Anatomy of an Insurance Dispute
In early 2025, we participated in a panel discussion about the similarities and differences in the process of resolving a disputed insurance claim. We were both so taken by the striking differences in the process and had such a good time learning about each other’s process that we decided to prepare this joint article to share with a wider audience.
Comparatively examining the anatomy of an insurance dispute in the US and the UK is an exercise in contrasts. In many ways, the two are strikingly opposite. Here, we examine, from start to finish, how the process differs in the two jurisdictions and how those differences may contribute to different outcomes, and discuss what lessons perhaps can be gleaned from each other’s experience.
Pre-litigation process
The US Perspective
What stands out about the insurance dispute process in the US as a point of comparison, is the vastness of the arena you are working in. In stark contrast to the UK (as will be discussed below), the US insurance market is sprawling. Hartford, Connecticut might claim to be the insurance capital of the US, while Des Moines, Iowa would claim to be the insurance capital of the Midwest, yet, while there might be more significant insurance companies formally based in either of those two cities than in other US cities, there are many multiples of that more sprawled out across the full country. On top of that, US insureds regularly access the excess and surplus lines market to place insurance through London-based insurers.
This makes the industry, for the average insured, rather impersonal. From the coverage lawyer’s perspective, dealing with a claim under a specialty line of insurance issued by a large insurer, even in the same jurisdiction or region, may result in experiencing the same combination of insurer counsel and assigned claim adjuster. However, more often than not, each dispute reveals an entirely new set of individuals to try to resolve your claim with.
Brokers placing multiple significant programs with larger insurers can sometimes create a more direct line to a personal relationship that can help influence the direction of the claim before it becomes too adversarial. Still, this seems to pale in comparison to the degree that relationships play a role in the UK process.
On top of the geographical scope of the arena, there are a vast number of playing fields within the arena in the US. The federal government does not regulate insurance, leaving insurance law entirely to the states. This means that each state resolves legal issues involving insurance differently and, in many cases, in ways that are directly contrary to each other. The first step in an insurance dispute in the US is not to determine how the issues are properly resolved, but to determine which US states’ law might govern the issue. Once you know which states’ law could apply, then there are often multiple states where the dispute could be filed, each of which will have a different set of rules to determine which of the states’ law should apply.
On top of all of that, there are federal courts sitting in each state, which have different jurisdiction over parties than the state courts do, and which apply substantive state law to decide the coverage issues, but federal law to govern the procedural process. A Florida federal court might conduct a different choice-of-law analysis than a Florida state court, resulting in a different state’s substantive law applying to a case depending on whether it is in the state’s own courts or the federal court sitting there.
In a claim where a company based in New York does work in California, but uses a broker in Texas to place its insurance through an insurance company based in Florida, an insured would be assessing (1) which state(s) would allow the insured to file litigation over the claim, (2) what state’s law each state the insured could file in would choose if conducting a choice of law analysis, and, finally, (3) which state’s substantive insurance law would be most favorable. Of course, the insurer is likely to contend that a less favorable set of state law will apply to the claim than the insured, who will argue for a more favorable set of state law. In other words, the parties may not even agree on the rules by which they are to have their dispute or on which “playing field” they should have it on.
On top of the differences in the states’ approaches to the substantive rules of insurance law, each state varies significantly in its approach to the concept of bad faith claims – referring to a situation where the insurer is deemed to have violated the implied covenant of good faith and fair dealing, which some US jurisdictions impose as a part of all contracts. Just as the different states take different approaches to the substantive issues, the insured may contend the appropriate body of law is that of a state that allows a bad faith claim, while the insurer contends a different state’s law applies, yielding the opposite result. A classic example of this friction is California, which allows bad faith, and New York, which effectively does not. Where the controlling state law is not settled in the pre-litigation claims process, this can make it very difficult to resolve a disputed claim, as the two jurisdictions have very different substantive law and also very different potential remedies, given the bad faith differences.
Finally, barring a few contrary specific rules in specific jurisdictions, parties to litigation in the US pay their own attorneys’ fees. This seems to have the effect of encouraging commercial litigation of insurance claims, while unfortunately dissuading personal litigation of insurance claims, usually except among wealthy individuals. The economics of the situation make this inevitable. For a corporation, if the insurance claim is large enough, it will almost certainly make sense to litigate a claim that has not resolved through the normal claim process, as even a partial recovery will easily cover the cost of the fees to bring the lawsuit and then some. The company can predict, based on its own attorney’s budget, what its costs will be for the lawsuit, without the unknown of a potential fee award to the other side if the company is not successful. On the other hand, for an individual, many insurance claims are simply cost-prohibitive, unless the lawyer is willing to work for discounted rates, pro bono, or on an alternative fee arrangement, such as a contingency.
Each of these factors influencing the pre-litigation claims process contribute to a claims environment where litigation often feels inevitable.
The UK Perspective
While sharing certain common characteristics, there are some key differences in how insurance disputes are resolved in the US and the UK.
The most central is that, unlike in the US, there is a single body of law applicable in England and Wales. Also, there is no concept of bad faith.
Further, compared with the US, the insurance market in the UK is geographically more defined – being centred around the Lloyds Building in what is known as the insurance district in the City of London. All of the major players in the London market, including insurers, brokers, and law firms, are situated within the same square mile.
While we would agree that, as in the US, aside from the largest industry participants, relationships with insurers are typically short-term, managed by the broker, and not significantly customized, equally it is a much smaller marketplace, and for those who have made their life’s work a career in insurance, those main players work cheek by jowl.
It would be fair to say that, traditionally, both insurance law and its application by the English courts were perceived to be, and indeed were, pro-insurer. That fact, combined with the “loser pays” cost regime in the UK, has led to a conservative approach to litigation: the stakes are high.
Notably, until recently, insurers were able to decline claims on the basis of a failure by the insured to disclose every circumstance they knew or ought to have known which would influence an insurer in underwriting the risk, and many policies contained ‘basis’ clauses which effectively meant that any and all representations made were warranties, the breach of which discharged an insurer from liability.
The introduction of the Insurance Act 2015 sought to level the playing field for policyholders by bringing in a duty of fair presentation, breach of which would not necessarily lead to a voidance of the policy but a more proportionate remedy based on the terms on which the insurer would have entered into the policy had the breach not occurred. The Act also banned ‘basis’ clauses, and brought in provisions whereby if non-compliance with a warranty did not increase the risk of the loss in the circumstances in which it occurred, insurers could not rely on that breach to avoid liability under the policy.
In terms of the pre-action process, this differs depending on the court in which the claim is brought. For complex high-value commercial disputes, including insurance coverage disputes, brought in the Commercial Court, which is a division of the High Court, the court expects the parties to have exchanged sufficient information to understand each other’s position and to try to settle the proceedings without proceedings, including considering ADR. This process will include sending a Letter of Claim and allowing the defendant time to respond, from 14 days to 3 months, depending on the complexity of the matter. For certain types of claims, there are more specific Pre-action Protocols.
Of particular relevance is the Pre-Action Protocol for Construction and Engineering Disputes brought before the Technology and Construction Court, which has a more prescribed process that includes deadlines that must be adhered to, exchanges of information, and a pre-action meeting. Costs sanctions can be applied for non-compliance with the Protocol. Compliance is taken seriously by the parties and the courts, such that it can be an effective tool for exploring whether pre-action resolution is possible, or if not, at least narrowing the issues in advance of the issue of formal proceedings.
Substantive Framework for contract/policy interpretation
The US Perspective
While the US states each have their own approach to insurance issues, there are certain fundamental rules where they tend to come together in near unanimity. At the most fundamental level, nearly every jurisdiction considering an insurance dispute is going to start with the question of whether the court can interpret the meaning of the policy provisions applicable to the claim solely from the policy’s plain language, without considering anything else. If the court decides that it can do this, that is the end of the analysis. If there is clear policy language, that will control. Further, there is extensive caselaw interpreting many common policy provisions, so there is a large body of guidance as to whether a particular term is or is not likely to be deemed clear from the plain language.
It is only if the court decides that the language at issue is subject to more than one reasonable interpretation, yielding different results (i.e., is ambiguous), that the court potentially looks beyond the policy language. However, even then, this is not guaranteed. Some jurisdictions simply interpret ambiguous policy language in favor of coverage, giving the benefit of the doubt automatically to the policyholder. Others will look to extrinsic evidence (i.e., the underwriting file) or the reasonable expectations of the insured to try to determine what the most appropriate interpretation is.
The UK Perspective
English law takes an objective approach to policy interpretation, asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean. The subjective intention or understanding of the parties as to what the policy wording means or is intended to achieve is not relevant to the exercise. However, market practice or understanding, if it can be established that there was one, can form part of the background knowledge that would reasonably have been available to the parties.
Commercial common sense is not permitted to be invoked retrospectively to rewrite a clause in an attempt to assist an unwise party or to penalize an astute party: where the parties have used unambiguous language, the court will apply it. In recent years, the courts have taken an increasingly strict approach in this regard, making it clear that it is not their job to rescue a commercial party from a bad bargain. If the wording is clear, the court will give effect to it.
