Insurance Law Monthly

Property and other first party covers generally exclude liability for loss caused by wear and tear. In JSM Management Pty Ltd v QBE Insurance (Australia) Ltd [2011] VSC 339 the Supreme Court of Victoria has decided that that phrase is to be given a narrow meaning, applying only to losses which are ordinarily the result of use or natural forces. Extraordinary losses are within the scope of cover.

The Damages (Asbestos-related Conditions) (Scotland) Act 2009, a measure of the Scottish Parliament not replicated by the UK Parliament, reverses the common law rule established in Rothwell v Chemical & Insulating Co Ltd [2008] AC 281 and provides that pleural plaques and related conditions are, with retrospective effect, deemed to constitute actionable harm. In AXA General Insurance Ltd and Ors v The Lord Advocate (Scotland) and Ors [2011] UKSC 46 certain insurers who had issued insurance policies complying with the Employers’ Liability (Compulsory Insurance) Act 1969 challenged the validity of the legislation on the basis that it imposed retrospective liabilities upon them. The Supreme Court unanimously rejected the insurers’ arguments.

The Insurance Conduct of Business Rules in the Financial Services Authority Handbook, issued under the Financial Services and Markets Act 2000, regulate the conduct of insurance intermediaries. However, the Rules fall short of requiring commission disclosure in consumer cases. In Harrison and Anr v Black Horse Ltd [2011] EWCA Civ 1128 the Court of Appeal rejected various arguments to the effect that non-disclosure of commission and the very size of the commission were matters which infringed the FSA Handbook. The case rose in the very specific context of payment protection insurance taken out to support a credit agreement, so that the provisions of the Consumer Credit Act 1974 on unfair credit agreements were also attracted.

The decision of Lang J in the High Court of New Zealand, Auckland District Registry, 15 September 2011, in Steigrad v BSFL 2007 Ltd, strikes a serious blow at the efficacy of D&O cover in New Zealand and also in New South Wales. The decision effectively means that defence costs are irrecoverable by the directors if third party claimants against the directors assert their statutory right to direct recovery from the insurers.

The Damages (Asbestos-related Conditions) (Scotland) Act 2009, a measure of the Scottish Parliament not replicated by the UK Parliament, reverses the common law rule established in Rothwell v Chemical & Insulating Co Ltd [2008] AC 281 and provides that pleural plaques and related conditions are, with retrospective effect, deemed to constitute actionable harm. In AXA General Insurance Ltd and Ors v The Lord Advocate (Scotland) and Ors [2011] UKSC 46 certain insurers who had issued insurance policies complying with the Employers’ Liability (Compulsory Insurance) Act 1969 challenged the validity of the legislation on the basis that it imposed retrospective liabilities upon them. The Supreme Court unanimously rejected the insurers’ arguments.

The long-awaited result of consultation on the various Issues Papers issued by the English and Scottish Law Commissions was published on 20 December 2011. English Law Commission Consultation Paper 201 and Scottish Law Commission Consultation Paper 152 is a lengthy document which addresses five issues: Issues Paper 4, Insurable Interest, January 2008; Issues Paper 6, Damages for Late Payment and the Insurer’s Duty of Good Faith, March 2010; Issues Paper 7, The Insured’s Post-Contract Duty of Good Faith, July 2010; Issues Paper 8, The Broker’s Liability for Premiums, July 2010; and Issues Paper 9, The Requirement for a Formal Marine Policy, October 2010. A further matter, the possible reform of the Fires Prevention (Metropolis) Act 1774, which was the subject of a short discussion paper in 2009, is dealt with briefly by the Law Commissions, but only to dismiss the need for reform. The Consultation Paper lists a series of questions to be answered by respondents. The analysis here outlines the most important of the proposals which are the subject matter of those questions.

In Jones v Environcom Ltd and Anr [2011] EWCA Civ 1152, the Court of Appeal had to consider an appeal by an insured who sought to argue that, but for an insurance broker’s negligence in arranging cover, a fire which had caused significant loss to the insured would not have happened, and that, therefore, the insured was entitled to damages from the broker. The case is considered by Tom Asquith of 4 New Square.

The consequences of a breach of a claims condition depend upon the classification of that condition either as a condition precedent (no recovery) or a bare condition (recovery, but subject to damages for any loss suffered by the insurers by reason of the breach. In Milton Keynes Borough Council v Nulty and Ors [2011] EWHC 2847 (TCC) Edwards-Stuart J held that liability insurers had, by reason of a late claim under a condition which was not expressed to be a condition precedent, suffered the loss of a chance to prove that their assured had not been negligent, and on that basis the insurers were entitled to deduct 15% from the sum due under the policy.

In Liberty Insurance (PTE) Ltd v Argo Systems FZE [2011] EWCA Civ 1572, insurers sought to overturn a finding at first instance that they had waived a breach of warranty. If they lost on that issue, then Insurers claimed to be entitled to recover damages for misrepresentation. The Court of Appeal’s decision is considered by Katie Powell of 4 New Square.

EU law, as implemented by regulation in the UK, requires legal expenses insurers to allow the assured a free choice of lawyer in order to eliminate the risk of a conflict of interest between the insurers and the assured, particularly where the assured’s claim is against a policyholder insured by the same insurers. The measures have been construed widely, and apply even if there is no conflict of interest. Brown-Quinn and Anr v Equity Syndicate Management Ltd [2011] EWHC 2661 (Comm) is the first case to discuss the issue of whether insurers who have their own panel solicitors can insist that the assured does not appoint solicitors who charge higher rates. Unsurprisingly Burton J ruled in favour the assured, subject to the restriction that the fees charged by the chosen solicitors were reasonable.

The decision of HHJ Keyser QC in Quirkco Investments Ltd v Aspray Transport Ltd [2011] EWHC 3060 (Ch), although ultimately turning on the proper construction of a lease, raises a number of interesting general questions of insurance law, including payment of the premium, noting and subrogation waiver.