Insurance Law Monthly

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.

In Ground Gilbey Ltd and Anr v Jardine Lloyd Thompson UK Ltd [2011] EWHC 124 (Comm) Blair J confirmed that a broker owes duties after the inception of the risk to take reasonable steps to ensure that the assured is kept aware of events that might prejudice coverage. A further important matter discussed in this case is the ability of brokers to challenge the amount of a settlement reached between the assured and the underwriters when the assured wishes to recover the shortfall from the brokers.

The allocation by the reinsured of its losses under direct policies to its reinsurance protection so as to maximise its reinsurance recoveries is a complex issue on which there is little English authority. The cases to date indicate that allocation is not something which is in the discretion of the reinsured but which has to be carried out by reference to the reinsured’s liability. Thus, if the reinsured has incurred direct losses in two or more different years of reinsurance protection, the losses must be allocated to those two years by reference to when they occurred, and it is not, therefore, open to the reinsured to treat the losses as having occurred in a single year so that it bears only one annual aggregate deductible. Teal Assurance Co Ltd v W R Berkley Insurance (Europe) Ltd [2011] EWHC 91 (Comm) raised the difficult issue of exactly when underlying losses are treated as having occurred. In the case of property insurance, the answer is relatively straightforward: the date of the loss is the date of the casualty. In Teal the point arose in the context of direct claims made liability covers, where identifying the point of loss is potentially more complex. This was a trial of preliminary issues, and the precise chronology of the events in question was not before the court. The issues were thus of principle.

Under an all risks policy the assured is able to recover by proving a fortuitous loss. Under a mysterious disappearance exception, the insurers are discharged from liability if they can prove that the loss was mysterious. How are these concepts to be reconciled? Gloster J in AXL Resources Ltd v Antares Underwriting Services Ltd [2010] EWHC 3244 (Comm) was asked to consider the matter.