Insurance Law Monthly

In some circumstances the common law principle ex turpi causa prevents an action in tort where the claimant has been injured in the course of committing an illegal act. Assuming, however, that the common law does not preclude an action, a further question arises as to whether the claimant is entitled to recover damages for his injuries under the compulsory motor insurance regime. The majority of the Court of Appeal in Delaney v Pickett and Anr [2011] EWCA Civ 1532 has sanctioned an exception to insurance recovery where the victim is a passenger.

The Court of Appeal has, in a short judgment in Teal Assurance Co Ltd v W R Berkley Insurance (Europe) Ltd [2011] EWCA Civ 1570, upheld the first instance judgment of Andrew Smith J, [2011] EWHC 91 (Comm), discussed in the August 2011 issue of Insurance Law Monthly. The case turned on the construction of specific contract clauses, but nevertheless raises more general questions as to the allocation by the reinsured of its losses under direct policies to different reinsurance agreements. The question raised by Teal is whether a reinsured is entitled to allocate in a way which maximises reinsurance recoveries. The answer given by Andrew Smith J and the Court of Appeal is that for allocation purposes losses are to be treated in the order in which they occur and not in an order which is more beneficial to the reinsured. The case does not deal with the possibility of losses that cannot be properly sequenced or dated. That issue must await future determination.

Professional liability policies are limited in coverage by reference to the professional activities carried on by the assured. In Sutherland Professional Funding Ltd v Bakewells [2011] EWHC 2658 (QB) HHJ Hegarty QC was required to determine whether interim funding arrangements for the benefit of clients entered into by a firm of solicitors specialising in personal injury claims, under which the firm undertook personal liability in the event of client default in repayment, constituted a professional activity within the scope of a liability policy or whether the debt incurred by them was in the form of a business debt. A number of separate points of construction arose, but the court’s ultimate conclusion was that a guarantee of client debts, which was primarily for the benefit of the business rather than out of any duty to clients, was not insured.

The coverage of employers’ liability policies as regards mesothelioma claims remains problematic on a number of levels. The latest clarification, the decision of Cooke J in International Energy Group Ltd v Zurich Insurance plc UK [2012] EWHC 69 (Comm) is not of direct relevance to English law, because the liability in question was governed by the law of Guernsey. However, there are important comments in the judgment as to how the matter would have been determined under English law.

The role of brokers is something of an anomaly in English law. Many of the practices found in the modern market date back to the early days of marine insurance, in many situations before the development of legal principles against which the role of brokers could be judged. There is, for example, a long-standing rule that a broker is liable for the premium, and the courts have not objected to the ability of a broker to hold an open cover for insurers while at the same time acting as the agent of persons seeking that very cover. The most difficult of the rules is, however, that which says that the broker acts as the agent of the assured in placing insurance but is remunerated by the insurer for finding the business. The rule has raised eyebrows but remains intact, and indeed under the Financial Services Authority Handbook a broker is not required to disclose the amount of his commission to a consumer and need only do so at the request of a commercial assured. The legality of this has been tested before Reyes J in the Hong Kong Court of First Instance in Hobbins v Royal Skandia Life Assurance Ltd and Anr [2012] HKCFI 10, and has survived.

In Sealion Shipping Ltd v Valiant Insurance Co (The Toisa Pisces) [2012] EWHC 50 (Comm), Blair J determined issues of: (i) the materiality of non-disclosures; (ii) the meaning of ‘want of due diligence’ in the context of a policy of marine insurance; and (iii) the application of an excess clause to a period of delay. The decision is considered by Justin Fenwick QC and Lucy Colter of 4 New Square.

In Standard Life Assurance Ltd v ACE European Group and Ors [2012] EWHC 104 (Comm), Eder J has rejected insurers’ arguments that the action of Standard Life Assurance Ltd (‘SLAL’) in putting money into an investment fund (the value of which had fallen sharply after the collapse of Lehman Brothers) so as to head off claims by investors was not recoverable under the ‘Mitigation Costs’ clause of its professional indemnity insurance policy because the payment was also made to avoid damage to the SLAL brand. The case is discussed by Jeremy Stuart-Smith QC and Clare Dixon of 4 New Square.

The rules which govern the jurisdiction of the English courts where the defendant is domiciled in an EU country, as laid down in European Council Regulation (EC) No 44/2001, the Brussels Regulation, are modified in the case of matters relating to insurance. The broad effect of those rules is that the insurers are confined to suing the assured in the place of his domicile, whereas the assured can sue the insurers in either the place of his own domicile or that of the insurers. Any agreement to restrict those rights is void unless made after the dispute has arisen. In Sherdley and Anr v Nordea Life and Pension SA [2012] EWCA Civ 88 the Court of Appeal confirmed that an exclusive jurisdiction clause in the policy infringes the rights of the assured, although the outcome was unfortunate for the assured in that by the time the action had been brought the assured’s domcile had changed from Wales to Spain and it was no longer possible for the assured to rely upon English jurisdiction.

Liability policies restrict the scope of their coverage to losses arising out of particular activities carried on by the assured. In Lane v Dive Two Pty Ltd [2012] NSWSC 104 the main question for the Supreme Court of New South Wales was whether the injuries inflicted by the assured on a third party arose from an activity connected with the assured’s business. The case also raised the scope of an exclusion for criminal activity and the potential fallback liability of brokers for failing to obtain proper cover.

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 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 Financial Services and Markets Act 2000 requires persons carrying on insurance business in the UK to be authorised to do so by the Financial Services Authority. General (non-life) business is divided into 18 classes, as set out in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 SI 2001/3544, and authorisation is required if the business falls into any of the relevant classes. The question in Digital Satellite Warranty Cover Ltd v Financial Services Authority [2011] EWCA Civ 1413 was whether the applicant company was carrying on insurance business of one or more of the specified classes without authorisation. At first instance Warren J ruled that this was the case and that it was appropriate to grant a winding up order to the FSA on that basis. This was an appeal against that decision.

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.