A summary of recent developments in insurance, reinsurance and litigation law
Bluebon v Ageas (UK) Ltd: Judge interprets a warranty in an insurance policy
The insured took out a buildings insurance policy with new insurers for one year to cover its hotel. The policy contained the following clause: "Electrical Installation Inspection Warranty: It is warranted that the electrical installation be inspected and tested every five years by a contractor approved by the National Inspection Council for Electrical Installation Contracting (NICEIC) and that any defects be remedied forthwith in accordance with the Regulations of the Institute of Electrical Engineers."
After a fire at the hotel, the insurers refused to pay on the basis that there had been a breach of warranty (there had been no inspection in the 5 years preceding the policy). The insured argued that the clause was not a warranty and that it required it to carry out an inspection only five years from the inception of the policy, rather than from the date of the last inspection. Bryan J has now held as follows:
(1) The clause was clear and unambiguous and the ordinary and natural meaning of the words was that the 5 year period is calculated from the date of the last inspection. This also met the commercial purpose of ensuring that the risk of fire is minimised (whilst also protecting the health and safety of the insured and the occupiers of the hotel). The judge also considered that this was the only business-like construction of the clause and that the insured's argument made no commercial sense and did not work in the context of a one year policy (ie the clause could never have any application to this policy), where there was no guarantee that the policy would be subsequently renewed with the same insurer.
The purpose of the clause was to reduce the risk of fire, an insured peril under the policy, and "the purpose of a provision is a powerful aid to construction and is itself a determinative factor in the present case". Furthermore, the use of the word "be" did not mean it was referring only to future inspecting and testing: "The word "be" is capable of applying to testing that has already occurred".
(2) The insurers had argued that the clause was a "true warranty", such that breach of it automatically discharged the insurer from any liability at all under the policy (the policy did not expressly provide for a remedy for breach). Although the judge was initially attracted to that argument (because the term went to the root of the contract and bore materially on the risk of fire (and damages would not have been an adequate remedy)), he concluded that the term was instead a suspensive warranty/warranty descriptive of the risk (whereby all cover was suspended from the date of breach (in the present case, from inception) until it was complied with (and regardless of whether the non-compliance with the suspensive warranty was causally linked to the loss). That was because a proper construction of the clause contemplated that if there had not been an inspection in the last 5 years, it has to be undertaken immediately: "Thus the envisaged consequence of an inspection not having taken place is not that the Policy be void ab initio (the consequence of a true warranty) but rather that there was an obligation to undertake an inspection immediately. This supports the conclusion that the Electrical Inspection Warranty is a suspensive condition, suspending cover under the Policy until complied with rather than a true warranty".
Furthermore, the judge did not need to decide whether all cover, or only cover for losses arising out of fire, were suspended, since the warranty was intended to address the risk of fire. He concluded that all cover was suspended (as was the conclusion also reached in Sugar Hut v Great Lakes Reinsurance (see Weekly Update 40/10), where a warranty requiring the checking of ducts had been breached). In any event, he said it would be entirely unbusinesslike to hold that cover was instead suspended only in respect of losses arising from defects in electrical installation: "such a construction would be to slice the insured risks which were covered too thinly". Similarly, even if he was wrong, and the clause was a condition precedent rather than a warranty (requiring compliance as a condition precedent to the insurers' liability to provide cover in respect of risks to which the stipulation related), the risk to which the stipulation related was said to be fire, and not electrical installation.
Accordingly, the insurers were entitled to deny liability under the Policy.
COMMENT: The policy in this case incepted several years before the Insurance Act 2015 came into force. However, the judge's comments regarding the distinction between cover for fire and cover for defective electrical installation are of interest. The 2015 Act refers to non-compliance with a term "which could not have increased the risk of loss which actually occurred in the circumstances in which it occurred", and this case may allow insurers to argue that non-compliance with a (for example) electrical installation inspection term affords insurers a defence where there is a connection between the term and the general insured risk (ie fire) rather than between the term and eg defective testing/installation of electrical equipment.
