The English High Court, in Clare Horwood & Others v Land of Leather (In Administration) & Zurich Insurance PLC & Others [2010] EWHC 546 (Comm), held that Zurich did not have to pay compensation to customers who suffered burns from "toxic sofas" sold by the now-defunct Land of Leather. Zurich had refused to provide cover for the Land of Leather claims on the basis that the furniture company had breached a condition of its insurance policy by settling, without Zurich's consent, its claim against the supplier of the toxic furniture.

The key issue surrounded the interpretation of the claims control condition in the policy:

"The Insured shall not, except at his own cost, take any steps to compromise or settle any claim or admit liability without specific instructions in writing from the Insurer…but the Insurer shall for so long as they shall so desire have the absolute conduct and control of all proceedings in respect of any claims for which the Insurer may be liable…and may use the name of the Insured to enforce for the benefit of the Insurer…any claim for indemnity or damages against any third party".

The claimants argued that this condition only prohibited Land of Leather from settling claims made against it, not claims made by Land of Leather against a third party. Mr Justice Teare disagreed. He concluded that the wording giving Zurich control and conduct of "all proceedings", and the wording providing that the Insurer may use the name of the Insured not only to defend any claim but also make any claim for indemnity, resulted in the control of claims conferred on the Insured extending to not only claims against Land of Leather but also to claims by Land of Leather against others. He added that it would be absurd if the Insurer had control of proceedings commenced in the name of the Insured against others but yet the Insured was under no prohibition not to settle such claims.

Due to the breach of one of the fundamental terms of the policy, Zurich is now entitled to reject any "toxic sofa" claims, leaving hundreds of injured without any form of compensation. It remains to be seen whether this judgment will be appealed to the Court of Appeal.