Liability insurance

The insurers’ liability for settlements

It has been settled law for a number of years that the assured under a liability policy is entitled to seek an indemnity from his insurers from the point at which his liability to a third pary has been established and quantified. This can happen in one of three ways: the assured can be sued to judgment; the assured can be subject to an arbitration award; or the assured might have entered into a binding settlement contract with the third party. The leading authority on the point is Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363, and this has been followed on a number of occasions. Judgments and arbitration awards give rise to comparatively little difficulty in themselves, although there may be issues as to the assured’s compliance with notification and negotiation conditions and there is authority for the proposition that an assured, who is the victim of a perverse judgment/award or one not properly defended, cannot rely upon it against his insurers (see Commercial Union Assurance Co v NRG Victory Reinsurance Ltd [1998] 2 Lloyd’s Rep 600 ). Colman J in Lumberman’s Mutual Casualty Co v Bovis Lend Lease Ltd [2004] EWHC 2197 (Comm) considered at length the effect of a settlement on insurers, and reached the somewhat surprising conclusion that a global settlement which does not attempt to allocate amounts to individual claims is of no effect.