However, where there is ambiguity and there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other. In an insurance context, the doctrine of contra proferentem applies so that where there is ambiguity, the clause is interpreted against the party responsible for drafting the wording – usually the insurer – and is, therefore, helfpul for the policyholder. Also helpful for policyholders is a recent ruling that held that “a construction which advances the purpose of the cover is to be preferred to one that hinders it.” (LCA Marrickville Pty Limited v Swiss Re International SE [2022] FCAFC 17, in the Federal Court of Australia, per Derrington and Colvin JJ at [15])
In the context of the recent Covid-19 business interruption litigation, the courts have identified what has been termed a ‘pick and mix’ approach to drafting insurance policies, with clauses adapted from other contracts such that the policy does not necessarily hang together as an internally consistent whole. That is a factor that may influence interpretation in that reference to the same or similar language elsewhere in the policy may carry little weight.
Litigation Process – Initial Stages and Discovery
The US Perspective
In most jurisdictions, there is essentially no procedural barrier to entry to begin litigating an insured’s disputed claim. An insured who has submitted a claim can file a lawsuit the next day, even if the claim has not yet been denied. Declaratory judgment actions, which ask the court to declare the parties’ respective rights and obligations under the policy, can be procedurally appropriate even without a denial.
There are few procedural opportunities to put a binding end to that lawsuit prior to trial. There is an opportunity for the defendant to challenge the sufficiency of the complaint at the outset, but the standard to prevail on that is exceedingly difficult. There is an opportunity to seek judgment based on the complaint and answer together but, again, the standard is challenging to meet. Finally, there is an opportunity to have the case decided prior to trial, through a motion for summary judgment, but only if the issues to be decided are exclusively legal ones. A single disputed issue of fact material to the outcome of the case will be cause for the case to be sent to trial.
This forces the parties through the fact-finding phase of the case, known as discovery. Discovery in US litigation can be extremely expensive and time-consuming, and there typically is not any limitation imposed on discovery in a case based on the nature or size of the case. Thus, an individual with a claim against an insurer may have the same right to take the deposition of a senior person at the insurance company as a Fortune 500 company would. The individual would be equally entitled to all potentially relevant documents and to ask the same number of interrogatory written questions in the process. Many high-profile individuals – i.e., Donald Trump, Mark Zuckerberg – have been deposed in US litigation. This is a high-stakes process, as there are few limitations on what can be sought and asked from the other party in discovery, provided it is credibly connected to the insurance dispute.
The cost and discomfort of this process force many claims to settle. The process of reviewing sometimes tens of thousands of documents to ensure only relevant non-privileged documents are produced is extremely time-consuming and expensive. Similarly, the process of having to go through the intensive full-day questioning of the deposition process can be a daunting prospect for decision-makers on both sides. The parties also gain a significantly more acute understanding of their cases during this time, given the amount of document scrutiny and preparation involved. Many, if not most, insurance disputes settle during the discovery phase of litigation.
The UK Perspective
Litigation in the UK begins with a sequential exchange of pleadings: the claim form and particulars of claim, the defense, and the reply.
Notably, and unlike in the US, in the UK, we have a split profession with the court advocacy being carried out by barristers who also draft the pleadings. Issuing proceedings, therefore entails instructing a barrister in addition to the existing solicitor firm that will have been initially instructed and had day-to-day conduct of the matter through the pre-action stages.
There are another three key reasons why litigation is not something one embarks upon lightly: although relatively modest, the £10,000 court fee for issue of claims above a certain value is sufficient to deter many a vexatious litigant; the potential liability for adverse costs triggered by commencing litigation coupled with the fact that once underway the litigation may take on a life of its own; and finally the level of specificity needed to plead the claim to the satisfaction of the court and/or the defendant. A poorly pleaded claim may lead to rounds of requests for further and better particulars or applications for strike out or summary judgment.
While not as onerous as in the US, disclosure – our equivalent of discovery – is nevertheless in many cases disproportionately time-consuming and expensive. The volume of electronic documents that are likely to have been generated in any dispute will typically require the parties to engage an e-disclosure provider and agree to search terms and a review process in an attempt to unearth the “smoking gun” that will unlock the dispute. The policyholder bears the brunt in that, since having suffered the insured event, they will hold the majority of the documents and have the burden of proving their case. Attempts by the courts in recent years to overhaul the process and make the exercise more manageable have, as often as not, only served to frontload the cost and add additional layers of procedure. Insurance cases often settle after the disclosure stage once insurers are satisfied that the claim is genuine and that any adverse documents that might provide justification for declining the claim have been shared.
There is no equivalent of the US deposition process. Written witness evidence is prepared by each party’s own legal team and exchanged. There is no opportunity to interrogate that evidence until the witness is cross-examined at trial. Few insurance cases ever make it that far.
The key to unlocking an insurance claim, particularly in the construction sector, can often be strong technical expert evidence. Although written expert evidence is not exchanged until relatively late in the process (after disclosure and witness statements), it can be helpful to share expert evidence at an earlier juncture – even pre-action – to demonstrate the robust basis for the claim.
Litigation Process – ADR
The US Perspective
Although a large percentage of insurance litigation settles during discovery, it rarely happens without assistance from a third party. The courts in the US know this well. Accordingly, it is almost uniformly true now that courts require the parties, from the outset, to participate in some form of official alternative dispute resolution process during the course of the litigation.
While private mediation is the most common in our experience, this can take other forms as well, depending on the jurisdiction. Many jurisdictions have judges in the same court, other than your assigned judge, conduct settlement conferences or early neutral evaluations, which are often similar in format to mediation, but have some additional formality around them due to the presence in the courthouse and the neutral being a judge.
Judges also have significant discretion in how they set the case calendar. It has become increasingly common, in our experience, for judges in insurance disputes to not set a date for trial until after motions for summary judgment have been resolved. A federal judge recently expressly told the SDV author of this article that she would not set a trial date until after summary judgment motions because, in her experience, most of her insurance disputes settle at or around that time. Sure enough, the case settled at the end of discovery, just before those motions would have been filed. This is a significant departure from the typical procedure for other forms of litigation in the US.
The UK Perspective
While ADR and, specifically, mediation has been a very common way of resolving insurance disputes, in recent years, a number of issues that have had wide-ranging implications for the entire insurance sector, with billions of pounds at stake, have meant an unprecedentedly high volume of insurance disputes going not just to trial, but to the Court of Appeal and the Supreme Court. This wave of litigation has included the Covid-19 business interruption litigation, the Russian aviation litigation, and the construction litigation relating to the cost of remedying fire-safety issues affecting buildings throughout the country following the Grenfell tragedy and introduction of the Building Safety Act 2022. In the context of disputes relating to those issues, insurers have often been reluctant to enter into commercial settlements through ADR pending clarity from the courts on the extent of their liability. Further, settling one claim would have repercussions for claims being brought by other policyholders on similar wordings.
More generally, the court’s approach had traditionally been to encourage – but not require – the parties to a dispute to engage in ADR. However, following the introduction of new procedural rules in 2024, courts now have the power to order parties to engage in ADR and can impose costs sanctions on a party for failing unreasonably to engage in ADR. The extent to which the courts elect to exercise that discretion remains to be seen, and certainly it remains open to the parties to argue that, in the particular circumstances of their case, ADR would not be appropriate at any particular juncture.
Litigation Process – Trial and Judgment
The US Perspective
At the end of all of the pre-litigation, pleading, discovery, and motion practice phases of the insurance dispute, if the parties have not yet settled, there is still the prospect of a trial. Provided there is a disputed factual issue involved in the dispute, the insured is typically entitled to have the dispute heard by a jury.
Insurance companies have traditionally not benefited from positive news coverage in the US. Juries are composed of local individuals within the geographic jurisdiction of the court and include people from all social classes and bands of life. All residents in the geographic jurisdiction are subject to being called into the court for jury duty. These individuals are also regularly exposed to negative news coverage about insurance companies pulling out of insurance markets, denying claims, and charging ever-increasing rates for reduced coverage. Accordingly, there is a negative perception of the industry from average US citizens. Aside from specific situations where the policyholder carries a similar negative public perception, policyholders typically feel more confident bringing a disputed fact issue to trial than insurers do. This also contributes to driving settlement.
Relatively few insurance disputes in the US are resolved through arbitration, usually only occurring in select situations where the insurer included a mandatory arbitration provision in the policy. For those disputes that do go through arbitration, the process is similar, but with more limited discovery and less predictability in the procedural rules, as the arbitrator is typically not bound by state or federal procedural rules in how they administer the proceeding. Policyholders find that the perceived advantage in perception typically lacks in arbitration, due to the absence of a jury.
Another reason for the policyholder’s aversion to arbitration is the inability to appeal. Insurance issues are often extremely complex. Appeal of a trial court decision is typically a matter of right for the policyholder, at least to the intermediate state or federal appellate court. Insurance issues are typically not heard by the US Supreme Court, but state supreme courts may also agree to hear a further appeal following the intermediate court of appeals’ decision. This gives policyholders a reasonable degree of assurance that the correct result will ultimately be reached. If an arbitrator applies the law wrong, on the other hand, the case is typically over.
