A summary of recent developments in insurance, reinsurance and litigation law.

Gard Marine & Energy v China National Chartering: Supreme Court decides by 3:2 majority that insurer had no rights of subrogation because of clause in the underlying contract between the co-insureds


The first instance and Court of Appeal decisions in this case were reported in Weekly Update 32/13 and 4/15 respectively. The owners of a vessel had entered into a demise charter which provided that joint insurance would be taken out for the benefit of the owners and the demise charterers (with the premium being paid by the demise charterers). When the vessel became a total loss, the insurers paid and sought to bring an assigned claim against a third party to whom the vessel had been time-chartered by the demise charterers (based on the breach of a safe port warranty). Clause 12 of the charterparty between the owners and the demise charterers provided that the demise charterer would pay for the hull insurance, which would be taken out in their joint names. Clause 13 of the charterparty had provided that the owners would pay for the insurance and expressly provided that insurers would have no rights of subrogation against the demise charterer, but that clause had been deleted by the parties.

At first instance, it was held that insurers could bring a subrogation claim because Clause 12 did not provide a complete code for the treatment of insured losses. The Court of Appeal held that there had been no breach of the warranty but went on to find (obiter) that clear words would be needed to exclude the conclusion that if a loss occurs as a result of a breach of contract or negligent conduct on the part of the party who pays the premium, the insurer cannot use the name of the "innocent" party to sue the "guilty" party once the insurer has paid for the loss.

The Supreme Court has now held that there was no breach of the safe port warranty and, by a majority of 3:2, held (again, obiter) that there could be no subrogation against the time charterers.

The Supreme Court agreed that an insurer cannot bring a subrogated claim against a co-insured: "It is well established…that, where it is agreed that insurance shall inure to the benefit of both parties to a venture, the parties cannot claim against each other in respect of an insured loss". However, Lord Clarke and Lord Sumption believed that that is not because the policy itself excludes a liability to pay damages by a co-insured (and so a co-insured has nothing to recover from its third party agent that caused the damage). Instead, the insurer's payment satisfies any liability to pay damages as between only the co-insureds themselves, thus still leaving open the possibility of a subrogation claim against the third party (who was not a party to either the policy or the agreement between the co-insureds). Accordingly, they found that the insurer could still bring a subrogated claim against the time charterers (Lord Clarke further finding that the insurers could have brought against a subrogated claim against the demise charterers, because such a claim was not expressly excluded under Clause 12, and Clause 13, which did provide such as exclusion, had been deleted).

However, Lords Mance, Lord Hodge and Lord Toulson agreed that Clause 12 provided a comprehensive scheme. Lord Mance held that the inability to bring a subrogated claim against a co-insured "is now best viewed as resting on the natural interpretation or, or implication from, the contractual arrangements giving rise to such co-insurance". Lord Toulson held that the key question in each case is "whether the parties are to be taken to have intended to create an insurance fund which would be the sole avenue for making good the relevant loss or damage, or whether the existence of the fund co-exists with an independent right of action for breach of a term of the contract which has caused that loss. Like all questions of construction, it depends on the provisions of the particular contract". Here, it was clear that "The insurance arrangements under clause 12 provided not only a fund but the avoidance of commercially unnecessary and undesirable disputes between the co-insureds". He left open the possibility of the demise charterers being able to bring a claim against the time charterers.

COMMENT: For some time there has been uncertainty as to the basis for the general principle that a subrogated claim cannot be brought by insurers against a co-insured. This decision makes it clear that the parties must look to the underlying contract between the co-insureds and whether the co-insureds had (on the particular facts of the case) thereby agreed to look to insurers for indemnification in the case of a loss (even in the absence of express wording to the effect). One issue which did not arise for consideration, because no breach of warranty was established, is whether that principle still applies where the co-insured against whom subrogation is sought caused the loss in question or was in some way blameworthy.

A further point to note is that insurers may not necessarily know what the terms of a contract entered into by the co-insureds are, and so may be unaware that the co-insureds have thereby effectively excluded the insurers' rights of subrogation against them. Accordingly, insurers may wish to address this point either through express wording in the policy or by seeking disclosure of the co-insureds' agreement when underwriting the risk.

