This case arose from an underlying claim by a company called Mploy against Denso, which resulted in an adverse costs order against Mploy.
Mploy went into liquidation and its rights under an ATE insurance policy were assigned to Denso under the Third Parties (Rights against Insurers) Act 1930. Denso offered to accept £210,000 in respect of its costs on the basis that it would seek detailed assessment in the absence of response. Mploy’s liquidators failed to pass this offer onto the ATE insurers for two months. They also failed to pass on two subsequent chasers, notify insurers that detailed assessment had been commenced or to respond to the offer, which resulted in Denso obtaining a costs order for £300,000.The interesting issues in this case concern the court’s consideration of the conditions precedent in the policy.
The insurers refused to indemnify Denso, relying on the following breaches of contract:
- There had been a breach of a condition precedent requiring Mploy to cooperate in claims and provide information. Specifically, the policy required the insured to “advise [insurers] in writing as soon as an offer to settle... is made”.
- There had been a breach of a condition precedent to pay premium.
- Cover was excluded by the application of five separate exclusions in the policy.
Denso denied that the conditions requiring the insured to cooperate and to provide information were conditions precedent to liability or that it had breached them. Rather, it argued, the clauses in question were general statements of expectation requiring cooperation. The judge rejected this argument, finding that clauses of this type were “commercially vital” to this kind of policy. The judge also held that Mploy had indeed breached the condition precedent by failing to pass on the offer for two months, failing to pass on the chasers and failing to notify the insurers that detailed assessment had been commenced.
As to point 2, the policy provided that premium was to be paid in the event that the insured was successful or partially successful in the proceedings. In this case, Mploy had been awarded damages of £34,000, having rejected a Part 36 offer of £600,000, hence the adverse costs order. The judge held that the definition of success in the policy made no reference to costs liability exceeding the damages award, and on that basis Mploy had been partially successful. However, the judge went on to find that the requirement to pay premium was not a condition precedent, and in any event, insurers had not properly demanded the payment of premium. They were therefore not entitled to deny the claim by reason of a breach of this condition.
The judge also found in favour of the insurers in relation to their arguments on two policy exclusions, which excluded cover for costs incurred or increased as a result of the insured’s failure to (a) mitigate its liability or (b) cooperate with insurers. These exclusions acted as backstop to the conditions precedent described above.
Whilst the Insurance Act 2015 has sought to soften the impact of certain classes of clauses where a breach is not causally related to a loss, it is important to note that section 11 of the Act does not apply to clauses such as those dealt with by this case, which do not “tend to reduce the risk of... loss”.