Insurance Law Monthly

The decision of Christopher Clarke J in Omega Proteins Ltd v Aspen Insurance UK Ltd [2010] EWHC 2280 (Comm) is notable for two reasons. First, it concerns the extent to which judgments, awards and settlements which impact upon the insured’s liability to a third party are binding as between insured and liability insurer. The judge declined to follow the decision of Tomlinson J in London Borough of Redbridge v Municipal Mutual Insurance Ltd [2001] Lloyd’s Rep IR 545 and subjected it to serious criticism. Secondly, the judge considered the effect of a contractual liability exclusion clause of a kind commonly found in public liability and public liability policies. The case is discussed by Mark Cannon QC and Fiona Sinclair of 4 New Square.

Business interruption policies have been discussed on relatively few occasions by the courts, largely because most of the disputes relate to figures rather than to legal principles, but their application can give rise to important issues of construction. In New World Harbourview Hotel Co Ltd v Ace Insurance Ltd, April 2010, Hong Kong CFI, Reyes J considered the meaning of a business interruption policy in the context of loss of business by a firm providing leisure facilities when revenue was lost as the result of an epidemic. The decision was upheld in a short judgment by the Court of Appeal in October 2010, and his reasoning was adopted in all respects. This note thus concentrates on the first instance decision.

The long-awaited decision of the Supreme Court in Global Process Systems Inc v Syarikat Takaful Malaysia Berhad (The Cendor Mopu) [2011] UKSC 5 has clarified the complex relationship between the insured risk of perils of the seas and the excluded peril of inherent vice. Following the lead of the Court of Appeal the Supreme Court has confirmed that there is only inherent vice if the loss has been caused by something internal to the insured subject matter and not as a consequence of the operation of some external fortuity.

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.

The Motor Insurers Bureau Untraced Drivers Agreement 2003, and its predecessors, has generated a good deal of complex litigation. The general scheme of the agreement is that the victim of an untraced driver can bring a claim for damages against the MIB, which must investigate the claim and then award damages as if the action had been brought in the courts. The administrative nature of this procedure has given rise to a series of complaints about its operation. The most recent, Carswell v Secretary of State for Transport and the Motor Insurers Bureau [2010] EWHC 3230 (QB), concerned three matters: the fact that the MIB is not independent of the insurance industry; the cap on the recovery of legal costs; and the apparent absence of any right of appeal against MIB procedural irregularities.

Zurich Professional Ltd v Brown [2010] EWHC 3300 (Ch) raised a question of the interpretation of a professional indemnity polity taken out by the assured. The policy covered the assured for liability incurred in the course of his private legal practice. The question was whether he was carrying on such a practice.

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.

Section 19 of the Financial Services and Markets Act 2000 imposes an authorisation requirement on persons who carry on insurance business in the United Kingdom. If there is contravention of this provision a variety of civil and criminal consequences follow, including the ‘nuclear option’ that the Financial Services Authority may petition the court for a winding up order. Petitions were presented in Re Digital Satellite Warranty Cover Ltd [2011] EWHC 122 (Ch) against companies offering warranties on satellite television equipment. The issue was, were they carrying on insurance business at all?