2018 has seen the (re)insurance industry continue to tackle the difficulties and uncertainties arising out of Brexit. Insuralex Insurance Lawyers.
Carter Perry Bailey LLP, London, is the UK Insuralex member
REGULATION
– The past year has seen the (re)insurance industry continue to tackle the difficulties and uncertainties arising out of Brexit. The European Union (Withdrawal) Bill 2018 received Royal Assent on 26 June 2018 and many businesses have been restructuring whilst trying to predict the impact of any deal. The PRA has been actively seeking information from its regulated firms as to their post-Brexit plans. In case there is no deal, the Government has published guidance on the steps that it, along with the regulators, will take to protect EEA firms operating within the UK.
– The Insurance Distribution Directive replaced the Insurance Mediation Directive earlier this year. It is a minimum harmonising directive aimed at enhancing consumer protection when purchasing insurance. It clarifies which information should be given to consumers prior to entering into an insurance contract and imposes certain conduct of business and transparency rules on distributors. The rules, which include rules for cross-border business, apply to the sale of all insurance products from 1 October 2018.
NOTIFICATION
Euro Pools plc (in administration) v Royal and Sun
Alliance Insurance plc [2018] EWHC 46 (Comm)
Euro Pools was insured under two claims-made policies (the
first policy covering the period of 30 June 2006 – 29 June
2007; the second covering 30 June 2007 – 29 June 2008)
which contained a mitigation works clause. When it became
aware of problems with stainless-steel tanks in February
2007, Euro Pools informed RSA and installed inflatable bags
to remedy the fault. In May 2008, Euro Pools identified
issues with the bags and told RSA it would change the boom
system to a hydraulic system. Euro Pools argued the
relevant loss was the failure of the bags, which had been
notified under the second policy; RSA contended that the
notification was the one in February 2007 and fell under the
first policy, limiting the amount the claimant could recover
since the losses exceeded both policies’ limits. The Judge
concluded that there was “no causal link between the
failures in the tanks and the decision to abandon an air drive
system and move to hydraulics” and, in any event, Euro
Pools “was not aware in February 2007 of problems with the
air drive system such that it could not notify the
circumstances which led to a claim for the expenses of the
move to a hydraulic system”. Euro Pools had therefore
validly notified the claim under the second policy and the
claim for mitigation works was within the policy period.
ALLOCATION
Equitas v MMI Limited [2018] EWCA Civ 991
This is an ongoing appeal as to whether reinsureds can
choose under which reinsurance year to claim their
mesothelioma losses (also known as ‘spiking’). Judge-
Arbitrator Flaux J held that MMI could ‘spike’ each
reinsurance claim to any applicable year of cover. The Court
of Appeal granted permission to Equitas to appeal pursuant reinsurance had been placed in the relevant PWS pool and
that Continental had reinsured a 20% share. Further, it was
found that from 1983 Continental had agreed to front the
whole pool, assuming 100% of the risk placed with the pool
(but would then have recourse against other reinsurers).
The claimants argued that fronting was a basic feature of
PWS’ pool management strategy and that Continental’s
fronting role was well-known in the market. Continental
failed to produce evidence to the contrary. The Court then
was asked to decide an issue under s.29 Limitation Act 1980
which provided that where any right of action has accrued
to recover any debt or other pecuniary claim, and the
person liable or accountable for the claim acknowledges the
claim or makes any payment in respect of the claim, the said
right of action shall be treated as having accrued on and not
before the date of that acknowledgement or payment. The
Court held that there is no particular format for an
acknowledgement; a general acknowledgement would
suffice if quantum could be ascertained by extrinsic
evidence.
ARBITRATION
Allianz v Tonic Star [2018] EWCA Civ 434
In the first instance hearing of this case in 2017, Allianz
wished to appoint a well-known QC, with over 10 years’
insurance and reinsurance experience, as arbitrator.
Tonicstar objected. Mr Justice Teare followed the precedent
set by Mr Justice Morrison in the 2002 case of Company X v
Company Y (unreported) in which Mr Justice Morrison had
held that any arbitrator needed to have been employed in
the (re)insurance industry, such that a lawyer would not
qualify. In Allianz v Tonicstar, Mr Justice Teare considered
himself bound by that precedent such that he had no option
but to hold that the proposed QC did not qualify. The matter
went to the Court of Appeal which overruled Company X v
Company Y and allowed the appeal. It held that although the
clause was drafted by the “trade body” this did not mean
that only members of the trade could be appointed. The fact
that, in default of agreement, arbitrators were to be
appointed by the Chairman of the London Underwriting
Association, did not mean that the Chairman could not
appoint a lawyer. Giving the tribunal the ability to dispense
with the strict rules of evidence was not found to be a
significant consideration, especially as compared to the
more important fact that the contract was subject to English
law. In short, the clear and unambiguous clause did not
expressly confine the appointment to trade arbitrators and a
lawyer would qualify.
Halliburton Company v Chubb Bermuda
Insurance Limited [2018] EWCA Civ 817
The underlying case involved a Bermuda Form insurance
policy. Before being appointed arbitrator in the
‘Halliburton/Chubb arbitration’, ‘M’ disclosed that he had
previously been appointed in other arbitrations involving
Chubb. Following the ‘Halliburton/Chubb arbitration’ to s.69 Arbitration Act 1996, which allows appeals from
arbitration awards only on a point of law, only in very
limited circumstances and only with leave from the Court.
