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Claims - Recovery of money paid under mistake

Insurance Law Monthly

Claims - Recovery of money paid under mistake

(Scottish Equitable plc v Derby, 1999, unreported)

As a result of the decision of the House of Lords in Kleinwort Benson v Lincoln City Council [1998] 4 All ER 513, where it was ruled that money paid under a mistake of law (as well as mistake of fact) is recoverable when the mistake is discovered, some commentators expressed fears that insurance and reinsurance settlements were all at risk of being overturned should the legal assumptions upon which they were made prove to be unfounded at some future date. This was always unlikely to be a serious prospect, for two reasons. First, the Kleinwort decision was restricted to payments and had no application to settlement contracts: such an arrangement can only be overturned in the case of a fundamental mistake which goes to the very heart of the contract, a situation which is exceptional in the extreme. Secondly, even where insurers or reinsurers have made payment without having entered into a contract providing for full and final settlement of claims arising out of the incident in question, the restitutionary defence of change of position was always likely to defeat an attempt to recover the moneys paid should there later prove to have been an error of law. The scope of the latter defence was considered by Mr Justice Harrison in Scottish Equitable plc v Derby, 1999, unreported.

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