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

Miley v Friends Life: Judge considers meaning of "investment" income in a form submitted to support a claim under an income protection policy


The claimant sought to claim payments from the defendant insurers under an income protection insurance policy. Much of the case turns on its particular facts and whether the claimant was faking, or significantly over-stating, the seriousness of his illness. The judge concluded that he was not. In reaching that conclusion, he commented on the volume of evidence adduced by the insurers to support their allegations as follows: "there is a risk in cases such as this that too close a scrutiny of the trees risks losing sight of the wood. With each, and ever more closely observed, layer of inspection and analysis, the law of diminishing returns takes a heavier toll. It is for this reason that I have resisted the temptation to rehearse and resolve every issue of primary fact which has arisen; concluding that the demands of both justice and clarity are best served by an analysis involving a more generic and broader textured approach".

One other issue which arose in the case was whether the insurer was entitled to avoid the policy on the ground of misrepresentations made by the claimant concerning his income from other sources during the period when he was receiving payments under the policy (Weekly Update 24/17 reported an earlier decision in this case and referred to Clause 5 of the policy, which provided that "if in connection with the happening or purported happening of any event insured by this Policy, the Member makes an untrue statement…or omits to disclose a Material Fact, the cover provided by the Policy…will immediately become void.." The state of mind required of the assured under common law for a breach of the post-contractual duty of utmost good faith is unresolved by prior caselaw).

The claimant was required to complete financial review forms whilst receiving payments under the policy in order to ensure that he did not receive more than 75% of his pre-incapacity earnings. The forms advised that "income from investments may be ignored". The claimant had declared that he was not receiving any other income. During the relevant time, he had received "restricted stock awards" ie shares which were subject to various restrictions.

The issue was therefore whether sums received under the restricted stock agreements were "income from investments". The insurer sought to argue that they were not, since they were part of his employment remuneration. Having reviewed the dictionary definition of "investment" and prior caselaw commentary (that this is a "vague term"), the judge concluded that the sums were income from investments. Although they were originally part of his remuneration package, "When it was vested in the claimant it gave rise to income from an investment".

Accordingly, the judge was not required to determine the claimant's state of mind, although he did appear to suggest that an innocent mistake might not have allowed the insurer a defence, since he said: "In any event, I am not satisfied that, even if the defendant's interpretation of the form were correct, the claimant provided deliberately fraudulent information when filling it out".

Squibb Group v Pole 2 Pole: Claimant refused extension of time to appeal an arbitral award where payment of arbitrator's fees was delayed


The claimant applied for an extension of time to appeal against an arbitration award under section 69 of the Arbitration Act 1996. The claimant had failed to apply for permission to appeal the award within the 28 day time limit provided for by section 70(3) of the Act. The award was only released to the parties after the 28 day time limit had expired, because the claimant had failed to pay the arbitrator's fees before then. This case is therefore similar to that of Rollitt v Ballard, reported in Weekly Update 24/17, although there it was the side which was not challenging the award which had refused to pay the arbitrator's fees. In that case the judge had found that there was no reasonable explanation for the delay and so the application to extend time was refused.

The same conclusion was reached in this case. The judge further found that "a very significant factor" in this case was the irremediable prejudice which the defendant would have suffered if the extension of time would have been granted. The defendant was a modest company with a turnover of £400,000, whereas the claimant's turnover was approximately £40 million. The award was for the "modest sum" of just under £100,000. As a result, it was held that any delay in enforcement of the award "would place considerable financial strain" on the defendant.

Berkeley Burke Sipp v Wayne Charlton: Court rules that a decision from the FOS is not an arbitral award


The applicant made an application for permission to appeal under section 69 of the Arbitration Act 1996. The decision in question was that of an Ombudsman of the Financial Ombudsman Service ("the FOS"). Section 6 of the Act defines an arbitration agreement as "an agreement to submit to arbitration present or future disputes".

Teare J held that the agreement between the applicant and the other party to the dispute did not meet that definition because the decision of the Ombudsman only becomes binding on the respondent to the complaint when the complainant accepts the decision (and if he chooses not to do so, he can instead bring a claim before the courts). That meant that the FOS "was not clothed with authority to determine the dispute …that suggests that the agreement they reached was not an arbitration agreement".

Nor was the applicant able to rely on section 58 of the Act, which provides that "Unless otherwise agreed by the parties, an award made by the tribunal pursuant to an arbitration agreement is final and binding both on the parties and on any persons claiming through or under them". That did not mean that it was not necessary for the agreement between the parties to clothe the arbitrator with authority to determine the dispute.

The words "unless otherwise agreed" were designed to encompass within the meaning of "arbitration agreement" those agreements, such as the one found in the Lloyd's Open Form of Salvage Agreement, which provide for a first tier arbitration panel and an appellate arbitration panel: "The first tier arbitrator cannot finally determine the dispute between the parties in the event that the appeal process is properly invoked. But the agreement remains an arbitration agreement because the dispute will be resolved by arbitration, either by the first tier arbitrator, in the event that there is no appeal, or by the appellate arbitrator, in the event of an appeal".

Michael Wilson v Sinclair: When a court will make an unless order if costs orders have not been paid


Various costs orders were made against the defendants (for example, the costs of a failed strike-out application). The issue in this case was whether the court should therefore make an unless order against them, so that if they failed to pay the costs due within 14 days, they would be debarred from defending the claim.

The judge summarised the principles applicable to an application for an unless order in these circumstances:

(1) When exercising its discretion, the court should bear in mind that such orders are intended to discourage irresponsible interlocutory applications (or resistance to successful interlocutory applications).

(2) The court should also bear in mind the potential applicability of Article 6 of the ECHR (right to a fair trial); whether the costs order can be enforced in a different way (unlikely where, as here, the defendants are not resident in the jurisdiction and have no assets here); and whether any submission was (or should have been) made that it would be inappropriate to make a costs order payable before the conclusion of the proceedings in question.

(3) If a party claims that he lacks the means to pay (and so the unless order will breach Article 6 or deny him justice), he must support that claim with detailed, cogent and proper evidence. The defendants in this case had failed to do that.

The judge noted that the defendants had been represented by experienced legal counsel when they made the strike-out application, and so it should be "readily inferred" that they must have appreciated the risk of a costs order being made. Nor was this a case of equitable set-off and so defaults by the claimant could not be taken into account: "there is no justification on the facts of this case for substituting a vague notion of fairness for the doctrinal requirements of equitable set-off".

Accordingly, the unless order was granted.