The UK Perspective
Civil trials in England and Wales are heard by a single judge at first instance, and without a jury. Juries are reserved solely for criminal trials. On appeal to the Court of Appeal, there is a panel of three judges, and should the matter come before the Supreme Court, the panel will typically consist of five, but potentially seven or even nine, of the twelve appointed judges – or justices, as they are called, of the Supreme Court.
From issue of proceedings to trial typically takes a period of 18 months to 2 years, and the process involves exchange of written statements of case (particulars of claim; defence and reply); a procedural hearing known as a case management conference to agree the directions to trial; usually followed by disclosure of documents (akin to discovery); sequential exchange of factual and expert witness statements; and trial. There may be interlocutory hearings, for example, for summary judgment.
The successful party at trial is awarded their legal costs. That is, the losing side bears not only their own costs but also adverse costs, being those of their winning adversary. The reasonableness of those costs is assessed, but typically around 65% - 70% can be recovered. The court also has a discretion to award indemnity costs, which results in a higher recovery. That potential exposure can be a bar to issuing proceedings – although it is possible (at a price) to obtain After The Event insurance (ATE) to cover the risk of being liable for adverse costs.
In the UK, the courts do not have the power to award punitive damages. Recent legislation has brought in the ability to claim damages for the late payment of insurance claims, but the threshold is high, and as a remedy, this has yet to gain significant traction.
The courts of England and Wales will not necessarily have jurisdiction over insurance disputes: many insurance policies contain arbitration clauses whereby any disputes, or disputes over quantum, are referable to arbitration. The advantages of arbitration for insurers are that their confidential nature means that decisions on certain contested clauses are not made public; conversely, the fact of litigation proceedings being heard in open court can provide policyholders with commercial leverage to the extent that not paying claims may open an insurer to negative reputational consequences. There is also a perception that many experienced insurance arbitrators hail from a long career on the insurer-side of the market, meaning that the outcome might be an insurer-friendly foregone conclusion – which as, in the US – is unlikely to be appealable.
Conclusion
Will: Most likely not to anyone’s surprise, there are some significant distinctions in the US and UK systems. Some of these distinctions – the ease of instituting litigation, impersonal nature of the insurance industry, and entitlement to highly probing discovery processes – perhaps help to explain the US’s reputation for litigiousness. The US system provides many opportunities for strategic gamesmanship, given the many forums to file in and the differences in state substantive law. I am left thinking that these considerations create an environment more favorable to corporate policyholders, who can take advantage of these processes as long as they are able to fund the process along the way.
Joanna: Drawing the threads together, and notwithstanding the fascinating and clear differences that we have explored between the two systems, some common themes do emerge, such as the relatively similar approaches to policy interpretation and propensity for claims to settle before trial. Despite the greater risks that litigating in the UK may pose to policyholders, similarly, those corporate policyholders that can fund the process are able to take advantage of a more favorable landscape post the Insurance Act 2015 and in light of the number of recent policyholder-friendly rulings. The challenge for us on both sides of the pond is how we bring about our shared goal of leveling the playing field for all policyholders.
Authors
Joanna Grant, Managing Partner, Fenchurch Law
Will S. Bennett, Partner, SDV Law
New Zealand’s Contracts of Insurance Act 2024 – What to Expect for Policyholders
The Contracts of Insurance Act (the “Act”), which received royal assent in 2024 and will come into force at the latest by November 2027, will overhaul and rationalise insurance law in New Zealand while harmonising it with existing law in other common law jurisdictions. In some respects, the Act should be celebrated as a win for policyholders, as it adopts some of the policyholder-friendly approaches taken in the UK Insurance Act 2015 (the “UK Act”).
The Act is intended to provide greater clarity for both consumers and commercial parties, replacing the previously fragmented law that was contained in multiple statutes and common law principles.
Key Provisions
The Act distinguishes between consumer and non-consumer (ie, commercial) policies. This article focuses only on the latter.
- Disclosure Duties
Previously, an insured’s duty of disclosure was based on the principle of utmost good faith. Under the Bill, this is amended to a duty of fair presentation of the risk, mirroring the UK Act. This requires that a policyholder:- Discloses every “material circumstance” that the policyholder knew or ought to have known, or provides sufficient information to put a prudent insurer on notice to make further inquiries;
- Gives disclosure in a reasonably clear and accessible manner; and
- Makes every “material representation” of fact substantially correct.
Here, “material” means anything that would influence the judgment of a prudent insurer.
For our thoughts on how the English courts have applied the principle of fair presentation, please see A “WIN WIN” for Policyholders - Fenchurch Law APAC.
- Proportionate Remedies
The Act also introduces proportionate remedies where the duty of fair presentation is breached, again mirroring the UK Act,. This is a departure from the previous “all or nothing” position, which meant the insurer could avoid the policy for breach of duty. The Bill now provides that the insurer can either:- Avoid the policy but return the premium (where the breach is not deliberate or reckless);
- Amend the policy terms where the insurer would still have underwritten the policy but on different terms; or
- Where the insurer would have charged a higher premium, it can either raise the premium for the term of the policy or proportionately reduce the indemnity.
- Damages for Late Payment of Claims
Another import from the UK Act, the Act establishes a new cause of action for damages where insurers fail to process claims within a “reasonable time”.- Whether the insurer has reasonable grounds for disputing the claim is a relevant factor in determining whether the obligation has been breached, as is the case under the UK Act.
- An insured will only be entitled to damages if it can establish that the insurer’s breach caused a loss, and those losses will be subject to the usual principle that they must not be too remote.
Aims
The above changes should allow policyholders to understand their obligations, and those of insurers more clearly and allow more efficient resolution of claims disputes.
The Act is designed to provide clarity and address historical imbalances between policyholders and insurers, and levels the playing field for policyholders by making their obligations and rights of recourse easier to understand.
What can be learnt from the UK market?
The coming into force of the UK Act has resulted in relatively few reported cases, making it more challenging to predict how New Zealand courts will interpret the provisions of the Act.
However, market feedback to the UK Act has shown that it has had a positive influence, fostering better communication before a policy is taken out, and fairer treatment of policyholders during the claims process.
Qualitative research suggests that Risk Managers have changed how they approach disclosure following the UK Act, with survey respondents reporting greater engagement with insurers.
While the introduction of damages for late payment has not so far resulted in any successful claims in the UK, the mere presence of the rule may be a motivator for insurers to handle claims diligently.
Most importantly, surveyed risk managers reported that the impact of the 2015 Act has overall been positive. Further, the data shows that, contrary to some initial fears, the introduction of the UK Act did not lead to a spike in disputes. The same result should be hoped for, and expected, in New Zealand.
Matthew King is an Associate at Fenchurch Law.
Fenchurch Law bolsters Construction and Property insurance team with two new appointments
Fenchurch Law, the UK’s leading firm working exclusively for insurance policyholders and brokers, has announced the expansion of its Construction and Property team, with Rob Goodship joining as Partner and former structural engineer, Duncan Gray, joining as a Trainee Solicitor.
Rob Goodship brings 15 years of insurance litigation experience with him, including considerable experience in resolving complex and high-value claims for corporate policyholder clients. He started his career at Kennedys, becoming an Associate, before joining Fenchurch Law in 2019 and being promoted to Associate Partner in 2022. He has spent the last 2 years at the Ardmore Group, one of the UK's leading main contractors, as Head of Risk, Insurance & Compliance. During this time, he gained in-depth experience in construction risks as well as continuing impact of the Building Safety Act 2022 on the sector. He returns to Fenchurch Law as Partner.
Duncan Gray has joined as a Trainee Solicitor at Fenchurch Law to develop his legal career, leveraging his extensive background in the construction industry. Before joining the law firm, Duncan worked as a structural engineer predominantly for engineering consultants and for tier one contractors in design management roles. He is also a Chartered Structural Engineer and a member of the Institute of Structural Engineers. He brings unique first-hand experience of the construction industry to his new role at Fenchurch Law.
These two hires come at a time of continued expansion for Fenchurch Law, as it grows its offering both in London and internationally, most recently with the opening of its Istanbul office on 1st October.
Managing Partner at Fenchurch Law, Joanna Grant, commented: “We are delighted to welcome Rob back and have Duncan join the team. Rob’s proven track record and extensive legal experience supporting policyholders and, in particular, contractors will be invaluable in helping our construction sector clients navigate this new legal landscape. In addition, Duncan’s industry experience will bring an important new perspective and knowledgebase to the company as we continue to deepen our specialist expertise in managing complex construction and property claims. Together, their combined experience will be invaluable in supporting Fenchurch Law in its mission to level the playing field for policyholders in the UK and around the world”
Rob Goodship shared: “I am excited to return to Fenchurch Law, and bring my experience working with one of the UK’s leading contractors to the Construction and Property team. To be joining as a Partner is a genuine privilege. During my time at Ardmore, I worked extensively on the risks arising from the Building Safety Act, including Building Information Orders and Building Liability Orders. Unfortunately for those in the sector, I think that we are only just beginning to see the systemic impact which the remedies under the BSA are going to have, such that this should be a real focus area for brokers and their clients.”
Duncan Gray added: “I was attracted to Fenchurch Law because of its reputation for high-quality work, combined with an innovative and dynamic culture. What really stood out to me was their individualised approach, both in the service they provide to clients and in how they develop their people. As someone who came into law through a non-traditional route, that made a real difference.”
