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.

English insolvency law has long recognised the principle that a payment made to an unsecured creditor at a time when the debtor is insolvent is an unfair preference which is to be set aside as a fraud on other creditors. The insolvency laws of most jurisdictions, including those of Australia, are the same. The question in New Cap Reinsurance Corporation Ltd v Grant [2011] EWCA Civ 971 was whether a judgment of a New South Wales court, ordering a Lloyd’s Syndicate to repay reinsurance proceeds paid by an insolvent reinsurer, should enforced in England in circumstances in which the Syndicate had refused to submit to the jurisdiction of the Australian court.

Gard Marine & Energy Ltd v Tunnicliffe and Ors [2011] EWHC 1658 (Comm), a decision of David Steel J, gave rise to a tricky question of the interpretation of a deducible clause in a reinsurance contract. The learned judge resolved the question by reference to expert evidence of market understandings and also to the principle that reinsurance coverage matches the underlying insurance.

The cover provided by a business interruption policy is often provided in a separate section of a wider policy covering, amongst other things, physical damage to the insured subject matter. It is also common for the two sections to be linked, so that there is business interruption cover only where loss of revenue is caused by material damage. In Mainstream Aquaculture Pty Ltd v Calliden Insurance Ltd [2011] VSC 286 the question before the Supreme Court of Victoria was whether there had been any physical damage. This was a preliminary issue, so that other questions were not under consideration at this stage.

In The Queen on the application of British Bankers Association v The Financial Services Authority and Anr (interested party Nemo Personal Finance Ltd) [2011] EWHC 999 (Admin), Ousley J batted back a rare challenge by the industry to the powers of its regulators in relation to payment protection insurance. The case is discussed by Dr Judith P Summer, non-practising solicitor and author of Insurance Law and the Financial Ombudsman Service.

The ongoing battle between credit hire suppliers and motor liability insurers has taken a significant new turn in W v Veolia Environmental Services (UK) plc [2011] EWHC 2020 (QB). Where the credit hire agreement is rendered unenforceable by reason of some error by the supplier in compliance with the technical requirements for giving notice of cancellation rights to the customer, then the customer cannot seek to recover by way of damages the sums payable to the credit hire company. However, if those sums have actually been paid, the decision of HHJ Mackie QC in the present case shows that subrogation rights are unimpaired.

A claimant relying on the Third Party (Rights Against Insurers) Act 1930 to enforce a judgment obtained against an insolvent insured can be in no better position against insurers than the insured would have been. In William McIlroy (Swindon) Ltd v Quinn Insurance Ltd [2011] EWCA Civ 825 the Court of Appeal reversed a first instance decision which had the result that the insured lost his rights against insurers before the third party claimants’ causes of action had even accrued. The case is analysed by Fiona Sinclair of 4 New Square.