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A litigation bulletin from the insurance team

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  • Insurance and reinsurance - E-briefings
  • Litigation and dispute management


Subrogation rights under project policies

To be or not to be a “co-insured”

The TCC in Haberdashers’ Aske’s Federation Trust Limited and others v Lakehouse Contracts Limited and others [2018] EWHC 558 (TCC) considered whether a project insurance policy covering various parties involved with the project, including “sub-contractors”, extended to a sub-contractor who had assumed an express obligation to procure its own insurances in its sub-contract with the main contractor. If so then the project insurers, who had paid a loss on behalf of the main contractor, would have been precluded from bringing a subrogated claim against the sub-contractor by reason of an express waiver of subrogation against co-insureds in the project policy. The TCC decided that the sub-contractor was not a co-insured. In arriving at this conclusion it said it was necessary to construe both the policy and the sub-contract, as well as the “legal mechanics” by which cover would become available to a sub-contractor under a project insurance. The Court accepted that the sub-contractor met the definition of a co-insured under the policy, but did not agree that this was the end of the analysis as the terms of the sub-contract, including the sub-contractor’s obligation to procure its own insurance, were also highly relevant. Having then considered alternative theories based on agency and acceptance by conduct, it decided that the sub-contractor becomes a co-insured on a project policy by accepting a “standing offer” of the project insurers to insure sub-contractors. The sub-contractor does so by entering into the sub-contract, thereby creating an implied term in the sub-contract that it will have the benefit of the project policy. However, such a term could not be implied on the facts of this case as it would be inconsistent with the sub-contractor’s express obligation to maintain its own insurances. Thus it was held that the sub-contractor had not become an insured under the project policy and the waiver of subrogation did not apply to it. The judgment illustrates the need to approach these cases by reference not only to the provisions of the policy itself, but also the underlying contractual framework between the parties. Mr Justice Fraser referred to a number of authorities in support for that proposition, including the Supreme Court’s 2017 judgment in Gard Marine and Energy Ltd v China National Chartering Co Ltd.

Nominating insurance arbitrators

Do insurance lawyers have “experience of insurance and reinsurance”?

In Allianz Insurance PLC and another v Tonicstar Limited [2018] EWCA Civ 434, the Court of Appeal considered the meaning of the words “persons with not less than ten years’ experience of insurance or reinsurance” in the JELC Excess Loss Arbitration Clause. The Commercial Court, applying a 17-year old judgment of the same court interpreting the same clause against materially identical facts, held that this term precluded the nomination of Alastair Schaff QC as the appellant’s arbitrator because he did not have experience of the business of insurance or reinsurance itself.

The Court of Appeal decided that the reasoning of that earlier judgment was “not defensible”. It then considered a new interpretation put forward by the respondent which sought to distinguish between “experience of insurance or reinsurance” and “experience of insurance and reinsurance law” (emphasis added), drawing analogies with experience in sports and in sports law and also experience in engineering or telecommunications and advising on disputes involving engineering or telecommunications.

The Court did not accept this submission, although it acknowledged it had been made “attractively”. It decided that the insurance and reinsurance context is different because “the practical and legal aspects of insurance and reinsurance are…intertwined”. Market practitioners require a good understanding of insurance law to engage in their business whilst lawyers require a practical knowledge of the business to advise effectively. Thus a lawyer who may not understand how to set an underwriting rate for a risk has no less suitable experience of insurance and reinsurance to serve as an insurance arbitrator than an underwriter with no expertise in analysing case law or conducting arbitration proceedings. Accordingly, the Court decided that a clear expression of words is required to exclude lawyers from the category of persons with “experience” of insurance and reinsurance.

Interpreting commercial agreements…

Textualism and Contextualism

In Wood v Capital Insurance Services Limited [2017] UKSC 24, the Supreme Court provided helpful guidance on the dichotomy between interpreting a contract by looking at the words on the page on the one hand and by reference to the factual background on the other. The case concerned an indemnity clause under an SPA through which Capita acquired a motor insurance business. Capita brought the appeal on the basis that the Court of Appeal had placed too much emphasis on the words of the clause and not enough on the factual background to which they were agreed. In the course of affirming the Court of Appeal’s decision, the Supreme Court noted the following:

“Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation. Rather, the lawyer and the judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement. The extent to which each tool will assist the court in its task will vary according to the circumstances of the particular agreement or agreements. Some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with the assistance of skilled professionals. The correct interpretation of other contracts may be achieved by a greater emphasis on the factual matrix, for example because of their informality, brevity or the absence of skilled professional assistance. But negotiators of complex formal contracts may often not achieve a logical and coherent text because of, for example, the conflicting aims of the parties, failures of communication, differing drafting practices, or deadlines which require the parties to compromise in order to reach agreement. There may often therefore be provisions in a detailed professionally drawn contract which lack clarity and the lawyer or judge in interpreting such provisions may be particularly helped by considering the factual matrix and the purpose of similar provisions in contracts of the same type. The iterative process, of which Lord Mance spoke in Sigma Finance Corpn (above), assists the lawyer or judge to ascertain the objective meaning of disputed provisions.”