Fenchurch Law continues global expansion plans with opening of new Istanbul office
Fenchurch Law, the leading international law firm for insurance policyholders and brokers, has expanded its specialist legal support to the wider Turkic region from its new hub in Istanbul.
Istanbul is an established (re)insurance hub, with particular expertise in Energy and Construction. The new Fenchurch Law office, serving territories across the Turkic and Balkan regions, will provide much needed legal support for policyholders and brokers.
The office is led by renowned Turkish-qualified lawyer, Çağlar Kaçar, who built his expertise during his tenure as an in-house lawyer at Marsh. He brings extensive experience in the insurance and reinsurance sector, having focused on supporting brokers and representing policyholders throughout his career before founding his own practice. His practice is uniquely positioned as a pro-policyholder firm, and his leadership combines sector knowledge, regulatory expertise, and strong broker relationships.
The opening of the Istanbul office comes a year after the launch of Fenchurch Law’s offices in Singapore and Denmark, and five months after forming a partnership with US law firm Saxe Doernberger & Vita, P,C. Fenchurch Law’s Istanbul office marks an important further milestone in the firm’s ongoing global expansion strategy.
Senior Partner at Fenchurch Law, David Pryce, commented: “As one of the major global insurance hubs, Istanbul is a natural new location for Fenchurch Law’s expansion, continuing our growth phase to level the playing field between policyholders and their insurers across the globe. Istanbul’s role in the Energy and Construction fields is especially interesting to us at Fenchurch Law, as we strengthen our established offerings in both sectors from our London, Copenhagen, and Singapore offices, and in the US alongside our colleagues at SDV. We could not think of a better individual than Çağlar Kaçar to lead this new hub, with his extensive sector knowledge and excellent reputation within the insurance ecosystem in the Turkic region.”
Çağlar Kaçar, new Regional Managing Partner commented: “Working and being associated with Fenchurch Law represents a natural continuation of my professional focus. Their work to support the policyholder in complex claims and high-value coverage disputes is something that I have focused on throughout my career, and I am pleased to be joining a team that prioritises the same mindset. Having worked in this region for many years, building strong broker relationships, and leading my own practice, I look forward to contributing to the development of this work here in such a dynamic and powerful insurance hub.”
The underinsurance crisis: legal repercussions, broker responsibilities, and growing solutions
Underinsurance is still a major, pressing issue in the UK insurance market, with recent figures revealing that a huge 76% of commercial buildings are currently underinsured. While this is an improvement from 81% in 2023 and 83% at its peak, the statistics reveal a systemic issue which affects businesses, policyholders, and every facet of the insurance ecosystem.
In a recent webinar on Underinsurance and the Insurance Act 2015, Alex Rosenfield, Partner at Fenchurch Law, delved into the world of underinsurance, why it’s become such a huge problem for our industry, the remedies that insurers may apply under the Insurance Act 2015, the legal and financial consequences for policyholders and brokers, and finally, some suggested strategies to mitigate the risks of underinsurance.
What is underinsurance?
Taking it back to basics, underinsurance arises when the total sum insured cannot cover the full cost of rebuilding or repairing a property. The gap between the true value, and the insured value can be created for many reasons.
- Failure to factor in full rebuild costs: Including demolition, debris removal, professional fees (e.g. architects and builders).
- Inflation: Rising costs of labour, materials, and equipment may not be reflected in outdated valuations.
- Forgetting VAT: This can be especially problematic for businesses that cannot reclaim VAT.
- Intentional underinsurance: The deliberate choice to disclose lower values to reduce premiums, a risky choice which can have detrimental implications on the policy holder.
Even financially educated clients and policyholders can end up underinsured, and one of the biggest reasons is a lack of diligence.
The implications of being underinsured can be very serious. Insurers tend to apply an average clause, and the policyholder may find themselves in financial crisis, needing to fund the difference between the sums insured, and the true asset value.
Alex stressed, “Underinsurance can be disastrous with large claims, but even partial losses can still leave policyholders under-compensated.”
As an alternative (and potentially in addition) to applying average, the insurer can apply a remedy for a breach of the duty of fair presentation under the Insurance Act 2015 (“the IA 2015”), which will depend on whether the breach was deliberate or reckless, or merely carless. If it was deliberate or reckless, the insurer can refuse to pay the claim, or void the policy altogether.
If this happens, the policyholder would most likely have to share this information with a future insurer, and they may be marked as a ‘moral hazard’, reducing their perceived capacity to suffer a loss of a particular kind.
It could also frustrate business continuity in some cases, as the insured may need to wait for financial stability, and in another commercial sense, beyond the financial hit, the act of underinsuring may put directors in breach of their statutory duties.
Insurer remedies for underinsurance
Alex explained that insurers most commonly utilise one of two remedies:
The Average Clause is the most common contractual remedy, proportionally reducing the claim to discourage underinsurance and reinforce the importance of accurate valuations.
There is also the possibility of the insurer applying a remedy for a breach of the duty of presentation under the IA 2015. If the breach was deliberate or reckless, the insurer can avoid the policy and refuse all claims, and keep the premium. If it was careless or negligent, the insurer’s remedy will be proportionate, and turn on what the underwriter would have done differently had the true insured sums been disclosed.
Can insurers apply both remedies?
Alex addressed a nuanced and (currently) legally untested question: Can an insurer apply both average and a proportionate remedy under the Insurance Act to the same failure?
While technically possible, Alex argued this would likely be seen as commercially unfair and commercially unattractive, creating a double punishment. A more reasonable response, he argues, is a single repercussion based on the circumstances and severity of the breach.
“To my mind, applying both remedies cumulatively doesn't sound very attractive, because policyholders effectively be punished twice for the same failure. I think a better analysis, which I think sounds a lot more commercial, is that the insurer picks one or the other, which may just depend on how this has all happened.”
Declaration-linked and waiver of average cover
Declaration-Linked Cover (a premium based on estimated gross profit), avoids average application, unless dishonesty is involved, and is especially useful for those businesses with changeable values and success. Traditional Sum Insured with Waiver of Average promises full claim payouts without average deductions, which is also ideal for businesses that struggle with accurate valuations. However, with a waiver of average, not disclosing ‘material’ changes, such as business value growth, may still be considered a breach of the duty of fair presentation.
“Average and the remedies that insurers have under the Insurance Act can be targeted for very different things. Where an average deals with inactive, inadequate cover that the insured chooses, which is a contractual term, the values of the Insurance Act address inadequate disclosure, which affect the risk so they do address different things.”
Having covered the insurer’s and policyholder’s responsibilities at length, where does the broker stand, what are their responsibilities?
The broker’s role
Alex went on to highlight the role of the broker in helping clients to mitigate the risk of underinsurance. The Infinity Reliance v Heath Crawford case serves as a significant warning to brokers about the importance of comprehensive client advice and clear communication about insurance terms.
Infinity Reliance, an online retailer, experienced a devastating warehouse fire, but after realising that the business was underinsured, the covered value was only 26% of the actual rebuild cost (which was around £33m). The insurer, Aviva, decided to apply average, leaving the business £3 million out of pocket.
But how was the broker implicated? Infinity alliance sued their broker, Heath Crawford, claiming that he had shared misleading documentation, failed to provide proper advice on the insurance calculation, and that he had not considered the alternative premises and additional costs in his advice.
The court agreed with the policyholder, finding the broker had breached his duty. How?
- Not explaining the potential downsides of the chosen insurance type
- Failing to clarify the implications of average and coverage limits
- Not ensuring that the client’s insurance choice was informed and genuine.
Indeed, while Infinity Reliance expressed that they didn’t want to suffer a premium change, the broker was ultimately in breach of duty, as a reasonable broker would recommend a declaration of cover.
“The broker must ensure the client understands any disadvantageous consequences, such as the risk that underinsurance would lead to any claim being reduced by average... even when a preference isn't expressed, the reasonable broker should check that it remains a genuine and informed choice,” Alex clarified.
Today’s legal landscape and practical solutions
While the Insurance Act 2015 introduced clearer frameworks, case law is still limited, leaving policyholders and insurers uncertain, especially on the potential for “double dipping” and the full implications of negligent misrepresentations.
So, what does Alex suggest to help combat the major issue?
- Address the root cause: diligence
There are many reasons for underinsurance, but there is one key theme amongst all reasons: a lack of diligence. It is of the highest importance to express the need for regular evaluations make sure that the policy covers all the necessary rebuild elements, and also to take account of inflation. It is also imperative that the policy holder reviews these figures annually.
"Never assume that the figures and costs that were adequate yesterday will be relevant today."
- Clarify remedy application
Insurers can, theoretically, apply cumulative remedies to the same ‘failure’, even if it feels “very draconian”. A practical solution is to actually discuss the remedy that might apply with insurers, and in what circumstances. That therefore creates certainty for all parties involved.
- Educate clients thoroughly
Brokers must explain the consequences to the policyholder of not insuring adequately; “It does go about saying that policyholders do need to be aware that other insurance can lead to serious shortfalls, even for partial losses.”
“Concepts such as average or declaration linked cover won't be obvious to everybody, so it is important to make sure that your policyholder clients know precisely what those terms mean.”