The Court of Appeal granted leave to appeal on the
following issues: (a) Implied allocation – Flaux J had held that
a reinsurer could be liable for the whole loss even when it
had only been on risk for part of the period. The Court of
Appeal has accepted that there is a “seriously arguable case
for treating the insurance and reinsurance positions
differently”. (b) Good faith – Flaux J had considered a
reinsured’s duty of good faith to be only a duty not to act
dishonestly. If this is held to be correct, it will mean that a
reinsured has a choice as to how its losses are allocated to
reinsurers. (c) Recoupment and contribution – Flaux J had
concluded that contributions from other reinsurers should
be apportioned on an ‘independent liability’ basis, i.e. the
independent amount each reinsurer would have been liable
to pay regardless of the existence of other reinsurers. These
issues will be decided at a full Court of Appeal hearing, the
judgment in respect of which is eagerly awaited.
LIMITATION
RSA Insurance plc v Assicurazoni Generali SpA
The High Court has ruled that insurers who are liable to pay
asbestos claims under the Compensation Act 2006 (“CA”)
are only entitled to claim a contribution from other insurers
within two years from settlement. The claimant in the
underlying action had contracted mesothelioma and sought
compensation from his employer, RSA’s insured. Despite
having insured the employer for only 6 months of the
claimant’s 10 year employment, RSA were liable for the
entire claim by virtue of s.3, CA. RSA sought to recover from
the other two insurers on risk during the Claimant’s
employment, Aviva and Generali. The Court held that
liability arising out of an insurance contract is a ‘Damages
Indemnity Liability’ and therefore such a claim would be a
damages claim under the Civil Liability (Contribution) Act
1978, with a limitation of 2 years. Insurers will need quickly
to identify other insurers on risk to avoid being time-barred.
PROOF OF COVER / LIMITATION
R&Q (Malta) Limited and Others v Continental
Insurance Company [2017] EWHC 3666 (Comm)
The claimants, R&Q (Malta) Limited, Aviva Assurances UK
Branch and Societa Reale Mutua di Assicurazioni, contended
that they had entered into four reinsurance contracts with
Continental in respect of underlying policies for an
Australian building company. The insured Australian
company became the subject of a mesothelioma claim due
to its products containing asbestos. The claimants paid
several of the claims and sought to recover from
Continental. However, the original reinsurance cover notes,
slips and policies could not be produced by the claimants;
Continental denied it was a party to the reinsurance. The
Court accepted the claimants’ evidence that despite
extensive efforts, the documentation could not be found.
The Court was then prepared to look beyond the missing
contractual documents, to other evidence establishing that
there was a contract. In this respect, the Court was
persuaded by the broker’s, PWS, evidence that the appointment, M accepted two further appointments in
arbitral proceedings in which the subject matter overlapped
with the ‘Halliburton/Chubb arbitration’. This, however, was
not disclosed. When Halliburton discovered this, it applied
to have M removed as arbitrator of the ‘Halliburton/Chubb
arbitration’ under s24(1)(a) Arbitration Act 1996. The Court
held that, whilst inside information and knowledge could be
a legitimate concern in overlapping arbitrations, it was not
in itself an inference of apparent bias. Arbitrators are
“assumed to be trustworthy and to understand that they
should approach every case with an open mind.” To
conclude that an open mind and objective judgment would
not be brought by the tribunal required “something of
substance”. However, disclosure should have been made to
Halliburton of the circumstances which might have given
rise to justifiable doubts about M’s impartiality. Such
disclosure depends on what the arbitrator knew at the time
of his appointment, and should not be viewed in hindsight.
In the circumstances, the Court found that the non-
disclosure did not give rise to justifiable doubts as to M’s
impartiality. Halliburton’s appeal was accordingly dismissed.
SANCTIONS
Mamancochet Mining Limited v Aegis Managing
Agency Ltd & Others [2018] EWHC 2643 (Comm)
The claimant was assignee of the benefit of a cargo
insurance policy. Insurers included US owned or controlled
entities (USFCEs). A claim arose when cargo was stolen. At
that time and at the time the policy attached, there were no
applicable sanctions. However, following USA’s withdrawal
from the Joint Comprehensive Plan of Action, its re-imposed
sanctions against Iran would apply to the Insurers that were
USCFEs. The policy included the Joint Cargo Committee
Sanctions Clause, which provides that Insurers are deemed
not to provide cover and shall not be liable to pay a claim to
the extent that doing so would “expose that (re)insurer to
any sanction, prohibition or restriction” under UN, EU or UK
trade or economic sanctions, laws, or regulations. Insurers
argued the clause applied on the basis that there was a risk
that a national authority might conclude the payment under
the policy was prohibited. The Court held that Insurers had
to go further and show that payment would actually be
prohibited conduct and would expose them to sanctions,
which would not be the case as the re-imposed sanctions
were to become effective on 5 November 2018. The Court
therefore ordered Insurers to pay the claims by that date.
Importantly, the Court also held that the Clause does not
extinguish Insurers’ liability to pay the claim, but suspends it
while the sanctions apply. If meanwhile time bar might arise,
the Court suggested proceedings be commenced and a stay
sought. Finally, as the Clause is suspensory, the Court found
that the EU Blocking Regulation (on which Insurers also
sought to rely) was inapplicable in this case.
Stephen Carter
Managing Partner
T: 0203 697 1902
M: 07887 645 262
Bernadette Bailey
Partner
T: 0203 697 1903
M: 07887 645 263
E: bernadette.bailey@cpblaw.com
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