Insurance Law Monthly

The sanctions imposed upon Iran by reason of the refusal of that country to comply with international requirements on its use of nuclear materials have now led to two cases in which insurers have sought to cancel cover for fear of infringing the sanctions. The issue in Arash Shipping Enterprises Co Ltd v Groupama Transport [2011] EWCA Civ 620 was the effect of the sanctions on a self-renewing policy.

The ambit of the post-contractual duty of utmost good faith is uncertain in its scope but, at least as far as the assured is concerned, establishing breach by the insurers is likely to be of little value after a loss has occurred because the only remedy is avoidance ab initio. In Stansfield Group Pte Ltd v Consumers’ Association of Singapore [2011] SGHC 122 various ingenious attempts to find an alternative basis for a duty whose breach would give rise to damages were waved away by Judith Prakash J.

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.

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 decision of the Victoria Supreme Court in Leading Synthetics Pty Ltd v Adroit Insurance Group Pty Ltd [2011] VSC 467 deals with a number of points of interest both generally and in relation to credit policies. The general issues are whether a contract existed and whether it had been brought about by non-disclosure; the specific point was whether a policy came into effect where the customer whose account was protected was in debt at that stage.

A policy of insurance is renewed from year to year. In the first year broker A negligently includes an inappropriate term, which significantly reduces the protection given to the insured. That term is reproduced in later years without any further thought being given to it, either by broker A or by his successor, broker B, who has replaced broker A by the time of the placing of the policy which is in force when the problem comes to light. Is broker A, the original source of the problem, liable for the loss? This was the main question which Christopher Clarke J had to answer in Beazley Underwriting Ltd and Ors v The Travelers Companies Inc [2011] EWHC 1520 (Comm). The case is discussed by Mark Cannon of 4 New Square.

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 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 equitable principle of contribution, as it applies to insurance, ensures that if there are two insurers both liable for the same claim then payment by one insurer can be recouped from the other so that they bear their loss in respective proportions. Contribution has a number of anomalies, and certain issues remain unresolved, but recent decisions, particularly from the Australian courts, have made it clear that contribution applies as long as both policies are required to respond to the loss even though the policies are different in nature and scope. The decision of the High Court of Australia in HIH Claims Support Ltd v Insurance Australia Ltd [2011] HCA 31 recognises a restriction on contribution, and that is that each party must have a contribution claim against the other: if for whatever reason, one insurer is immune from a contribution claim, then the mutuality requirement is a bar to its own contribution claim.