alleged breach of an arbitration agreement, even though arbitration is expressly excluded from the scope of Regulation 44/2001. That was because it was held that an anti-suit injunction would undermine the effectiveness of the Regulation.
Regulation (EC) 44/2001 was recast into a new Regulation (1215/2012) in January 2015 ("the recast Regulation"). The recast Regulation restates the arbitration exception and confirms that proceedings relating to arbitration fall outside of its scope. It clarifies that any court proceedings brought in order to support an arbitration (including enforcing or challenging an award and deciding the validity of an arbitration agreement) fall outside the scope of the recast Regulation (and hence the court not first seised can decide these matters) (Recital 12). The recast Regulation also provides that a New York Convention arbitral award will have precedence over a Member State court judgment (if both the arbitration and the Member State proceedings continue to a decision on the merits and reach opposite conclusions). However, the recast Regulation is silent about whether an anti-suit injunction could be granted by a Member State court.
In the CJEU case of "Gazprom OAO", Advocate General Wathelet issued an opinion which provided, broadly, that West Tankers had been overturned and so an anti-suit injunction could now be granted. However, when judgment was handed down in the case (see Weekly Update 18/15), it was decided under Regulation (EC) 44/2001 (and affirmed the West Tankers decision), and so didn't resolve this question under the recast Regulation. Instead, it only held that a Member State court would be free to recognise an anti-injunction award granted by the arbitrators.
In this case, Males J observed that "Neither the Recast Regulation itself nor its recitals say expressly that .... an anti-suit injunction in support of arbitration issued by a court in a member state takes precedence ... If the EU legislature intended to reverse the West Tankers decision, it chose an odd way in which to do so".
He went on to hold that "I conclude that there is nothing in the Recast Regulation to cast doubt on the continuing validity of the decision in West Tankers ... which remains an authoritative statement of EU law. For the reasons which I have explained, I respectfully disagree with the opinion to the contrary of Advocate General Wathelet. Accordingly there can be no injunction to restrain the further pursuit of the [defendant]'s proceedings in Cyprus". Instead, it was for the Cypriot courts to decide if they will hear the case.
A further issue in the case was whether the court should grant an anti-suit injunction (to restrain proceedings taking place outside of the EU) if similar relief can be granted by the arbitrators. The judge concluded that the availability of anti-suit relief from the arbitrators was no reason for the court to refuse an injunction: "Where there has been no application for a stay [of legal proceedings] under section 9 there is no reason why the court should not exercise the jurisdiction to grant anti-suit relief which it undoubtedly has". It was noted that the defendant to the anti-suit injunction (who has commenced proceedings outside the EU in breach of an arbitration clause) is unlikely to seek a stay of the English court proceedings, though, given that it will have adopted the stance that there is no binding arbitration agreement.
COMMENT: The decision regarding the continued applicability of the West Tankers case is arguably correct, given that the recast Regulation does itself appear to contemplate both the arbitral and the Member State court proceedings continuing (and possibly reaching different conclusions). However, given the importance of this point, it is likely to be appealed further before the English courts (and may possibly even go to the CJEU).
Avondale Exhibitions v Arthur J Gallagher Insurance Brokers: Court dismissed professional negligence claim against insurance broker
The claimant's insurers avoided its Commercial Combined Insurance policy following a fire at the premises, after they discovered that the claimant had failed to disclose two criminal convictions of its owner. The claimant then brought a professional negligence claim against its insurance brokers. It alleged that the brokers had failed to pass on information to the insurers and also that the brokers had breached their duty of care by failing to highlight the importance of disclosure. Much of the case therefore turns on the particular facts. The judge found as follows:
(1) Allegation that brokers failed to pass on information: Although the judge accepted that the claimant's owners gave plausible evidence (and were more likely to remember specific conversations than the brokers, who dealt with large numbers of clients on a daily basis), and had no motive to only disclose the convictions when an insurable event had occurred, he found in favour of the brokers on this issue. He accepted that, if they had been told (and the claimant alleged they had been on three separate occasions), the brokers would have appreciated the importance of the convictions and would have taken action.
(2) Allegation that brokers failed to elicit information or highlight the importance of disclosure: The claimant accepted (the judge said rightly) that there was no general rule that specific oral advice as to material disclosure must be given, or a specific enquiry regarding a material piece of information must be made. The judge held that the brokers had not breached their duty on the facts of this case. Although a lot of documentation had been sent to the claimant, the material paperwork was limited in amount and clearly highlighted: "The explanations of the duty of full disclosure of material facts were clear and full and attention was properly drawn to them; they were not tucked away where they might not be seen". There was no need to specify that convictions are material facts.
In reaching this conclusion, the judge also noted that it is the court, and not the particular profession, which is the "ultimate arbiter of the applicable standard". Although it is usual to require expert evidence, there is no rule of law that expert evidence is required in every professional negligence case: "expert evidence is not required if the practice or conduct complained of has no rational basis or is so obviously unsupportable as to require no such evidence for it to be found to be negligent". However, in this case, a lack of expert evidence was said to have limited the possibility of finding that the brokers had breached their duty of case. ICOBS guidance had not supported the claimant's arguments either.
In any event, the judge held that an oral explanation of the duty of full disclosure would not have made any difference, since the claimant's owner had had a "cavalier" attitude and had signed the relevant forms in a reckless manner.
Alpha Insurance v Roche & Or: Court allows insurer to raise "fundamental dishonesty" argument after claimant discontinued claim
The usual rule when a claimant discontinues its claim is that the claimant is liable for the defendant's costs. However, this case involved a personal injury claim and the qualified one-way costs shifting regime (QOCS) applied, which meant that the court's leave was needed to enforce a liability for costs against the claimant. There is an exception to QOCS, though, where the claim is found on the balance of probabilities to be "fundamentally dishonest". PD 44 para 12.4 provides that "where the claimant has served a notice of discontinuance, the court may direct that issues arising out of an allegation that the claim was fundamentally dishonest be determined notwithstanding that the notice has not been set aside pursuant to rule 38.4".
The defendant insurer in this case insured a driver who had collided with the claimant's car. The claimant alleged that she and her passenger had been injured in the accident. The insurer admitted the insured's negligence but alleged that the claimant had not had a passenger in her car. The claimant then discontinued her claim and the insurer appealed against a decision that the allegation that the claim was fundamentally dishonest should not be determined.
The judge held that the judgment below did contain an error of law, because it had wrongly decided that PD 44 para 12.4 required something exceptional in order to convince a court to allow further court time to consider a fundamental dishonesty allegation. In this case, it was held that "giving such a direction should be seen to be neither routine nor exceptional".
Many cases falling under the sub-section will involve relatively modest costs, but the court should recognise that there is a public interest in identifying false claims. Exercising the discretion afresh, the judge held that it was reasonable for the defendant to have the issue of fundamental dishonesty determined. In reaching this decision, she took into account, in particular, the very late stage at which the claim was discontinued and the complete absence of an explanation from the claimants.
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.