Underinsurance is not just a hidden gap in coverage, but a systemic vulnerability that has the capacity to shake business stability. With 76% of buildings underinsured, this is a problem that demands urgent attention from the entire insurance ecosystem: from insurers to policyholders to brokers.
The combined force of regulatory obligations, court decisions like Infinity Alliance, makes it clear: accurate valuation, diligent disclosure, and client education are necessities to combating this widespread issue in the current risk market.
Alex Rosenfield is a Partner at Fenchurch Law
Win-Win, and Win again: Delos Shipholding v Allianz in the Court of Appeal
Introduction
In October 2024, our colleagues Toby Nabarro and Eugene Lee wrote here about the policyholders’ first instance success in the case of Delos Shipholding SA & Ors v Allianz Global Corporate and Specialty SE & Ors [2024]. The Court of Appeal has recently upheld those findings in a judgment which will be essential reading for those involved in coverage disputes, especially concerning the duty of fair presentation under the Insurance Act 2015 (the Act).
Background
The case originated from an incident in February 2019 when the "WIN WIN", a bulk carrier vessel, was detained by Indonesian authorities for anchoring inside Indonesian territorial waters without permission. The vessel was detained for over a year, leading to its classification as a constructive total loss under the terms of the war risks insurance policy issued by the appellant insurers.
Key Issues on Appeal
The insurers were granted permission to appeal on two primary issues:
1. Exclusion Clause Interpretation:
The first issue concerned the interpretation of Exclusion (e) of the American Institute Hull War Risks and Strikes Clauses (1977), which excludes loss caused by, resulting from, or incurred as a consequence of "Arrest, restraint or detainment under customs or quarantine regulations and similar arrests, restraints or detainments not arising from actual or impending hostilities". The insurers argued that the detention of the vessel fell under this exclusion.
2. Duty of Fair Presentation:
The second issue was whether the policyholders had breached the duty of fair presentation under the Act by failing to disclose that the sole director of the registered owner of the vessel was the subject of criminal charges in Greece.
Court of Appeal's Decision
The Court of Appeal unanimously dismissed the insurers' appeal and upheld the policyholders’ claim for an indemnity.
1. The Exclusion:
The Court of Appeal interpreted the exclusion as applying to detentions under two different kinds of regulation, i.e. customs or quarantine regulations, and extending to other regulations with a similar purpose. The reason for the detainment here was because the vessel did not have the correct licence and it was common ground that it had not been detained under any customs or quarantine regulations.
The insurers’ case was that there had been a detention which was “similar” to a detention under customs or quarantine regulations, in part because customs and quarantine regulations are concerned with the exercise of state sovereignty and security, or clearances, and that the regulations under which the arrest was made were “similar”.
The Court found that the exclusion was concerned with:
“Arrest, restraint or detainment under customs or quarantine regulations and similar arrests, restraints or detainments …’ As a matter of strict language it might be said that it is the arrest, restraint or detainment which has to be similar to an arrest, restraint or detainment under customs or quarantine regulations, but as all arrests are similar in that they place a vessel under the control of the arresting state, it is clear that the similarity with which the clause is concerned is whether the regulation under which the arrest is effected is similar to, or has a similar purpose to, a customs or quarantine regulation”
As the detention of the vessel was completely unconnected – on the facts - to customs or quarantine regulations, the Court found that it therefore did not fall under the exclusion.
2. Duty of Fair Presentation:
On the issue of fair presentation, the issue was whether the insureds ought to have disclosed criminal charges which had been brought against its sole nominee director prior to inception of the policy.
The principal insured was Delos Shipholding S.A. (Delos), which was the registered owner of the vessel. Its sole nominee director was a Mr Bairactaris, a Greek maritime lawyer. Delos was part of the NGM Group, a well-known Greek shipping group run by the Moundreas family. Mr Bairactaris was the only person who was aware of the charges which had been brought against him. Mr Bairactaris was limited in his role as nominee director to taking instructions from the Moundreas family, he exercised no independent judgment and made no decisions.
Actual knowledge
As a corporate insured, pursuant to s.4 of the Act, Delos was obliged to disclose material information within the actual knowledge of its “senior management” (or information which Delos “ought to know”, as discussed further below). The first issue was whether Mr Bairactaris fell within the definition of “senior management”, being “those individuals who play significant roles in the making of decisions about how the insured’s activities are to be managed or organised”.
Both Courts found that Delos’ activities consisted of owning and operating the vessel for profit, which included acquiring contractual rights and obligations. Mr Bairactaris played no part in these activities and had no decision-making role; he simply did what he was told by the Moundreas family.
Therefore, the Court of Appeal upheld the first instance finding that Delos was not aware of the criminal allegations that had been brought against Mr Bairactatris. Whilst the sole director of a corporate insured will normally be part of the insured’s senior management, this will not always be the case. Further, it did not follow from this finding that Delos had no senior management for the purposes of the Act; rather, the senior management comprised those members of the Moundreas family who took the decisions on behalf of Delos.
Ought to know
The Court of Appeal also upheld the first instance finding that the criminal allegations did not amount to information which Delos ought to have known pursuant to s3(4)(a). In short, the obligation to make reasonable enquires pursuant to s4(6) did not extend to asking Mr Bairactaris about whether he knew of any material information, essentially because he knew nothing about the vessel to be insured and thus Delos would reasonably have considered it futile to make enquiries of him .
Inducement and remedy
Pursuant to s5, Schedule 1 of the Act, if the insurer would have entered into the contract, but on different terms, the contract is to be treated as if it had been entered into on those terms. The trial judge had found that, upon full presentation of the criminal charges, insurers would have imposed a condition that Mr Bairactaris should resign as a director and that the insured would have complied with that condition because Mr Bairactaris would have resigned (i.e. that the non-disclosure had not, therefore, induced insurers to enter into the policy).
Insurers argued that it was impermissible to consider what the insured would have done in response to any hypothetical additional terms imposed by insurers as this was not provided for in the Act itself; an argument which was supported by the Law Commission Report on the draft Act (para 11.82), which had stated:
”… it should not be open to an insured to say that it would have complied with any term which the insurer would have imposed (for example, an exclusion or warranty) and so the loss should be covered…”
Given the finding that the insureds had not breached the duty of fair presentation, the Court of Appeal stated that it was unnecessary to determine whether the trial judge was wrong in her findings on inducement, although the Court of Appeal said they found insurers’ submissions persuasive. The Court also noted that it had not received any submissions on whether it was legitimate to use the Law Commission Report or Explanatory Notes to the Act as aids to interpretation and made no findings in this regard.
This important issue of inducement will therefore be left to be decided in another case.
Implications of the Decision
The Act is one of, if not the, most important pieces of legislation for policyholders and coverage lawyers. Therefore, any judgment from an appellate Court discussing the Act is essential reading, especially when the policyholders prevailed. The Court of Appeal's decision should be kept in mind, especially in relation to the duty of fair presentation, when considering:
- The circumstances when an individual may or may not form part of the insured’s senior management. Senior management may include individuals who are not on the board, not employees and who have no contract with the insured;
- The extent to which reasonable enquires have to be made of someone within the organisation seeking insurance; and
- Inducement, and the extent to which it may be legitimate to consider steps which the insured would have taken in response to an additional term which the insurer hypothetically would have imposed following fuller disclosure. The Court of Appeal strongly indicated that such an approach was wrong, whilst not making any findings on this point meaning that, technically, this is still an open issue for another day.
Author:
Fenchurch Law Strengthens Asia-Pacific Presence with New Partner Appointments
Fenchurch Law, the leading international law firm for insurance policyholders and brokers, has appointed two new Partners to its Singapore hub, demonstrating its commitment to the Asia-Pacific region.
Julian Teoh, a twenty-plus year veteran of insurance and reinsurance law has joined the firm as Partner, and Toby Nabarro, a long-time member of the firm, has been promoted from Director to Partner.
Julian brings a wealth of experience to Fenchurch Law, having acted in property, construction and business interruption claims across the region over the last two decades. Before joining Fenchurch Law, he was a partner at an insurer-facing international law firm, and has also spent time on secondment at the Sydney headquarters of Australia’s largest general insurer. His expertise has been recognised in a number of legal directories, including the Gracechurch Asia-Pacific Insurance Law Report and Euromoney’s Expert Guide to Insurance and Reinsurance in Singapore.
Toby Nabarro was a Director and founding member of the Singapore office, having joined the firm in 2020. Toby specialises in Construction, Engineering and Marine insurance coverage disputes.
Since opening in 2024, Fenchurch Law’s Singapore hub has provided first-class support on high-value, complex, commercial insurance disputes to policyholders in Singapore and the wider Asia-Pacific region. These two new appointments highlight the firm’s growing commitment to serving its broker partners and their policyholders in the region.
Toby Nabarro, Partner: “Julian is set to be an instrumental member of our Singapore operation as our client-driven expansion in the Asia-Pacific region continues. We are delighted to have Julian joining the team; his work in the market is widely respected, and his Asian experience will be a real asset as we establish ourselves as the law firm of choice for our broker partners and their policyholder customers in the region. I look forward to working with him closely as I also commit to the new role of Partner.”