Miles Smith Broking v Barclays Bank: Court holds reinsurance broker had good arguable case of wrongdoing in an application for a Norwich Pharmacal order
The claimant reinsurance broker entered into a "run-off" agreement with another broker, SMP. SMP collected premiums due under an excess of loss reinsurance policy, which the claimant had placed, but did not then pay them on to the reinsurers. When SMP was dissolved, the reinsurers sought payment of the premium from the claimant, on the basis that the claimant was still primarily liable because SMP had acted as the claimant's agent (the claimant countered that SMP had become primarily liable for the premium after the agreement).
The claimant sought a Norwich Pharmacal order ("NPO") which would require SMP's bank to provide information relating to SMP's account. In order to obtain a NPO, the claimant had to prove that there was a good arguable case that a wrong had been carried out by SMP. The wrong required to satisfy the test for an application for a NPO is wide and can include breach of trust.
Master Clark held that an agency relationship is not in itself sufficient to give the principal proprietary rights in monies received by its agent. However, the terms of the run-off agreement (including a reference to appointing "an agent or sub-trustee") indicated that the parties intended their relationship to be a trust and, as a result, Master Clark said that "I am therefore satisfied that the claimant has a good arguable case that it was the beneficial owner of the premiums held in the account, even if it held those premiums on trust for the reinsured or was itself subject to obligations to pay them to the [reinsurers]".
The wrongdoing, therefore, consisted of the misapplication of the premiums. Although the claimant was unlikely to wish to sue SMP (because it has no assets), the claimant also had a good arguable case against the directors of the company, who had procured the payments to be made out of the account.
Furthermore, a NPO was needed in order to identify who had been responsible for instructing the bank to pay the monies away. Accordingly, the claimant was entitled to the NPO. The claimant was also said to be entitled to relief under the Bankers Trust jurisdiction, in order to allow it to trace the premiums. The fact that the claimant may itself have been a trustee for the reinsured (or reinsurers) was not a reason to deny this relief.
Brownlie v Four Seasons: Supreme Court considers where damage is sustained in a personal injury claim for an accident abroad
The Court of Appeal's decision in this case was reported in Weekly Update 25/15. The claimant was injured whilst taking part on an excursion in Egypt which had been organised by the (Canadian) defendant. Her husband was killed in the same accident. She claimed in both tort and contract. Her tort claims were for (1) her own injuries; (2) her loss as a dependant of her husband (the Fatal Accidents Act claim); and (3) the loss suffered by her husband in her capacity as the executrix of his estate. She obtained permission to serve out of the jurisdiction (in part based on PD6B para 3.1(9)(a): "damage was sustained within the jurisdiction").
The Court of Appeal held that damage was not sustained here because the Rome II Regulation applied, so that the applicable law is the law of the country in which the damage occurs. The defendant appealed on the basis that it was not the correct defendant.
The Supreme Court has now unanimously agreed that the defendant was not the correct defendant because there was no contract between it and the claimant. (In reaching that decision, Lord Sumption suggested that the Rules Committee should look again at a long-standing rule that, for instantaneous exchanges eg by telephone, the contract is made where the counterparty was physically located when he or she heard the words spoken by the other party which concluded the contract). That disposed of the appeal, but the Supreme Court went on to consider, obiter, where damage was sustained for the purpose of the personal injury claim brought by the claimant on her own behalf and as executrix for her late husband for eg funeral and medical expenses (it having found that claim under the Fatal Accidents Act could not succeed because the law governing the driver's negligence was Egyptian law).
By a majority of 3:2 (although all the judges agreed that Rome II had no application to this question) it was held that a claim in tort can be brought in England if damage is suffered here as a result of personal injuries inflicted abroad. Lady Hale said that "it is quite clear that damage can be suffered by the same person in more than one place, just as the wrongful acts can be committed in more than one place".
