Mind the Gap: Owners Corporation 1 Plan No. PS 640567Y v Shangri‑La Construction Pty Ltd [2026] VSC 117
Introduction
A recent decision of the Supreme Court of Victoria poses an important question for the construction sector in particular: where statutory and/or strict liability regimes which concern actions taken by directors or officers are not covered by professional indemnity (“PI”) insurance, is directors’ and officers’ (“D&O”) insurance able to plug any gap in cover?
Background
Shangri‑La Construction Pty Ltd (“SCP”) was appointed to design and construct a residential development in Victoria, Australia. SCP’s Managing Director, Mr Naqebullah, recommended that the external façade incorporated expanded polystyrene (“EPS”) cladding, which was later determined to be non‑compliant with applicable building regulations. Following remediation works funded by the State of Victoria (the “State”) (similar to the Building Safety Fund here in England & Wales), it pursued an action to recover such costs under Section 137F of the Building Act 1993 (Vic) (“Section 137F”), which was enacted in 2019. Section 137F is a strict liability provision which grants the State rights of subrogation against officers and/ or directors of contractors for the cost of cladding rectification work.
Pursuant to Section 137F, the State obtained summary judgment against Mr Naqebullah in the sum of approximately $3.17 million plus interest. Mr Naqebullah then sought indemnity under two consecutive “claims made and notified” professional indemnity policies taken out by SCP (the “Policies”).
Key questions
The Court was required to determine:
- Whether Mr Naqebullah was an “Insured” under the Policies;
- Whether a “Claim” had been made and notified within the relevant periods of insurance; and
- Whether the liability fell within the insuring clause, which responded to civil liability incurred in the conduct of the insured’s professional business.
Judgment
Insured status
The Court held that Mr Naqebullah was an insured person under the Policies. Although he was not named individually on the certificates of insurance, the policy documents, read as a whole (including the proposal forms), demonstrated that directors were intended to fall within the class of insureds.
Claims made and notified
The Policies were written on a strict claims made and notified basis. However, the State’s ability claim under Section 137F did not come into force until after the expiry of the Policies. As a result, and unsurprisingly, the Section 137F claim against Mr Naqebullah could not have been made during the relevant periods of insurance. Moreover, attempts to treat earlier proceedings involving SCP as the relevant claim, or to attach the Section 137F claim back to earlier notifications, were rejected as undermining the commercial purpose of claims made insurance.
Scope of the professional indemnity cover
Most interestingly from our perspective, the Court found that the liability imposed on Mr Naqebullah was not incurred in the conduct of professional business. “Professional Business” was defined by the Policies as design, including advice in relation to design in accordance with all relevant building, construction or engineering codes and standards.
It was Mr Naqebullah’s case that providing services as a registered building practitioner in drafting a specification under a design and construct contract constituted the provision of professional services of a skilful character as contemplated by the Policies.
However, no element of the State’s case against Mr Naqebullah involved provision of any design, specification or advice as contemplated by the “Professional Business” definition under the Policies, nor did Mr Naqebullah’s liability to the State depend in any way upon breach of a professional duty by him or by SCP. Instead, his liability arose solely (and strictly) under Section 137F as he was an officer of SCP at the time of the non‑compliant work.
Analysis and implications
This decision highlights an area of tension between statutory and/or strict liability regimes and professional indemnity insurance. Even where the factual background involves professional services, insurers will inevitably look closely at the legal basis on which liability is imposed. Where that basis arises in statute and/or by strict liability, PI insurance policies may not respond.
When that liability concerns actions taken by directors or officers, the question then becomes whether D&O insurance is able to plug any gap in cover.
Whilst there are no analogous strict liabilities directly arising from the design or construction of buildings here in England & Wales, sections 40 and 161 of the Building Safety Act 2022 (the “BSA”) did introduce offences for officers who commit, consent to or negligently fail to prevent breaches of the Building Act 1984 (including contravention of the Building Regulations) and breaches of Part 2 or Part 4 of the BSA (including obstructing building control or failing to manage Higher Risk Buildings).
While liability imposed on an individual by virtue of holding office might ordinarily be expected to fall within the scope of D&O insurance, such policies often contain broad professional services exclusions. This creates a real risk that policyholders may find themselves without cover under either policy.
Conclusion
For policyholders and brokers, the decision underlines the importance of reviewing PI and D&O cover together, rather than in isolation. Particular attention should be paid to the scope of the professional services definition and insuring clause alongside the breadth of professional services exclusions in D&O policies, and the extent to which programmes are designed to respond coherently to building safety liabilities.