Sun Alliance (Bahamas) Ltd v Scandi Enterprises: Privy Council rules that a CAR policy was not a valued policy


Under a valued policy, an insured will recover the agreed value, irrespective of its actual loss. However, if the policy is unvalued, then the insured must prove its loss in accordance with the usual indemnity principle (and the sum insured will be the maximum sum recoverable). In issue in this case was whether the policy issued to the insured was a valued policy.

When the insurer refused to provide property insurance for a property which was being renovated (because the building was unoccupied), the insured was instead issued with a Contractors' All Risks ("CAR") policy, which expressed that the "sum insured" for the "Contract Works" (ie renovation works) was B$700,000. At first instance (in the Bahamas), it was held that the building (as opposed to the works) was not insured. That was because the policy covered the "Contract Works", but at the time of the fire at the property, almost no works had been carried out and the damage related entirely to the pre-existing building, which was not part of the insured property (see Rowlinson Construction Ltd v Insurance Co of North America [1981], where it was held that a retaining wall was not part of the “permanent works” at the site because the contractor had no intention of rebuilding it). The judge further held that the policy was not a valued policy and so the insured had to prove its actual loss (which it had failed to do).

The Court of Appeal of the Bahamas allowed the appeal from that decision, finding that the "Contract Works" were not limited to the renovations because the sum insured of B$700,000 was too large and the premium the following year would have remained the same, when the works would have been completed. The Privy Council has now allowed the appeal from that finding.

The Privy Council held that where the express language of the policy is clear, it has the "strongest reservations" that the matters taken into account by the Court of Appeal were admissible. In any event, they were irrelevant, because "if material of this kind is to be admitted, it must be admitted in its entirety". Accordingly, the building itself was not insured under the policy.

Although the Privy Council did not therefore need to consider whether the policy was a valued policy, it chose to do so "in order to avoid misconceptions on the point in future cases". The Privy Council went on to state that "an agreed value is unlikely to be a practical proposition in a CAR policy, where the property is contract works whose value will necessarily increase over time, and where the values at risk will depend on how far the works have advanced when the casualty occurs". In any event, it was said to be clear that the figure of B$700,000 here was not an agreed value, but merely the maximum sum insured: "This is confirmed, so far as confirmation is required, by clause 5 of the general conditions, which requires the insured to specify the amount of loss attributable to each item damaged or loss".

COMMENT: In its judgment, the Privy Council gave support to the decision in Rowlinson Construction Ltd v Insurance Co of North America, in which the court adopted a literal interpretation of a policy even though that interpretation was "harsh and technical" and "rendered the policy of little use to the assured" (see Colinvaux & Merkin's Insurance Contract Law, para B-0278).

Weir Services Australian Pty Ltd v AXA Corporate Solutions Assurance: New South Wales court rules on Australian local and English global policy issues after insured entered into "cap and collar" settlement agreement


An insurer issued, broadly, two types of policies to the insured: global liability policies issued in England covering companies in the insured's group, including an Australian subsidiary (which were subject to English law) (collectively, "the Global Policy"), and a "broadform" liability policy issued in Australia in favour of the insured's Australian subsidiaries (and subject to the laws of New South Wales) ("the Australian Policy").

An insured Australian subsidiary reached a "Cap and Collar" Agreement with a third party claimant (the insurer did not give its consent to this agreement). This provided, broadly, that the parties were to await the findings of the tribunal but that in any event the insured Australian subsidiary would pay a minimum sum to the third party claimant (“the Collar”); and (ii) the insured Australian subsidiary’s liability would be capped at a maximum sum (“the Cap”); and (iii) each party would bear its own costs of the arbitration in any event. The tribunal dismissed the third party claimant's claim and so the final award was nil. The insured then sought to recover its USD 2 million payment and the costs of the arbitration from the insurer.