(Lord Sumption and Lord Hughes disagreed on that finding, and held that, just as damage is sustained in the country where property is damaged (no matter where eg the loss of earnings are felt), so damage is sustained as soon as bodily injury occurs in that country, because "damage" for a personal injury claim means direct damage ie physical injury or death).
More generally, the Supreme Court also considered whether a claimant must prove that it has a "good arguable case" that the claim falls within one of the jurisdictional gateways listed in PD6B. The Supreme Court said that glosses such as "a much better argument" should be avoided and agreed with Lord Sumption's explanation that "a good arguable case" means "(i)that the claimant must supply a plausible evidential basis for the application of a relevant jurisdictional gateway; (ii) that if there is an issue of fact about it, or some other reason for doubting whether it applies, the Court must take a view on the material available if it can reliably do so; but (iii) the nature of the issue and the limitations of the material available at the interlocutory stage may be such that no reliable assessment can be made, in which case there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it".
St Vincent v Robinson: Judge confirms that delay can be fatal for an application for a freezing order
Clyde & Co (Keith Conway, Isaac Taylor and Jasper Dymoke) for defendants
In Ras Al Khaimah v Bestfort (see Weekly Update 27/17), the Court of Appeal noted that delay in applying for a freezing order usually gives rise to two arguments:
(a) An applicant does not genuinely believe there is any risk of dissipation. The Court of Appeal said that that argument is open to the objection that it is the fact of the risk that matters, not whether the claimant believes in it; and
(b) A defendant who is prone to dissipate will have already done so by the time the court is asked to intervene. The Court of Appeal commented that this "argument assumes that a defendant is already of dubious probity and it is a curious principle that would allow such a defendant to rely on his own dubious probity to avoid an order being made against him".
However, the judge in this case noted that in Candy v Holyoake (see Weekly Update 8/17) the Court of Appeal recognised that delay could be a "powerful militating factor against a conclusion that there is a real risk of dissipation", because a defendant who has had plenty of time to dissipate assets, but does not do so, is inherently unlikely to do so even in the absence of a freezing order. In that case, the first intimation of proceedings had been in May 2014 but the application for the injunction was not made until February 2016, and Gloster LJ had concluded that there was no risk of assets being dissipated. Here, proceedings were first commenced in 2013, but the application for a freezing order was not made until 2017. The judge held that there was little, if any, basis for finding that assets would be dissipated in future.
COMMENT: This case therefore reinforces the view that delay can be fatal to an application for a freezing order.
Great Station Properties v UMS Holding: Court grants worldwide freezing order to aid enforcement of an arbitration award
The claimants sought a worldwide freezing order to aid enforcement of an arbitration award as a judgment of the court. The principal issue was whether a risk of dissipation of assets by the respondents had been established. Teare J held that it had for the following reasons:
(1) The tribunal had found that the owner of the respondents had used companies within his control to ensure that profits which ought to have been shared with the claimants were instead paid to the companies within his control. This was an action which deliberately harmed the interests of the claimants. Even though that activity had taken place between 2012 and 2013, it was not of "historical interest only" because the respondent had made strenuous efforts to challenge the award and clearly was not content with it. It did not matter that the tribunal did not expressly describe the respondents' activity as dishonest: "it is not necessary to describe the conduct of Mr. Grigorishin as dishonest in order to demonstrate that the required risk arises from the findings of the arbitrators".
(2) Transfers of assets carried out in order to avoid the effect of sanctions imposed on Russian-controlled companies by the Ukrainian government (rather than to make the respondents judgment-proof) also added to the risk of dissipation: "Notwithstanding the motivation for making the misleading statement, it appears to me that the action does demonstrate a lack of probity". Although the respondents were seeking to protect their business interests from harmful and discriminatory government action, there was a case for saying the discrimination was justified, and the actions had been a criminal offence in Ukraine.