Julian Teoh, Partner: “There is a clear lack of insurance law expertise that policyholders in the region can access in disputes with their insurers. Fenchurch Law has an excellent reputation within the legal insurance market, and I am excited to join such a dynamic and growing team and help to level that playing field."
Timing is everything Part II – Archer v Riverstone and (a reminder of) the cost of not complying with a condition precedent
In our article on Makin v QBE last month, we highlighted the importance of complying with conditions precedent, and noted that claimants pursuing claims under the Third Parties (Rights Against Insurers) Act 2010 (“the 2010 Act”) inherit both the rights and obligations of the insured. This case serves as yet another clear reminder of that principle, underlining the risks claimants face when policy conditions are not strictly observed.
Background
The Claimant, Hannah Archer, issued proceedings against R’N’F Catering Limited (“R’N’F”) on 5 July 2022, seeking damages for personal injury following a meal at R’N’F’s restaurant (“the Proceedings”).
R’N’F filed a defence in December 2020 and then entered into a members’ voluntary liquidation in February 2023 (“the Insolvency”). It played no active role in the Proceedings thereafter.
By a consent order dated 9 July 2024, Riverstone Insurance (Malta) SE (“Riverstone”), the successor to ArgoGlobal SE, which insured R’N’F under a restaurant insurance policy from 18/09/18 – 17/09/19 (“the Policy”), was added to the Proceedings.
The Proceedings
Miss Archer claimed that she was entitled an indemnity from Riverstone by virtue of the 2010 Act. Specifically, she said that:
- The Insolvency meant that R’N’F’s rights under the Policy had automatically transferred to her; and
- By reason of s.9(2) of the 2010 Act – which stated that anything done by a third party which, if done by the insured, would amount to fulfilment of the condition as if done by the insured – she complied with the Policy.
The question of Riverstone’s liability to Miss Archer was disposed of at a preliminary issues trial. There were two issues to be determined:
- Could Riverstone prove that R’N’F was not entitled to an indemnity under the Policy (“Issue 1”)?
- Could s.9(2) of the 2010 Act assist Miss Archer to render Riverstone liable on proof of R’N’Fs liability (“Issue 2”)?
Issue 1
The breaches of condition precedent
Riverstone asserted the following breaches of condition precedent by R’N’F:
- A failure to “On the happening of any event which could give rise to a claim … as soon as reasonably possible give notice to the insurer” (“the First Breach”)
- A failure to “supply full details of the claim in writing together with any evidence and information that may be reasonably required by the Insurer for the purpose of investigating or verifying the claim … within … 30 days of the event or circumstances …” (“the Second Breach”).
- A failure to “take all reasonable precautions to prevent or diminish loss destruction damage or injury” (“the Third Breach”).
- A failure to “provide all help and assistance and cooperation required by the Insurer in connection with any claim” (“the Fourth Breach”).
(Collectively, “the Breaches”).
The Breaches were all largely based on the same facts.
In a nutshell, Miss Archer first contacted R’N’F on 29 November 2019 to advise that she had become seriously unwell following a meal at its restaurant. Her solicitors then wrote to R’N’F on a several occasions, which included their sending a Claim Notification Form (“CNF”) and a letter on 10 January 2020 which requested R’N’F’s insurance details. R’N’F did not respond.
Miss Archer’s solicitors then sent a letter of claim to R’N’F on 30 October 2020. That prompted R’N’F belatedly to notify Riverstone on 17 November 2020.
Sedgwick, Riverstone’s claims handlers, thereafter emailed R’N’F asking for information about the claim. That included, notably, a chaser email on 20 July 2021 which stated: “failure to assist us with this matter is a breach of policy terms so if we fail to receive your response your insurer may take the decision to decline indemnity”. Indeed, it was not until October 2022 that R’N’F’s Director, Mr Ali, engaged with Sedgwick, at which point he blamed the delay on the fact that emails had gone into a spam folder.
The parties’ positions
Riverstone said there was no case for R’N’F to answer in respect of the Breaches. It described R’N’F as “burying its head in the sand for months and indeed years, before coming up with a ‘dog ate my homework’ series of excuses’.
Miss Archer, perhaps unsurprisingly, did not advance a positive case as to R’N’F’s actions. She simply said that Sedgwick took only limited steps to contact R’N’F for information, and that “alarm bells should have rung” when R’N’F did not respond.
The decision
The court had no difficulty in finding that Riverstone was right.
As to the First Breach, it said that any and all of the initial communications from Miss Archer and/or her solicitors to R’N’F were “circumstances” which should have prompted R’N’F to notify Riverstone, and that R’N’F was “thoroughly disengaged with the threatened claim, maybe hoping that by ignoring it, it will go away”. So, because R’N’F did not notify Riverstone of the “circumstance” until 17 November 2020, the First Breach was made out.
As to the Second Breach, the court agreed with Riverstone that R’N’F repeatedly ignored Sedgwick, and had no good reason for doing so. Further, the timing of its belated engagement was redolent of a policyholder that “panicked that its prior tactic of ignoring the threatened claim had failed”. The court also rejected Mr Ali’s “spam folder” explanation; that lacked any sort of cogency, and even if it did, the court found that R’N’F ought to have had proper procedures in place for checking important emails.
Based on the same factual matrix, the court found that the Third and Fourth Breaches were also made out.
As R’N’F was in breach of conditions precedent to liability, Riverstone was entitled to refuse to indemnify it.
Issue 2
Miss Archer asserted that even if R’N’F was in breach of condition precedent, she was nonetheless entitled to an indemnity. The gist of her argument was that R’N’F only became a ‘relevant person’ within the meaning of the 2010 Act at the point of the Insolvency. Thereafter, she “stood ready” to comply with the Policy, as shown by the fact that notifying and corresponding with Sedgwick and Riverstone’s solicitors. So, her position was that anything done by her was to be treated as done by R’N’F, thus entitling her to an indemnity.
She also argued that it was impossible for her to comply with the conditions precedent in the Policy before the Insolvency, as her rights only arose at that stage. That was also consistent, she said, with the 2010 Act’s policy of protecting third parties in circumstances where an insured becomes insolvent.
Riverstone disagreed. It said that any actions taken by her after the Insolvency, however reasonable, were too late, and were incapable of leading to a conclusion that she complied with the Policy.
Although the court had considerable sympathy with Miss Archer, it found that she was nevertheless wrong. In short, it was not possible to “resurrect” her right to an indemnity in circumstances where that same right had already been invalidated by R’N’F. If it was, that would effectively mean that the conditions precedent to which was subjected were entirely different from those to which R’N’F were subjected. The court found no authority for such a proposition.
The court was also unpersuaded by Miss Archer’s impossibility argument. It noted that over three years passed between the first circumstance in November 2019 and the Insolvency, and no impossibility prevented R’N’F complying with its obligations in that time. So, as R’N’F had already lost its rights under the Policy when it was not faced with an impossibility, Miss Archer could not take the benefit of them now.
Summary
The decision in Archer is another important illustration that where an insured has already lost its rights under a policy, a claimant pursuing a 2010 Act claim stands in no better a position. Even if the failure was not of the claimant’s making, that is of no consequence – the claimant does not get a second chance.
Finally, although the judgment does not explore the point in detail, it reinforces the principle that conditions precedent, and particularly notification requirements, must be complied with strictly.
The full judgment can be found here:
https://www.bailii.org/ew/cases/EWHC/KB/2025/1342.html
Author:
Timing is everything – Makin v QBE and the cost of not complying with a condition precedent
This recent decision from the High Court provides a powerful reminder of the consequences of not complying with a condition precedent to liability, and that a claimant pursuing a claim under the Third Parties (Rights Against Insurers) Act 2010 inherits both the rights – and the pitfalls – of the insured’s policy.
Background
The Claimant, Daniel Makin, attended a Bar and Restaurant on 6 August 2017. At around 08:30pm he threw a glass on the floor while apparently in “high spirits”, and was then forcibly ejected by two door supervisors (“the Incident”).
Although Mr Makin was seemingly unaffected by the Incident (he walked away and took a taxi home), he later suffered a stroke rendering him unable to work and requiring long-term care.
The Proceedings
Acting by his mother and litigation friend, Mr Makin issued proceedings against (1) the Restaurant Muse Limited (“the Restaurant”); (2) Protec Security Group Limited (“Protec”), the employer of the two doormen; and (3) QBE Insurance (Europe) Limited (“QBE”), who insured Protec under a “Security and Fire Protection” insurance policy (“the Policy”). QBE was joined to the proceedings under the Third Parties (Rights Against Insurers) Act 2010 (“the 2010 Act”).
At a preliminary issues hearing (which Protec did not attend, having entered into administration on the preceding day), the Judge, HHJ Sephton KC, gave judgment that Protec were liable to Mr Makin for assault and his consequent injury (“the Judgment”).
At trial, the parties agreed that pursuant to the 2010 Act: (1) Mr Makin was entitled to claim against QBE directly; and (2) Mr Makin’s rights were no better than those of Protec ie., if QBE had a good defence to a claim for indemnity by Protec, it would also have a good defence to Mr Makin’s claim.
QBE asserted that it had no liability to Mr Makin because Protec breached the claims condition in the Policy – a condition precedent – which required it to notify, “… as soon as practical but in any event within thirty (30) days in the case of other damage, bodily injury, incident accident or occurrence, that may give rise to a claim under your policy …” (“the Condition”).