In an earlier decision (see Weekly Update 14/16) Blair J had concluded that England was the appropriate forum to hear the claim under the Global Policy but declined to grant an anti-suit injunction to restrain the Australian proceedings insofar as they related to the Global Policy. A judgment in the Australian proceedings has now been handed down. Hammerschlag J has dismissed the claim under both the Australian Policy and the Global Policy:

(1) The Australian Policy: Although in certain circumstances under Australian law the insured is permitted to rely on a reasonable settlement as against its insurer as establishing the existence and quantum of a liability, the judge held that the "Cap and Collar" Agreement had allowed for significantly varying outcomes and so "it is difficult to see how it could be said that the highest, lowest and anything in between was the combatants' reasonable assessment of the same potential liability". Therefore the judge confirmed that in this case the agreement between the insured and the third party claimant without the insurer's consent (i.e. the Cap and Collar Agreement) was not a " reasonable settlement agreement" and did not bind the insurer. Since the liability of the insured was not established here (by either the arbitral award or the terms of a reasonable settlement agreement), the insurer's denial of liability was not a breach of the policy. Furthermore, the judge found that there had not been an "occurrence" which triggered the policy and finally that the insured was not entitled to recover its defence costs because of the policy's Professional Services exclusion.

(2) The Global Policy: General Condition 3 of this policy provided for notification of a circumstance that may give rise to a claim as soon as reasonably practicable and there was a Due Observance clause which provided that "the liability of the Insurer will be conditional on the due observance by the Insured of the…conditions of this Policy insofar as they relate to anything to be done or complied with by the Insured".

The judge accepted the insurer's argument that General Condition 3 was therefore a condition precedent and that the insurers had no obligation to pay because it had been breached on the facts of the case. The judge noted that there is no equivalent of section 54 of the Australian Insurance Contracts Act 1984 (which prevents reliance on the breach of a condition such as General Condition 3 in the absence of prejudice to the insurer) under English law.

In addition, it was held that it had not been established that the third party claim would have fallen within the scope of the policy. At no point had the insurer approved the Cap and Collar Agreement, or agreed that it represented the insured's actual liability to the third party claimant. Nor were insurers estopped from relying on the insured's failure to prove liability: there had not been any representation or common assumption that the insurer would accept the settlement as representing the insured's actual liability. Nor had there been any agreement by the insurer to the incurring of defence costs by the insured and so they were not covered either. It was also considered that none of the insuring provisions in the sections of the Global Policy had been satisfactorily triggered.

ICICI Bank v Mehta: Whether delay fatal to application for a freezing injunction and requirements for an "anchor defendant"


Various issues arose in this case regarding the continuation of worldwide freezing orders against the defendants. One of the issues was whether delay by the applicant was fatal to the application. The respondent had received a formal demand threatening asset seizure in July 2016 and was notified that a claim form had been issued against her in August 2016, but no application for a freezing order was made in England for a further 7 months (settlement discussions having taken place during this time). HHJ Waksman QC noted that delay alone will not usually prevent the grant of a freezing order if the court is satisfied that there is still a real risk of dissipation. However, on the facts here, the judge found that a risk of dissipation could not be proven "on the simple basis that if Mona did really pose a such a risk, or the Bank thought that she did, it is somewhat odd that it took no earlier step to secure its position; it could still have negotiated with her afterwards".

A further issue in the case related to Article 8(1) of the recast Brussels Regulation which provides that a person domiciled in a Member State may also be sued "where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together". In Bord Na v British Polythene [2012] Flaux J held that, if (contrary to his decision) the claim against the "anchor defendant" had been struck out, he would have concluded that jurisdiction against the other defendants under Article 8(1) could not be maintained. Applying that decision here, HHJ Waksman QC concluded that there was a properly arguable case against one of the anchor defendants here (and the applicant need only find a real prospect of success against one anchor defendant) and so jurisdiction under Article 8(1) was satisfied. The same position would have applied had it been concluded that this fell under the common law rather than the recast Regulation.

COMMENT: This case reflects the decision in Anglo-Financial v Goldberg (see Weekly Update 37/14) where the claimant was refused a freezing injunction, in part because it had delayed by entering into lengthy negotiations to seek payment from the defendant. However, it also recognises that whether or not delay is relevant to a freezing order application will depend on the particular circumstances of the case.