The judge also found that the delay (of 6 months) in this case was not fatal because the claimants had been trying to obtain an order from the Cypriot courts in the intervening period and that demonstrated that they had been genuinely concerned about the risk of dissipation. Furthermore, prior caselaw demonstrated that "the policy of the law is to enforce judgments (and particularly so where the judgment enforces a London arbitration Award) so that freezing orders can, in an appropriate case, be granted after judgment".
W Portsmouth v Lowin: Court of Appeal rules that costs on the indemnity basis awarded under Part 36 are subject to the cap set out in CPR r47.15(5)
If a detailed assessment is commenced in the High Court or the County Court after 1 April 2013 and total costs claimed by the receiving party are £75,000 or less, there will be a provisional assessment. A provisional assessment is intended to be speedy and is done on paper. CPR r47.15(5) provides that "In proceedings which do not go beyond provisional assessment, the maximum amount the court will award to any party as costs of the assessment (other than the costs of drafting the bill of costs) is £1,500 together with any VAT thereon and any court fees paid by that party".
In this case, the claimant's mesothelioma claim settled and the claimant made a Part 36 offer in respect of her costs, which she beat when her costs were provisionally assessed. The issue in this case was whether her costs of the assessment should be capped or whether CPR47.15(5) was overridden by Part 36, so that she should receive her costs on the indemnity basis without any cap.
The claimant referred to the decision of Broadhurst v Tan (see Weekly Update 8/16), in which it was held that Part 36 overrode the fixed costs regime for low value personal injury claims. The Court of Appeal has now held that that case was not directly applicable here because fixed costs are awarded whether or not they are incurred, whereas CPR r47.15(5) only provides for a cap. So, if a party's costs awarded on the indemnity basis under Part 36 is less than the cap, the full sum will be awarded. However, where, as here, costs on the indemnity basis exceed the cap, those costs will be capped on the terms laid out in CPR r47.15(5).
Vanderbilt v Azumi Ltd: Judge did not have to recuse himself when allegations made against counsel from same set of chambers
Prior caselaw has established that a part-time judge does not have to recuse himself from hearing a case just because he is a member of the same chambers as one of the advocates in the case he is trying (see Smith v Kvaerner ). In this case, the Court of Appeal also held that there is no general rule that a judge from the same chambers as the advocate should always recuse himself from a case where the advocate has been accused of some form of conduct of which the litigant complains: "That would provide the easiest route for a litigant to disrupt the listing of cases before deputy judges in specialist areas….where deputy judges are frequently chosen from amongst the small cadre of specialists in the field. It is, unfortunately, a common occurrence that litigants make accusations against their opponents and their representatives which turn out on examination to be unfounded".
However, it was also noted that the issue of recusal is fact sensitive, and in some cases a fair-minded observer might consider that an allegation of misconduct did give to a real possibility of bias.
Ziggurat v HCC Insurance Co: Judge interprets meaning of a performance guarantee bond issued by an insurer
The defendant insurer issued a performance guarantee bond to the claimant employer and a dispute arose when a contractor stopped work on the site. The bond provided that the insurer guaranteed that, in the event of a breach of contract by the contractor, it would discharge any losses sustained by the employer. Clause 2 (which was a "homemade addition") provided that "the damages payable under this Guarantee Bond shall include…any debt or other sum payable to the Employer under the Contract following the insolvency…of the Contractor". The issue in this case was whether a breach of contract was required to trigger liability under clause 2. Coulson J held that it was not: "Under a building contract, the employer does not care about the precise way in which the building contractor has become insolvent, or the nice distinctions between liquidation and administration. All he cares about are the consequences of the insolvency, which almost always include the abrupt halt to the carrying out of the works. The employer's loss in these situations is always the same: the additional cost of completing the works. …. So, in my view, clause 2 of the Bond can have had no purpose whatsoever other than to make it clear that the Bond was to protect the claimant from the non-payment by [the contractor] of the debt following the insolvency".