The anti-deprivation principle

English insolvency law does not permit the parties to contract out of the basic rule that a debtor’s unsecured creditors are to be treated equally on the insolvency of the debtor. It is for that reason that a cut-through clause in a reinsurance agreement, whereby in the event of the reinsured’s insolvency the sums payable by the reinsurers are to go directly to the reinsured’s policyholders, is almost certainly void. The point has arisen in a rather different insurance context, in Folgate London Market Ltd v Chaucer Insurance plc [2011] EWCA Civ 328, where the scope of the principle was confirmed.

Folgate: the facts

On 26 September 2001 Mr Mayhew was severely injured by a falling load from a lorry driven by Mr King and belonging to Milbank Trucks Ltd. Milbank’s motor liability insurers, Chaucer, denied liability to meet any claim against Milbank, in reliance on an exclusion in the policy. Mr Mayhew obtained judgment against Milbank on 14 July 2005 for damages to be assessed.