Mr Makin disagreed. He contended that even if there was a breach of the Condition, it was not a condition precedent which entitled QBE to automatically refuse cover. Rather, it only gave QBE only the discretion to decline the claim, which it could not exercise “arbitrarily, irrationally or capriciously”.
Finally, an issue arose as to whether the Judgment was binding in these proceedings.
The issues to be decided, therefore, were:
- Did Protec breach the Condition? (“Issue 1”)
- If so, was QBE entitled to refuse cover for a breach of a condition precedent, or did it merely have a discretion to decline the claim? (“Issue 2”)
- If QBE was not automatically entitled to refuse cover, was it nevertheless entitled to do so on the facts? (“Issue 3”)
- Was the Judgment binding on QBE? (“Issue 4”).
Issue 1
Following the incident in 2017, neither the correspondence passing between the Restaurant and Protec, the Police’s investigations, nor the Letter of Claim sent in 2020 were disclosed to QBE contemporaneously. In fact, there was no suggestion that QBE were aware of the Incident at all before July 2020. Against that background, QBE said that Protec breached the Condition.
Mr Makin argued that a reasonable person would not have thought that the Incident, on its own, might give rise to a claim. He also argued that any suggestion that Protec may have come under an obligation at a later point to notify the Incident was contrary to the proper meaning and effect of the Condition. He relied in that regard on Zurich v Maccaferri [2016], in which the Court held that the likelihood of a claim eventuating is assessed at the time the event occurs.
QBE, by contrast, held that it would have been apparent to a reasonable person in Mr Lucas’ position that a claim might be made against Protec arising out of the Incident. It also distinguished the present case from Zurich v Maccaferri, because the requirement in that case was to notify a circumstance that was “likely” to give rise to a claim, whereas the Condition required Protec to notify a circumstance “might” give rise to a claim, which was a much lower threshold.
Although the Court accepted that the Incident, in isolation, would not have led a reasonable insured to form the view that there might be claim, there was nevertheless “a clear point in time” when the matters known to Mr Lucas, which included the police investigation, and that Protec were potentially open to criticism for injuring a customer, gave rise to an obligation to notify. Having not done so, Protec was in breach of the Condition.
Issue 2
On Mr Makin’s case, the Condition was not a condition precedent. That is because, he said, it was not expressed in that way (by contrast, there were other terms in the Policy that were so expressed), and if there was any doubt as to the correct interpretation, the Condition should be construed contra proferentem in his favour.
QBE disagreed. It said the Condition did not need to be labelled as a condition precedent in order to have that effect. It also referred to the introductory section of the Condition, which stated: “The following conditions 1-10 must be complied with after an incident that may give rise to a claim under your policy. Breach of these conditions will entitle us to refuse to deal with the relevant claim”. So, QBE said, the Condition made clear at the outset that its obligation to meet a claim was conditional upon Protec’s compliance. Further, and importantly, QBE contended that the use of the word “will” was consistent with an absolute right, not a contractual discretion.
As with Issue 1, the Court agreed with QBE. The true meaning of the Condition was clear, even without the label of “condition precedent”. The Court also agreed with QBE’s analysis that the word “will”, in the introductory section of the Condition, did not merely import a discretion to decline indemnity. To hold otherwise, in the Court’s view, would do an injustice to the language used. There was also good commercial sense in that conclusion: an early notification enables an insurer to investigate claims at a time when witnesses will be easier to contact and memories are likely to be better, as well as to consider the early settlement of the claim, minimising any delays.
So, on the basis that the Condition was indeed a condition precedent to QBE’s liability, and in circumstances where that condition was breached, QBE was entitled to refuse indemnity under the Policy.
Issue 3
Given the Court’s earlier findings, this point was academic: QBE had already prevailed in light of the Protec’s breach of a condition precedent to liability. However, had the Court found that the Condition did not have that status, then, applying the well-established Braganza principles – namely, that a decision must be lawful, rational and made in good faith – it would have found that QBE was not entitled to refuse cover. The breaches in this case were trivial and of no meaningful consequence for QBE’s ability to deal with the claim.
Issue 4
The final issue was whether the Judgment establishing Protec’s liability was binding on QBE in circumstances where it was given (a) at a hearing which Protec did not attend; and (b) before QBE were a party to the proceedings.
Mr Makin contended that the Judgment was binding on QBE as establishing Protec’s liability. He relied in particular on Scotland Gas Networks plc v QBE UK Ltd, in which the Court of Session held that where a policyholder’s liability was established by way of a judgment of the court in previous proceedings, “it is not open to the [insurer] to require either the existence or the amount of that liability to be proved in the present action”.
QBE argued the contrary. It referred to AstraZeneca Insurance Co Ltd v XL Insurance (Bermuda) Ltd and Omega Proteins Ltd v Aspen Insurance UK Ltd, both of which established that neither a judgment nor an agreement are determinative of whether a loss is covered by a policy – it is open to an insurer to dispute that the insured was in fact liable.
The Court agreed with Mr Makin. The present case was distinct from Omega Proteins and AstraZeneca v XL Insurance, because those cases did not involve the 2010 Act, which was focussed on placing a claimant in the same position as the insolvent insured. It would therefore be incongruous with that objective if an insured’s liability could be determined definitively, only for the insurer to later challenge it.
Summary
There are a number of salutary lessons from Makin:
Firstly, the decision provides a convenient reminder of the distinction between “likely to” and “may / might” wordings in the context of notification conditions. Whereas the former requires an insured to notify circumstances which are at least 50% likely to lead to a claim, the latter requires only a real, as opposed to fanciful, risk of a claim eventuating. Policyholders would be well advised to check which wording appears in their policies, and to ensure that the requirements are met.
Secondly, the decision reinforces that a condition precedent need not be labelled as such in order to have that effect. Where the consequences of breaching a condition are clearly spelt out, namely, that an insurer will not be liable for a claim, the courts will likely treat the condition as a condition precedent to liability. It should never be assumed, therefore, that a condition precedent does not have that status simply because the words “condition precedent” are not included.
Thirdly, and finally, although the Court’s application of the 2010 Act did not assist Mr Makin on the facts, it is likely to be helpful for policyholders generally: where an insured’s lability is definitively determined in earlier proceedings, then, applying Makin, it will not be open to an Insurer to unravel that Judgment later down the line.
Author:
Commercial Court grounds War Risks insurers in landmark Russian aircraft judgment
Please find a link to the judgment here - Russian Aircraft Lessor Policy Claims [2025] EWHC 1430 (Comm)
Introduction
On 11 June 2025, judgment was handed down following the long-awaited Russian aviation “mega trial” heard in the Commercial Court between October 2024 and January 2025.
The judgment is substantial for a number of reasons, not least because it runs to 230 pages, but also because the £809 million awarded is the largest amount ever awarded by the UK courts.
Of particular significance to policyholders however, is Mr Justice Butcher’s detailed application of causation principles, and his commentary on “the grip of the peril” which he first considered in Stonegate Pub Company Ltd v MS Amlin Corporate Member Ltd & Ors [2022] EWHC 2548 (Comm) and which was recently affirmed in Sky UK Ltd & Anor v Riverstone Managing Agency Ltd & Ors [2023] EWHC 1207 (Comm).
Background
On 10 March 2022, shortly after Russia’s invasion of Ukraine, the Russian Government issued an order which banned the export of aircraft and aircraft engines, initially for a period up until 31 December 2022 (“Order 311”). As a result, an estimated £7-10 billion of aircraft were retained by Russian lessees, and coverage proceedings were brought by affected lessors across a range of jurisdictions. Last winter, six sets of those proceedings were heard together by the Commercial Court, with AerCap acting as lead claimant on behalf of DAE, Falcon, KDAC, Merx and Genesis (together, “the Lessors”).
Each of the Lessors insured aircraft under policies which included two relevant sections, namely All Risks and War Risks cover. Whilst the All Risks cover insured against loss arising from property damage subject to certain exclusions, the War Risks cover protected against loss caused by war, which is typically excluded from standard All Risks cover.
Within those sections, there were two principal types of cover: Contingent Cover and Possessed Cover. The Contingent Cover was designed to respond when the aircraft were not in the physical possession of the Lessors, but were instead being operated by the Russian lessees, and was triggered in circumstances where the Lessors could not recover under the operator’s own insurance policies. In contrast, the Possessed Cover was designed to respond when the aircraft were in the actual possession of the Lessors, including during the course of any repossession.
Given that its War Risks cover was subject to an aggregate limit of $1.2 billion (around £892 million), AerCap’s primary claim was for All Risks cover for the full value of the aircraft at $3.5 billion (around £2.57 billion).
We set out the various points considered by the Court, and the key takeaways for policyholders, below.
Insurers’ position
Both All Risks and War Risks insurers denied liability for the Lessors’ claims on the basis that (inter alia):
a) the Lessors had not been permanently deprived of the aircraft;
b) in any event, both Political and Government Perils were excluded under the All Risks cover;
c) the loss was not covered under the War Risks cover; and
d) the effect of US and EU sanctions was that insurers were prohibited from paying the Lessors’ claims.
