There have been a number of significant cases in the English courts since the previous edition of The Insurance Disputes Law Review, including three recent decisions of the Supreme Court on matters as diverse as the interpretation of the scope of cover of a standard form motor vehicle policy, and the rights of third parties to access documents held by the courts. We summarise below the key recent cases in the order of the life of an insurance policy and claim, with recent cases extending or clarifying English law in areas including the interpretation of policy terms, notification, the parties to and jurisdiction over a claim, and the quantum of an insured’s loss. In addition, there have been two significant judgments in the field of claims under employers’ liability insurance arising out of asbestos-related diseases, where English law has evolved a bespoke set of principles to deal with the unusual causation problems that those claims raise. We also cover a case in the Scottish Court of Session, which is the first case in the United Kingdom to consider aspects of the new duty of fair presentation of the risk in the Insurance Act.
i Fair presentation of the risk
The Insurance Act replaced the insured’s duty to disclose all known material facts about the risk to be insured with a new duty to make a fair presentation of that risk. The scope of this new duty has yet to be considered by the higher English courts. However the Insurance Act applies to the entirety of the United Kingdom and, in Young v. Royal and Sun Alliance Plc, the Scottish Court of Session (Outer House) considered the effect of a question on a proposal form on the insured’s duty to disclose facts related to but not sought by the question in the context of the new duty to make a fair presentation of the risk. The Court of Session concluded that the Insurance Act had not altered the common law position that an insurer will only waive compliance by the insured with its duty to disclose where:
- the insured disclosed information that would prompt a reasonably careful insurer to make further inquiries and the insurer failed to do so; or
- the insurer asked a limiting question from which a prospective insured might reasonably infer that the insurer had no interest in knowing, and had waived, information falling outside the scope of that question
In Young, the Court of Session rejected the argument that a question in a proposal form seeking information on the insolvency history of the proposed insured company amounted to a waiver of the requirement on the proposed insured to disclose the insolvency history of other companies in which its principals had also been involved.
ii Interpretation of policy terms
The terms of an English law-governed insurance policy are to be interpreted in accordance with the ordinary principles of the English law of contractual interpretation, which require the words used in the contract to be given the meaning they would convey to a reasonable person with all the background knowledge available to the parties. Those principles were most recently restated in Wood v. Capita, which emphasised that contractual interpretation is a unitary exercise, in which the court must engage in an iterative process of balancing the indications given by the factual background and a close examination of the relevant language.
Two recent cases illustrate the flexibility that the English law of contractual interpretation still gives the English courts to resolve cases where a policy term cannot sensibly be given its literal meaning. In R&S Pilling t/a Phoenix Engineering v. UK Insurance Ltd, the Supreme Court was prepared to read an entire additional phrase into the coverage clause in a motor vehicle insurance policy so that it met the compulsory requirements of the Road Traffic Act 1988. The Supreme Court restated the principle in Chartbrook Ltd v. Persimmon Homes Ltd that a court may construe a different meaning to a commercial contract where it is clear that the parties could not reasonably have intended the meaning of the existing language. However, the Court reiterated that such a corrective construction will be a rare event and requires both the mistake and the intended meaning to be clear.
In Susan Plevin v. DAS Legal Expenses Insurance Company Limited and Miller Gardner Limited (in administration), in the context of an after-the-event legal expenses insurance policy, the High Court held that where standard-form policy terms and a policyholder-specific schedule contained contradictory terms, the more individualised term in the schedule should prevail over the standard-form policy wording. In doing so, the High Court considered that where policy terms are truly contradictory, rather than ambiguous, and contained in different policy documents, the contra proferentem principle of construction did not assist the Court in resolving the inconsistency. However, the Court acknowledged that where contradictory terms are contained in the same policy document, the principle may be applicable.
