Preliminary and jurisdictional considerations in insurance litigationFora
In what fora are insurance disputes litigated?
In Ireland, the jurisdiction in which court proceedings are brought depends on the monetary value of the claim. The District Court deals with claims up to a value of €15,000 and the Circuit Court up to a value of €75,000 (€60,000 for personal injury cases). Claims with a monetary value in excess of the Circuit Court jurisdiction are heard by the High Court, which has an unlimited monetary jurisdiction.
The High Court has a specialist court, the Commercial Court, which deals exclusively with commercial disputes. Proceedings are case-managed and tend to move at a much quicker pace than general High Court cases; the average time from entry into the list to full hearing varies between one week to six months depending on the time required for hearing. Entry to the list is at the discretion of the judge and may be refused if there has been any delay. Insurance and reinsurance disputes can be heard in the Commercial Court if the value of the claim or counterclaim exceeds €1 million and the court considers that the dispute is inherently commercial in nature.
The Commercial Court judges place a strong emphasis on mediation and the Commercial Court Rules provide for up to a four-week stay of proceedings to allow the parties to consider mediation.
Insurance disputes before the courts in Ireland are heard by a judge sitting alone and not a jury.
If an insurance contract contains an arbitration clause, the dispute must be referred to arbitration. However, there is an exception for consumers, who are not bound by an arbitration clause in an insurance policy if the claim is less than €5,000 and the relevant policy has not been individually negotiated.
The Financial Services and Pensions Ombudsman (FSPO) is a statutory officer who deals independently with unresolved complaints from consumers about their individual dealings with all financial service providers, including insurers. The FSPO has broad powers and may direct insurers to: pay compensation up to a maximum of €250,000; change their practices in the future; and rectify the conduct complained of (for example, requiring the insurer to pay a disputed claim).Causes of action
When do insurance-related causes of action accrue?
For actions in contract, the cause of action accrues on the date of the breach (and not when the damage is suffered). The general position under Irish law is that claims for breach of contract must be brought (by issue of proceedings) within six years of the date on which the cause of action accrued (section 11(1)(a), Statute of Limitations Act 1957).
Where a complaint is made to the FSPO, the FSPO does not generally have jurisdiction to investigate complaints where the conduct complained of occurred more than six years before the complaint is made. However, if the complaint relates to ‘long-term financial services’, namely products or services where the maturity or term extends beyond five years and one month, or life assurance policies not subject to annual renewal, the six-year rule does not apply. The limitation period for such long-term financial services is: (i) six years from the date of the act or conduct giving rise to the complaint; (ii) three years from the earlier of the date on which the consumer became aware of the said act or conduct or ought to have become aware; or (iii) such longer period as the FSPO may allow where it is just as equitable to extend the period.Preliminary considerations
What preliminary procedural and strategic considerations should be evaluated in insurance litigation?
The strategic considerations will vary depending on the nature of the dispute, the parties involved and their relationship.
Where an insurer seeks to decline cover of a claim or avoid a policy, the declinature or avoidance letter will be a key proof in any subsequent litigation and should therefore be drafted carefully. Timing is also critical. An insurer should not use the same lawyers to provide coverage advice and to defend the claim under a reservation of rights.
Before commencing any proceedings, the contractual documentation should be reviewed, and in particular jurisdiction and choice of law clauses, to identify the appropriate jurisdiction and forum for the dispute. If the contract contains an arbitration clause, the dispute must be referred to arbitration. The contract may also stipulate an alternative form of dispute resolution such as mediation.
In general, consideration should also be given at the outset to the availability of evidence and witnesses.
It is usual practice in Ireland for a pre-action letter to be sent before proceedings are issued, as there is a potential for costs exposure in not having done so.
It should also be noted that the Mediation Act 2017 requires solicitors to advise their clients of the merits of mediation as an alternative dispute resolution mechanism in advance of issuing court proceedings. In addition, in order to issue proceedings, the Act requires the solicitor to swear a statutory declaration confirming that such advice has been provided and this declaration must be filed with the originating document in the relevant court office.Damages
What remedies or damages may apply?
The remedies available to an insurer depend on the breach.
In case of a breach of the duty of utmost good faith, the remedy is to declare the contract void. Under the Marine Insurance Act 1906, this remedy is available for non-disclosure (section 18) or material misrepresentation (section 20) by the insured. However, avoidance is generally considered to be a draconian remedy and the Irish courts have traditionally been reluctant to uphold avoidance with the result that insurers can be left without an effective remedy. An insurer is not entitled to decline cover of the claim in lieu of avoidance, unless the relevant policy contains an innocent non-disclosure clause to this effect.
The Irish courts are willing to uphold policy avoidance for material non-disclosure where the proposal form is clear and unambiguous and the proposer’s duty to disclose is not qualified by reference to answering the questions in the proposal form to the best of the proposer’s knowledge.
The remedy for breach of warranty (including basis of contract clauses) is repudiation; however, warranties are construed very strictly.
Breach of a condition precedent to cover entitles insurers to decline cover of a claim without a requirement to demonstrate prejudice, whereas breach of a condition that is not stated to be a condition precedent to cover entitles the insurer only to damages.
Normally, damages are an adequate remedy for breach of an insurance policy. However, if damages are deemed neither adequate nor appropriate, the law of equity may intervene and the court may grant the remedy of specific performance.
Unless the contract provides otherwise, the general actions for breach of contract are available to the insured. Accordingly an insured would have an action for damages arising from the failure of the insurer to pay a valid claim.
The Consumer Insurance Contracts Bill 2017, which was published on 20 January 2017, proposes amendments to the law relating to consumer insurance contracts (although the proposed definition of consumer is broad). There is no clear timeline for its implementation. It is based on recommendations made by the Law Reform Commission in its report on Consumer Insurance Contracts in 2015 and largely mirrors the provisions of the draft bill proposed in this report.
The bill provides for the following:
- the pre-contractual duty of good faith is abolished;
- avoidance of an insurance policy will no longer be the main remedy. In cases of non-disclosure and misrepresentation, the principal remedy will be damages in proportion to the failure by the insured (however, avoidance is retained for fraudulent breaches on public policy grounds);
- warranties (including basis of contract clauses) are abolished and replaced with suspensive conditions; and
- a consumer will be entitled to seek damages where an insurer unreasonably withholds or unreasonably delays in making a payment for a valid claim.
Under what circumstances can extracontractual or punitive damages be awarded?
The Irish courts occasionally award punitive or exemplary damages on public policy grounds. The Irish Supreme Court has confirmed that exemplary damages can be awarded where the damage caused was deliberate and malicious, and calculated to unlawfully cause harm or gain an advantage. The award of damages must be proportionate to the injuries suffered and the wrong done.
Exemplary damages are insurable in Ireland. The Law Reform Commission considered this issue in a report published in 2000 (‘[a]ggravated, exemplary and restitutionary damages’) and considered that public policy considerations in favour of prohibiting insurance for exemplary damages were not sufficiently strong to necessitate legislation in this area. It is therefore a matter for individual insurance companies whether they choose to expressly exclude exemplary damages from cover.