Contingent Cover or Possessed Cover?
AerCap advanced that it was the Contingent Cover which responded to the claim, given that the assets were stranded in Russia and were not therefore in the care, custody or control of the Lessors.
It was a requirement of the Contingent Cover that the Lessors were “not indemnified” under the lessee’s own insurance policy. The relevant leases obliged the lessees to take out their own insurance for the aircraft during the period of the lease, with the Lessors added as an additional insured. Those policies were referred to by the Court as the Operator Policies. It was an important factor that Lessors had also sought an indemnity under the Operator Policies, which is listed for trial in the Commercial Court in October 2026.
Despite each of the other Lessors seeking cover under the Possessed Cover, Mr Justice Butcher agreed with AerCap and held that each of the Lessors were entitled to claim under the Contingent Cover, given that the various requirements of the Contingent Cover were, prima facie, met.
Whilst the insurers argued that the Contingent Cover only responded in circumstances where the Lessors were “not indemnified” under the Operator Policies, and there was in fact a chance, pending the trial listed for October 2026, that they would be, the Court held that “not indemnified” actually meant “had not been paid”. On that basis, the Lessors’ outstanding claims under the Operator Policies were no bar to cover, as they had not been paid in respect of them.
In reaching that view, Mr Justice Butcher adopted guidance from the Australian case of LCA Marrickville Pty Limited v Swiss Re International SE [2022] FCAFC 17, which held that:
“The ease with which an insured may establish matters relevant to its claim for indemnity may influence questions of construction … a construction which advances the purpose of the cover is to be preferred to one that hinders it as a factor in construing the policies.”
In that vein, the Possessed Cover was not engaged because it was triggered where the aircraft were in the possession of, or alternatively were “in the course of repossession” by, the Lessors. The Court held that the latter required an overt act to physically repossess the aircraft, rather than simply an intention or a plan to do so. Therefore, as the Lessors had not taken steps to repossess the aircraft, the Possessed Cover could not be engaged.
Could the Lessors demonstrate permanent deprivation of the aircraft and, if so, when?
The relevant insuring clauses were triggered by “physical loss or damage” sustained to the aircraft during the period of insurance.
Each of the Lessors advanced a similar argument, which was that it was sufficient for them to show, on the balance of probabilities, that recovery of the aircraft was a “mere chance”.
In contrast, War Risks insurers argued that the appropriate test was whether there was no realistic prospect of recovery at any time within the commercial lifetime of the aircraft, a bar which they said had not been met. All Risks insurers accepted that there had been a loss of the aircraft, but argued that the loss was the result of a War Risks peril.
In holding that each of the Lessors had suffered permanent loss of possession of the aircraft upon the implementation of Order 331 on 10 March 2022, the Court held that the Lessors only needed to establish that deprivation of possession was, on the balance of probabilities, permanent which, in line with the judgment of the Supreme Court of New South Wales in Mobis Parts Australia Pty Ltd v XL Insurance Co SE [2019] Lloyd’s Law Rep IR 162, could be interpreted as being “more probable than not”. That case, whilst not binding in the UK, considered the notion of permanence and held that it should be assessed against the standard of “more probably than not”.
What was the proximate cause of the loss?
Having established a loss, the central issue was whether that loss was covered under the All Risks or the War Risks cover.
In relation to the All Risks cover, the Court had to consider whether the claims fell within either of two excluded perils, being:
a) Political Peril, defined as “any act of one or more persons, whether or not agents of a sovereign power, for political or terrorist purposes and whether the loss or damage resulting therefrom is accidental or intentional”; or
b) a Government Peril, defined as “confiscation, nationalisation, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any Government”.
If the claims did fall within either of those perils, the War Risks cover would be engaged.
Despite War Risks insurers’ attempts to argue a restrictive interpretation of the exclusions, Mr Justice Butcher found that the action taken by the Russian government on 10 March 2022 (Order 311) amounted to a “restraint” or “detention” that fell squarely within the definition of a Government Peril.
As a result, the claims were excluded by the All Risks cover and fell to the War Risks insurers.
Causation – Wayne Tank & Pump Cp. Ltd v Employers Liability Incorporation Ltd
Central to the arguments on causation was whether the Wayne Tank principle applied to independent concurrent causes (i.e. two causes each of which is sufficient to cause the loss on its own), or if Wayne Tank applied only to interdependent concurrent causes (i.e. where two causes, neither of which is sufficient on its own, act together to cause the loss).
In broad terms, the Wayne Tank principle dictates that, where there are two proximate causes of a loss, and one is covered and the other excluded, the exclusion will prevail, and the insurer will not be liable.
In seeking to limit the potential application of the Government Peril and Political Peril exclusions if it was found that the loss was also caused by a peril within the All Risks cover, War Risks insurers argued that the Wayne Tank principle did not apply to independent concurrent causes. In essence, the War Risks insurers were seeking to argue that, in addition to Order 311, the lessees of the planes had independently decided that it was in their interest to retain the aircraft and engines, which was a proximate cause which would be covered under the All Risks cover, and was completely independent from Order 311 such that the Wayne Tank principle did not apply.
Ultimately, Mr Justice Butcher found that Order 311 was the sole proximate cause. However, obiter, he commented that, even if there was an independent concurrent cause that fell within the scope of the All Risks cover (such as the lessees deciding themselves to retain the aircraft), the Wayne Tank principle would apply and the fact that Order 311 triggered the Government Peril exclusion would exclude cover in any event.
This part of the judgment is notable for policyholders as, while it is settled law that the Wayne Tank principle applies to interdependent concurrent causes (causes which act together to cause the loss), Mr Justice Butcher has now indicated, albeit obiter, that the same principle applies to independent concurrent causes (causes which would have been sufficient to cause the loss on their own).
As a result, each of the Lessors’ claims were found to be excluded under the All Risks cover and it was held that the claims fell to the War Risks insurers. Unfortunately, in Aercap’s case, this meant that it was entitled only to the lower limit of indemnity of $1.2 billion.
Do sanctions prevent payment to lessors?
Each of the policies contained an endorsement providing that insurers would not be liable where “providing coverage to the Insured is or would be unlawful because it breaches an embargo or sanction".
On that basis, insurers argued that they were prohibited from making payment under the War Risks section on account of sanctions introduced by the EU and US.
The Court considered the relevant sanctions and rejected insurers’ arguments on the basis of the specific wordings.
The grip of the peril – Stonegate v MS Amlin and Sky v Riverstone applied
Finally, in light of Mr Justice Butcher’s finding that the loss occurred on 10 March 2022, a separate issue arose in relation to the claims advanced by the Lessors whose War Risks policies contained provisions to review the geographical limits of the policies, pursuant to which insurers had terminated cover in Russia prior to 10 March 2022.
DAE, Falcon, Merx and Genesis advanced the “death blow” or “grip of the peril” concepts considered by Mr Justice Butcher in Stonegate v MS Amlin and again by the Court of Appeal in Sky v Riverstone. The lessors argued that the loss flowed from a peril that was operative within the policy period, and so, notwithstanding that the total loss occurred outside of it, they were entitled to cover.
In considering the authorities, Mr Justice Butcher clarified that:
“if an insured is, within the policy period, deprived of possession of the relevant property by the operation of a peril insured against and, in circumstances which the insured cannot reasonably prevent, that deprivation of possession develops after the end of the policy period into a permanent deprivation by way of a sequence of events following in the ordinary course from the peril insured against which has operated during the policy period, then the insured is entitled to an indemnity under the policy.”
Concluding that there were indeed restraints and detentions that took place prior to the implementation of Order 311, and that the loss of the aircraft on 10 March 2022 arose in a sequence of events that followed in the ordinary course of those restraints and detentions, it was held that the aircraft were in the grip of the peril by the time the relevant policies were terminated, and the relevant Lessors were therefore entitled to cover. In other words, whilst the aircraft were lost on 10 March 2022, they were in “the grip of the peril” from 5 March 2022 onwards.
In making this decision, the Court made several important findings, including:
a) relying on the explanation of the doctrine by the Court of Appeal in Sky v Riverstone, that a policy covering “loss occurring during” does not overcome the application of the “grip of the peril” principle;
b) there is no difference between (i) a loss where physical damage during the period of insurance later develops into a total loss after expiry and (ii) a loss where a deprivation during the period later becomes permanent after expiry, as a matter of construction; and
c) the “grip of the peril” principle naturally applies to deprivation of possession scenarios.
Lessons for policyholders
During a time of increased geopolitical tension, this decision is an important one given its key findings of fact and analysis of legal principles, which are likely to be applicable to all manner of coverage disputes arising out of Russia’s invasion of the Ukraine.
In particular, Mr Justice Butcher’s consideration of loss by way of deprivation in non-marine insurance policies is likely to be relevant to a range of insurance policies and policyholders that have been affected by the fallout from the Ukraine conflict and other ongoing geopolitical events.
Mr Justice Butcher’s consideration of the Wayne Tank principle is also of particular importance to policyholders given the apparent expansion of its previously accepted application to interdependent concurrent causes. It now seems that the principle will also apply to causes either of which is sufficient to cause the loss on its own, but which act in parallel.
Authors:
Joanna Grant, Managing Partner
Anthony McGeough, Senior Associate