Interpreting insurance exclusions…

Commercial Court follows Impact Funding

In November 2017 the Commercial Court in Crowden v QBE Insurance (Europe) Ltd [2017] EWHC 2597 followed Impact Funding Solutions v AIG Europe Ltd [2016] UKSC 57, which confirmed that insurance exclusion clauses are not always construed narrowly following the contra proferentum rule, but as with any other term must be construed in the context of the policy as a whole. In Crowden the claimant had sued its financial advisor for losses suffered when the issuer of a bond it had invested in went into administration. The advisor’s PI policy excluded cover for claims, loss, liability, costs or expenses “arising out of or relating directly or indirectly to the insolvency or bankruptcy of the Insured or any … other business, firm or company with whom the Insured has arranged directly or indirectly any insurances, investments or deposits.” The Court held that this applied to exclude cover on the basis that the insolvency of the issuer was a significant cause of the claim (the words “directly or indirectly” indicating that the causal standard was lower than proximate cause). In doing so it noted two general principles. Firstly, insurance exclusions, unlike ordinary exemption clauses, are designed to define the scope of cover provided by the policy and are thus not subject to the same rules of interpretation as ordinary contractual exemption clauses. Secondly, where there is genuine ambiguity in an insurance exclusion, a court can adopt a narrower construction either by applying the contra proferentum rule, or by choosing the more commercial construction. However, this was not such a case.


Direct actions against liability insurers

In July 2017, the European Court of Justice (“ECJ”) decided that an exclusive jurisdiction clause in a liability insurance policy cannot be enforced against a third party victim bringing a direct action against the insurer in an alternative jurisdiction pointed to by the Brussels Regulation. The action was based on Danish insurance law providing the victim with rights of subrogation against the insurers where its claim against the insured had become affected by the liquidation of the insured. The ECJ based its somewhat counter-intuitive decision on the premise that the “scheme” and “underlying objectives” of section 3 (relating to jurisdiction in insurance matters) was to correct the “imbalance between the parties” characteristic of insurance matters by “giving the weaker party the benefit of rules of jurisdiction more favourable to his interests than the general rules provide for”. However, its judgment did not place emphasis on the fact that the basis of the action lay in subrogation, which implies that the claimant could not have any enjoyed any “more favourable” rights than the insured would have. This decision highlights the current uncertainty over the jurisdictional regime that will apply post-Brexit and in particular, whether such regime will be presided over by the ECJ.

Commercial Court update

including comments by Mr Justice Knowles

For those practicing in the Commercial Court, major changes continue to made to the Court’s practice in response to users comments. The intention is to enact changes that preserve the status of London’s Commercial Court as one of the pre-eminent global forums for resolving commercial dispute. By way of update:

  • The judges are going to insist upon a more thoughtful approach to disclosure. They are going to look pro-actively at how disclosure can be managed so that it is cost effective and reliable, particularly in document heavy cases. The working party on disclosure reforms has looked at this subject extensively in light of the exponential growth in business of electronic documentation and the knock on effect on the cost of disclosure which has threatened to make litigation not to be a cost effective process for smaller or medium sized claims. At a recent Commercial Litigators Forum event on the work that has been undertaken, Mr Justice Knowles commented that the new changed disclosure rules, which will be assessed through a mandatory pilot, depend on a cultural shift in the way that parties approach disclosure. A considered approach that seeks to focus only on those documents key to resolving a dispute will be promoted. “Standard” disclosure will no longer be the default option or perhaps even exist in the future if the pilot succeeds.
  • There are now around 24 cases a year entering the financial list. This is around the number that was projected. Substantial insurance disputes and cases that set market precedents may well be pushed towards the financial list
  • 26% of the work of the Commercial Court is overseeing arbitration. This accords with the policy statement which emphasises that litigation and arbitration are co-existing methods of dispute resolution that should support each other and be supported equally.
  • Internationally, various countries are interested in adopting the English procedural model. The Commercial Court is aware of, for example, the new commercial court in the Netherlands that will see cases pleaded in English and which will adopt common law procedural rules but with substantive civil law. A Court that will hear cases in English is also going to be established in Paris. Outside of Europe China and Kazakhstan have also show real interest in adopting the model.
  • A standing forum has now been established of the world’s leading commercial courts (including 5 African states who have on instructions of the World Bank started to take steps to improve their court systems). The organisation’s secretariat is now based in the Rolls Building. Its work is going to look at arbitration support, technology and worldwide enforcement.
  • In relation to worldwide enforcement, and particularly in light of Brexit, there is now active work being done looking at the Hague convention on the choice of courts and enforcement treaties. There is a recent bilateral enforcement memo between London and Dubai which aims to set out the most efficient way of enforcement in terms of taking a judgment from one jurisdiction to the other. This is a template which is going to be rolled out. If possible, this will be done on a multi-lateral basis covering as many jurisdictions as possible.

Part 36 success

Impact of international nature of contract

A recent judgment contains a number of incidental points arising out of an unaccepted claimant's Part 36 offer which the claimant beat at trial. This brought CPR 36.17(4), providing for enhancements for claimants on costs and interest, into play. The context of the claim for damages following the wrongful termination of an English law contract between a US entity and a Thai company is relevant to these aspects. In summary, the court held: (1) interest including enhanced interest should be awarded by reference to (the lower than UK) US Prime Rate because the US dollar was the currency of the contract; (2) the fact that the winning Thai party would have borrowed money in Thailand was not germane; (3) enhanced interest after the offer expired should be payable until judgment even though the trial had ended eight months earlier; and (4) the application of the English Judgments Act rate on an unpaid judgment debt - currently 8% - could be dis-applied in favour of a lower rate because of the international nature of the underlying contract and its currency. The case is Triple Point Technology Inc v PTT Public Company Limited [2018] EWHC 45 (TCC)