Preliminary and jurisdictional considerations in insurance litigation

Fora

In what fora are insurance disputes litigated?

In England and Wales, insurance disputes are litigated in the following fora of the civil courts:

  • county courts;
  • High Courts;
  • the Court of Appeal; and
  • the UK Supreme Court (although only on appeal from either the High Court or the Court of Appeal).

Claims with a value of more than £100,000 can generally be issued in the High Court in the first instance, otherwise appeals may be heard here from the relevant county court. If the dispute in question involves particularly complex insurance or reinsurance issues, then it may be heard in the Commercial Court (a specialist part of the Queen’s Bench Division). Judges in the Commercial Court have extensive experience specific to the disputes over which they preside. Disputes that require financial market expertise will likely be heard in the Financial List of the Commercial Court.

It is commonplace for a reinsurance contract to contain an arbitration clause. If correctly drafted (and therefore enforceable), the parties will have to resolve their dispute via arbitration, which may be conducted under ad hoc rules or those of a particular arbitral institution.

It is important to note that a reinsurance contract may also require the parties to submit their dispute to another dispute resolution mechanism before litigation or arbitration; for example, submission to a reinsurance mediator. The English court will also encourage parties to attempt alternative dispute resolution (most often mediation) before litigating; failure to do so may result in costs penalties.

Causes of action

When do insurance-related causes of action accrue?

The general rule is that a claim for breach of contract must be brought within six years of the accrual of the cause of action. This will in most cases be six years from the breach, but this is obviously harder to ascertain with insurance policies.

With regard to liability policies, the right to indemnity is triggered when the liability is ascertained, which may be in the form of an agreement, an award or a judgment. With property, marine or life policies, the cause of action will be deemed to be when the event occurs.

Preliminary considerations

What preliminary procedural and strategic considerations should be evaluated in insurance litigation?

The following should be considered at the outset of an insurance dispute:

  • limitation: you should ensure that, if acting for the claimant, that the claim is within the limitation period (see question 2);
  • the dispute resolution clause and choice of law: it is very important to consult the policy wording, to see what method of dispute resolution is provided for, and under which law. It is common for insurance disputes to be arbitrated, and for this to be reflected in the policy;
  • pre-action steps such as protocol compliance and mediation: insurance disputes rarely call for onerous pre-action steps, but it is worth checking to avoid being penalised. The court will certainly want to see evidence that the parties have first attempted mediation;
  • time and cost: the English court system requires a certain level of front loading of court costs, which should be considered at the outset of a dispute. There will likely be at least a year between commencing a claim and the trial. The winning party may be able to redeem most of their costs from the other side after judgment;
  • disclosure: disclosure is quite an onerous obligation in the English legal system, as parties must disclose documents that both help, and are adverse to, their case. As a result, this can be quite a timely and expensive process;
  • appeals: the right to appeal a decision is not automatic in every venue in the English court, and can be at the judge’s discretion. In addition to this, an appeal can take up to a year to execute, which usually has serious cost implications for both parties. Arbitration typically carries little scope of appeal;
  • confidentiality: it’s important to bear in mind that, unlike arbitration, litigation in the English courts is public (unless there is very good reason for it not to be);
  • mitigation: the party seeking to prove they have suffered a loss is under a duty to mitigate said loss. If this is not done, then any compensation awarded may be reduced as a result; and
  • commercial relationships: it’s important to consider at the outset of a dispute whether litigation is the best course of action. It can irrevocably damage any continuing business relationship between parties, and so negotiation or mediation may sometimes be a better way forward.
Damages

What remedies or damages may apply?

For the insured

The insured will most likely want a fully and timely indemnity as allowed for by the policy. In a departure from historical treatment of late payment, the Enterprise Act 2016 introduced an implied term in insurance contracts whereby insurers must pay sums ‘within a reasonable time’ (although this can be contracted out of in non-consumer contracts). A breach of this implied term will give rise to a claim for damages. The insured must bring a claim for late payment within one year of payment by the insurer.

For the insurer

The insurer will most likely want a declaration of non-liability for the claim in question. Before the Insurance Act 2015 (the Act) came into effect, the main remedy for an insured’s breach was avoidance of the claim (if the breach was of a warranty or a condition precedent, or in the case of material non-disclosure). Since August 2016 (when the Act came into force), however, the remedies available to the insurer have been altered. The Act applies to consumer contracts (save for Part A). It will also apply to non-consumer contracts, to the extent that its provisions (all but the section prohibiting basis clauses, which will apply regardless) are not contracted out of by the parties. The new remedies are as follows:

  • a breach of warranty will now suspend the policy, rather than avoiding it, and so the insurer will continue to be liable if the breach is remedied before the loss occurs. This is because, under the Act, all warranties have become ‘suspensive conditions’. It is also worth noting that all basis of contract clauses (where pre-contractual representations are converted into warranties) are now prohibited, and parties are not able to contract out of this position; and
  • the duty of disclosure now falls within a wider duty on the insured to provide insurers with a fair representation of the risk. If a breach is not deliberate or reckless, then the aim will be to put the insurer in the position that it would have been in had there been fair disclosure as follows:
    • where the insurer would have declined the risk, the policy can be avoided;
    • where the insurer would have accepted the risk but with additional contractual terms, the contract will be treated as if such terms were included; and
    • where the insurer would have charged a greater premium, the claim will be scaled down proportionately.

Under what circumstances can extracontractual or punitive damages be awarded?

The general rule is that extracontractual or punitive damages will almost certainly not be awarded for breach of contract under English law. The court may award simple interest as provided for by the Supreme Court Act 1981.