Insurance Law Monthly

Follow settlements clauses are used in a number of contexts. Reinsurers may, for example, agree to follow the settlements of reinsureds. Equally, insurers subscribing on a co-insurance basis may agree to follow the settlements entered into by the leading underwriter of the subscription. There is surprisingly little authority on the interpretation of follow settlements clauses in the latter context, and in particular it is unclear whether the leading underwriter owes any form of duty of care to following underwriters where a settlement made by the leading underwriter is binding on them.

The decision of the New South Wales Court of Appeal in Chubb Insurance Co of Australia Ltd v Moore [2013] NSWCA 212 has given clear answers to a conundrum which has vexed the courts of Australia and New Zealand for some years. The court has ruled that legislation designed to protect third parties in the event of the assured’s insolvency does not have the effect of removing the ability of the assured to recover defence costs.

In Oakapple Homes (Glossop) Ltd v DTR (2009) Ltd [2013] EWHC 2394 (TCC), Ramsey J held that: (1) the architect was not entitled to rely on alleged negligence by a contractor to reduce the damages payable to an employer following the novation of the original agreement to the contractor; and (2) insurers remained liable to meet claims arising under the warranty despite the existence of an exclusion because the benefit of the warranty was found to be no greater than the benefit of the equivalent warranty in the original contract. The decision is discussed by Anneliese Day QC of 4 New Square.

The measure of indemnity under a property policy is determined by the terms of the policy. In Islington Park Ltd v ACE Insurance Ltd [2013] NZHC 2983 the policy provided for different measures of indemnity for partial loss depending upon the degree of cover opted for by the assured. The question was whether those measures were relevant in determining whether the property had become a total loss.

The cost of cleaning up environmental pollution is regarded in England as falling outside standard liability policies. Partly for that reason, the market has developed Environmental Impact Liability cover which is designed specifically to pick up such liability. A recent decision from Queensland Court of Appeal, Hamcor Pty Ltd v The State of Queensland [2013] QCA 262, confirms that a general public liability policy appropriately worded will not normally extend to clean-up costs.

The Financial Services and Markets Act 2000, amongst other things, gave statutory force to a number of voluntary bodies established to provide a cheap and speedy means of resolving disputes involving financial services. The Insurance Ombudsman Bureau, which had existed since 1981, was merged into the new statutory body, the Financial Ombudsman Service.

Crystal Imports Ltd v Certain Underwriters at Lloyd’s of London [2013] NZHC 3513 is the most recent New Zealand authority to consider the question of successive losses within the same policy period. The marine position is settled in favour of the doctrine of merger, whereby unrepaired partial losses merge into a subsequent total loss, but there is no English authority on the application of that doctrine to non-marine policies.

In Sea Glory Maritime Co and Another v Al Sagr National Insurance Co (The Nancy) [2013] EWHC 2116 (Comm), Blair J had to consider a raft of defences raised by underwriters and based on alleged non-disclosure or misrepresentation of material facts, non-compliance with warranties and illegality under US law. His decision is considered by Nicholas Davidson QC and Hamid Khanbhai of 4 New Square.