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A Litigation Bulletin from our Insurance Team - February 2019

  • United Kingdom
  • Insurance and reinsurance


Forgiving failures in drafting – insurance contract interpretation

Spire Healthcare Ltd v Royal & Sun Alliance Plc [2018] EWCA Civ 317

This judgment cautions against reading too much into drafting anomalies when interpreting insurance contracts.  The dispute concerned whether or not the medical negligence section of a combined liability insurance policy provided for aggregation of limits.  The Court of Appeal approved the lower Court’s decision that it did, notwithstanding various failures in drafting relied on by the insured.  Those criticisms included that the aggregating language was not present in a specific Limits of Indemnity Schedule to the Policy, but rather in a proviso in the wording itself.  Moreover, the proviso did not clearly refer to the Schedule and could thus be a standard provision that served no purpose in light of the Schedule.  Further, the proviso did not express that its effect was to aggregate claims “consequent on or attributable to one source or original cause” as a single “Claim” for limits purposes, whereas another clause in the policy did do so in relation to linked events.  Finally, it was argued that ambiguities should be resolved in the insured’s favour per the contra proferentum principle. 

In rejecting these arguments the Court of Appeal noted that (i) the schedule and the wording should be given equal weight, (ii) the reasonable reader of the policy would be a sophisticated insured with the benefit of professional advice and would read the entirety of the policy, (iii) the Court will construe the contract as it is and not as it might have been drafted, (iv) aggregation clauses must be read in a balanced way given their propensity to work in favour of either party, (v) the contra proferentum rule only applies where there is real doubt or uncertainty over the meaning of the clause and (vi) as the lower court had observed, neatness and elegance of drafting are often lost in frequently used, modified and revised policies of insurance.  The Court ultimately concluded that the schedule and wording did together create a “coherent” scheme for the amounts payable for 3 categories of claim, one of which included claims to be aggregated on the basis set out in the proviso.      

All or nothing – causation in broker negligence cases

Dalamd v Butterworth Spengler [2018] EWHC 2558 (Comm) 

In October 2018 the Commercial Court decided that where an insured has established breach of duty by its insurance broker, it cannot recover its losses unless it can also show, on the balance of probabilities, that the breach caused the claim against insurers to fail.  The Judgment made it clear that this is a simple “yes/no” question, rather than something that could be established on a loss of chance basis.  The Court confirmed that it would not be enough that the broker’s error had “impaired” the claim in the sense of creating a reasonably arguable ground on which insurers could deny liability.  

Further, a broker could also be absolved of responsibility where there was another coverage defence for which it was not to blame, although it would be for the broker to establish this also on a balance of probabilities.  However, in this latter case the Court did accept that it might assess the probability that the insurer would not have insisted on its strict legal rights in relation to this other defence were it not for the defence created by the broker’s negligence.  Accordingly, the broker could still be liable to the insured on a loss of chance basis in this scenario.   The decision was a victory for common sense since, as the Court observed, it would be illogical for the strength of coverage points to be assessed on a different basis depending on whether the insured is claiming against the broker or insurer.

Please click here for a more detailed account.

Commercial court exposes weaknesses in standard insurance market sanctions exclusion

Mamancochet Mining Ltd v Aegis [2018] EWHC 2643

This case concerned whether payment of an insurance claim would fall foul of US and EU sanctions against Iran so as to engage a market standard sanctions exclusion clause.  The clause excluded insurers’ liability for any claim “to the extent that…payment of such claim… would expose that insurer to any sanction…of the European Union, United Kingdom or the United States of America”. The Court held that the term “expose” required that payment would actually breach the relevant sanctions i.e. it would not be sufficient that insurers were merely exposed to the risk of this being the case.

The Court also construed the words “to the extent that” so that the clause’s effect was suspensory i.e. insurers could still be required to pay the claim if and when sanctions were lifted.

The Court did acknowledge the clearer wording could be used to exclude liability where there were a mere risk that payment would breach sanctions.   The Judgment may lead to calls for this wording to be modified accordingly.

You can find a more detailed synopsis of the case here.

Silence is not always deadly – insurance brokers’ duty to explain disclosure to insureds

Avondale Exhibitions Limited v Arthur J. Gallagher Insurance Brokers Limited [2018] EWHC 1311 (QB)

Usually an insurance broker will have to go further than simply relying on standard-form documents to discharge its duty to explain the pre-contractual disclosure to its client.  However, the court’s decision in this case confirmed that is not always be the case.  The claimant alleged that the broker failed to take proper steps both (i) to bring to the claimant’s attention the importance of disclosing the prior convictions of one of its key individuals who ran the business and (ii) to elicit the relevant information from the claimant. 

The Court rejected the claim in part due to the lack of broking practice expert evidence put before it (which it found “striking and significant”), but also noted that there is not always a duty to give oral explanations of the duty of disclosure.  In this case, the Judge considered that the material paperwork was limited in amount and clearly highlighted. Interestingly, the Court also observed that there was nothing in the fact that convictions were not specified to be material information in the documentation and that in fact it could be misleading to list material information by way of example.  Brokers should ensure that their documentation does not fit this description.

Please see our article here for a more detailed account. 

Service on designated process agent where agent’s appointment terminated

Bank of New York Mellon, London branch v Essar Steel India Limited

The claimant sought declarations in respect of unsecured notes issued under a deed of trust. The Trust Deed contained an express term appointing a third party, Law Debenture Corporate Services Limited, as agent to receive service of process on the defendant’s behalf (the Service Agent).   The Trust Deed expressly stated that that the defendant was to appoint a substitute acceptable to the claimant in the event that the agent could no longer act.

The claimant served proceedings on the agent but was then told that its appointment had been terminated. The court held that it was good service because there was an irrevocable promise as between the claimant and the defendant and the express clause said nothing about the agency agreement between the defendant and the Service Agent.

Future of ADR

Final report from Civil Justice Council Working Group

The Civil Justice Council ADR Working Group has published its final report following its review of the use of ADR within the civil justice system of England and Wales. The Final Report concludes that progress can only be achieved if an ADR strategy is devised in the following areas: awareness, availability and encouragement by the courts/Government. It recognises that the current rules are too generous to those who ignore ADR and it proposes earlier and more stringent encouragement of ADR in case management. However, the report stopped short of advocating compulsory ADR.

Recommendations include the review of court machinery, rules and case law to narrow the circumstances in which a refusal to mediate is regarded as reasonable, establishment of a Judicial-ADR liaison committee and increasing public awareness of ADR. The report also calls for further exploration of the suggestion that judges apply sanctions for unreasonable conduct regarding ADR throughout the case and not only when considering costs post trial. That could be difficult to administer in practice when parties may need to rely on privileged material to justify their approach to date.

To read our client briefing on the report, click here.