iii Notification of circumstances
In Euro Pools v. RSA, the Court of Appeal provided guidance on the approach to a claim where the court must determine under which policy a claim falls for cover following multiple notifications of circumstances. Euro Pools had two professional indemnity policies with RSA covering two consecutive years, and made notifications under both policy years in respect of certain faults with its installation of boom systems in swimming pools. Euro Pools subsequently claimed for the costs of mitigation works carried out on the boom systems under the later policy. RSA maintained that the mitigation works all fell for cover under the earlier policy, whose limits had been exhausted by other claims. In finding that the claims were notified to the first policy year, the Court summarised and synthesised the existing legal principles applicable to the determination of whether there has been a valid notification of a circumstance, and whether a particular claim is within the scope of that notification, as follows:
- provisions that deem claims to arise from notified circumstances are to be construed and applied with a view to their commercial purpose, namely to provide an extension of cover for all claims in the future that flow from the notified circumstance;
- a provision that refers to circumstances that ‘may’ give rise to claims sets a deliberately undemanding test, which only requires a possibility of claims in the future, not a likelihood;
- a notification need not be limited to particular events; insureds can give ‘can-of-worms’ or ‘hornet’s-nests’ notifications. The ambit of such notifications and the claims that are covered by them will depend on the particular facts and terms of the notification in each case;
- while an insured must be aware of the circumstance that it purports to notify, it does not have to know the cause of problem that has arisen, or the potential consequences thereof;
- for a claim to arise out of a properly notified circumstance, there must be some causal link between the notified circumstance and the claim, rather than a purely coincidental connection;
- in determining whether a particular communication is a notification, and its scope as such, the court applies conventional principles of interpretation; and
- whether a particular matter or event meets the threshold for notification as a circumstance in the relevant policy is not only a matter of the insured’s subjective knowledge, but also involves the objective estimation of the likelihood of a claim given that subjective knowledge.
iv The parties and jurisdiction
The English courts have recently considered a number of cases where the parties to the case were themselves at issue.
In Cameron v. Liverpool Victoria Insurance Co Ltd, the Supreme Court determined that a victim of a road traffic accident could not issue proceedings against an unknown defendant to access a motor insurance policy. The vehicle in question was insured under a policy issued to a fictitious person, which covered neither the registered keeper of the vehicle, nor the driver, who was never identified. Consequently, the victim had sought to issue proceedings against ‘the person unknown driving vehicle registration number Y598 SPS’. The Supreme Court held that the requirements in the English civil procedure rules for service of a claim reflected a fundamental principle of natural justice that a person cannot be made subject to the jurisdiction of the court without having sufficient notice of the proceedings to enable them to be heard. The Supreme Court identified limited (exceptional) circumstances to this principle, but held that an unidentifiable negligent driver was not one of them, as victims had alternative rights of recovery against the Motor Insurers’ Bureau.
The decisions in Zagora Management Ltd v. Zurich Insurance Plc and Aspen Underwriting Ltd v. Credit Europe Bank NV both concerned third parties to the relevant policies. In Zagora Management, the judge held that a party was not entitled to claim under a buildings policy simply because it had a freehold interest in the insured development. The High Court held that a contract of insurance is only a contract between the insurer and the named insureds, and that for a policy to extend to unnamed persons an express provision would be required making the intended extension clear.
In Aspen Underwriting a marine insurer sued a Dutch-domiciled assignee of, and loss payee under, the issued marine insurance policy for misrepresentation in relation to a settlement of a claim under the policy between the insurer and the insured assignor. The Court of Appeal held that the insurer could not rely on the English court jurisdiction clauses in either the policy or the settlement agreement to found jurisdiction in England, as the Dutch assignee was not a party to nor seeking to assert third-party rights under either contract. However, the Court of Appeal held that the English courts nevertheless had jurisdiction. While the Court held that the dispute was a ‘matter relating to insurance’ within the meaning of Chapter II of Section 3 of the Recast Brussels Regulation, which would otherwise require the insurer to sue the assignee in the Netherlands, it also held that, as professional ship financier, the assignee was not within a class of persons that merited the protection of those special rules such as to preclude the English Court taking jurisdiction. Instead, the Court of Appeal also characterised the misrepresentation claim as a matter relating to tort, delict or quasi-delict under Article 7(2) of the Recast Brussels Regulation and, as the settlement agreement was signed in England, held that the English courts had jurisdiction under that Article.
v Quantum of loss
In Sartex Quilts and Textiles Ltd v. Endurance Corporate Capital Ltd, the High Court clarified the principles applicable to the relevance of the insured’s intentions as to the insured property in considering the appropriate measure of indemnity under a property loss or damage policy. The High Court held that the court should look to all the circumstances, including the insured’s intentions not only at the date of loss but up to the date of trial. An insured cannot recover more than the actual loss arising from the insured peril, and thus the court is concerned to identify what available measure (reinstatement or market value) fairly and fully indemnifies the insured for his or her loss. The primary focus will be on its intentions for the property at the time of the loss. However, subsequent events, even those unforeseeable at the time of the loss, may show that the measure identified would overcompensate the insured, making an alternative measure more appropriate.
The Court also clarified the decision in Western Trading Ltd v. Great Lakes Reinsurance (UK) Plc, explaining that it does not indicate that an indemnity on a reinstatement basis cannot be given if the remedial works are not in fact carried out. The Great Lakes judgment simply envisages that the appropriate measure of indemnity will depend on all the circumstances of the case (of which an absence of remedial works will be one circumstance).
In a second judgment in the Zagora Management case referred to above, the High Court reiterated that interest will be awarded under the Senior Courts Act 1981 on a successful insurance claim only from the date by which a sufficiently reasonable period of time has elapsed to allow for investigation of the claim by the insurer, rather than from the date on which the insured’s cause of action under the policy accrued. This dispute pre-dated the coming into force of the Enterprise Act 2016, and so questions as to the insured’s right to also claim damages for late payment were not considered.
vi Asbestos litigation
English law has developed bespoke principles to deal with the insurance of claims by employees who were exposed to asbestos by their employers and contracted mesothelioma as a result. In particular, the ‘trigger’ principle provides that employers’ liability insurers are liable to fully indemnify their insureds for claims for asbestos exposure (and thus fully compensate employees) provided there was some exposure during the relevant policy year, and even if the dates of the exposure encompassed multiple other policy years. The employee does not have to demonstrate a causal link between the exposure in a particular year and the mesothelioma to sue the insurer covering that year; the employee merely has to demonstrate an exposure to asbestos. In Equitas Insurance Ltd v. Municipal Mutual Insurance Ltd the Court of Appeal considered whether this bespoke principle should extend to the reinsurance of employers’ liability risks such that an insurer writing multiple years of employers’ liability insurance can elect to allocate a reinsurance claim to a single year, or whether the insurer is obliged to allocate the reinsured losses pro rata across the relevant years. The Court of Appeal held that the trigger principle was created for policy reasons – to ensure that victims were fully compensated without having to make multiple claims and prove causation – and those policy reasons did not extend to the reinsurance market, therefore the law could return to more orthodox principles. The result of those principles was that the insurer cannot elect to claim under a single year’s reinsurance, but must allocate the reinsured losses pro rata across the relevant years.
In Cape Intermediate Holdings Ltd v. Dring, the Supreme Court provided guidance on third parties’ rights of access to court documents. The Asbestos Victims Support Groups Forum applied under Rule 5.4C of the English Civil Procedure Rules for the disclosure of court documents, including bundles of evidence, in two sets of proceedings brought by employers’ liability insurers against an asbestos manufacturer. The Supreme Court held that there was no automatic right of access for non-parties to copies of documents held by the court unless provided for by the particular court’s rules. However, the court had an inherent jurisdiction to permit third parties to obtain copies of documents placed before the court if the court considers that to do so is consistent with of the constitutional principle of open justice. In considering that question, the court will take into account the reasons for the third party seeking the documents and the risk of harm that the disclosure may cause to the maintenance of effective judicial process or the legitimate interests of others. The court may also take into account the practicality and proportionality of satisfying the request.
Trends and outlook
The Insurance Act 2015 has now come into force, but it remains to be seen precisely how its provisions will be applied. The Act potentially represents a major rebalancing of rights and obligations between insureds and insurers (in favour of insureds), but early indications are that insurers are seeking to contract out of many of the provisions of the Act where possible in commercial policies.
There also remains a good deal of uncertainty as to how damages for late payment of insurance claims will be approached by the courts, and the first case in which an insured claims such damages is awaited with interest.
Warranty and indemnity insurance and cyber-insurance are two of the fastest-developing policy markets in England, and the terms of both types of policy are becoming increasingly standardised. There have only been a limited number of significant disputes in relation to these types of policies, although we anticipate that to change in the next few years, especially as cyberattacks becoming an increasingly common experience for businesses.
The coming into force of the General Data Protection Regulation has also generated interest in the extent to which the risks of failing to comply with the Regulation are insurable. The position is likely to be that insurance will not be available for any fines imposed under the Regulation or under the related Data Protection Act 2018 (either because English law prohibits the insurance of fines, or because policies will specifically exclude them). However, insurance may be available for the costs of participating in an investigation by the Information Commissioner’s Office and defending any subsequent proceedings. Insurance disputes arising out of data protection breaches may also be a developing area in the coming years. Disputes relating to a failure to appreciate the effects of artificial intelligence also look likely to be a developing area.
The use of ‘after-the-event’ insurance to cover costs risks in English litigation has also increased significantly in recent years, both as a result of reduction in availability of legal aid at one end of the scale, and the increased importance of litigation funding in English disputes at the other end.
In addition to these areas of potential development, climate change remains an area where claims must surely begin to rise. There are no claims in this area as yet, but all eyes are on that space.