Authors
Abigail Smith, Associate
Pawinder Manak, Trainee Solicitor
The Grenfell & Champlain Towers: Risk Management Considerations in the Wake of Catastrophic Loss — A UK/US Comparison
1. Introduction
As part of the multinational collaborative relationship between Saxe Doernberger & Vita, P.C. and Fenchurch Law, we continually find ourselves in conversations about the sometimes subtle but sometimes drastic differences between risk management and coverage considerations from one country to the next. These differences are often highlighted by the fallout from large catastrophic losses that are widely publicized and illuminate sometimes widespread risks and perils that many others may be facing in the coming years.
The response of governments and their subdivisions to the needs of victims and/or commercial parties, and insurance markets’ evaluation of and reactions to catastrophic losses vary widely from country to country and jurisdiction. In this article, we discuss these responses and reactions in the cases of the Grenfell Tower Fire in London, England, and the Champlain Tower collapse in Surfside, Florida, within the United States. These two widely publicized losses involved different risk management and insurance considerations based on where they occurred. They also saw substantially different government responses and raised varied questions about what the next steps are for their respective commercial and insurance markets.
This comparison highlights the variation in considerations that policyholders face when examining risks across national and international operations. What to expect and what to look out for depends heavily on where you do business, and we are excited to continue these conversations to support policyholders across the globe.
Whilst our joint analysis has identified some significant differences in the risk and insurance landscape for contractors and construction professionals operating in these key markets (largely, and perhaps unsurprisingly, driven by key regulatory and legislative differences), there are common themes including the effect of public response and awareness, insurance market reactions and risk management considerations.
2. The Grenfell Tower Fire
A. Background
On 14 June 2017, a catastrophic fire ripped through a high-rise residential building in Central London known as Grenfell Tower, resulting in the tragic deaths of 72 people. Prior to the fire, Grenfell Tower had undergone significant refurbishment, which included new windows and a rainscreen cladding system being fixed to the outside of the reinforced concrete structure. Many of the materials and components used were either combustible or not of limited combustibility, which is thought to have significantly contributed to the intensity of the fire and the speed with which it spread around the 24-storey structure.
The fire has had a seismic impact on owners, leaseholders, and tenants of buildings with unsafe cladding, many of which were, and continue to be, faced with huge challenges in relation to the cost of remediation and the interim fire safety measures.
The tragedy has also had a significant effect on those operating in the construction industry, including the availability and applicability of their insurance when faced with claims from parties seeking to fund the cost of removing and replacing unsafe cladding. That work of itself has, in some instances, revealed other defects, in turn leading to increased claims against those involved in the design and construction of buildings.
B. Immediate Implications
The focus after the tragedy was rightly to try and identify the cause of such an intense fire, with the refurbishment being the obvious starting point. The UK Government commissioned the Building Research Establishment to undertake a series of tests on aluminium composite material (“ACM”) panels in combination with a number of other common external wall components in order to test compliance with the Building Regulations. Only one of the tests passed, which included mineral wool insulation. Although the initial focus was on ACM, subsequent tests and investigations revealed similar non-compliances caused by the use of non-ACM materials.
The Government also immediately announced a Public Inquiry into the tragedy, which began hearing evidence in September 2017, leading to the Phase One report (dealing with the events on the night of the tragedy) being issued in October 2019, followed by Phase Two (concerned with the refurbishment of the tower) in September 2024. To date, the criminal and civil proceedings in relation to the Grenfell Tower itself remain ongoing, although that is most likely due to those proceedings needing to await the conclusions from the Inquiry.
External wall systems similar to those used on Grenfell Tower (both ACM and non-ACM) had been commonly used in both residential and commercial developments for many years (if not decades). Given the sudden attention which these systems were now receiving as a result of the public outcry following the tragedy, many involved in the design and construction of buildings using similar systems were facing immediate requests for information on the materials used and the threat of claims if the buildings were unsafe and/ or non-compliant with the Building Regulations.
C. Insurance Implications
Non-compliant cladding systems present an issue in relation to first-party insurance coverage, which is almost exclusively by damage. Absent a definition in the policy, damage will likely be determined by reference to common law authority, which is concerned with a physical change that has impaired the use or value of the insured property. Non-compliant cladding has not undergone a physical change – its condition has remained stable, and its unwanted quality comes from its non-compliance, which renders it defective (not damaged). Policyholders therefore had to look to other sources for insurance cover, including latent defect policies which provide first-party cover absent damage if there is a present or imminent danger.
From a liability perspective, contractors and construction professionals had little choice but to consider the nature and extent of their exposure to claims and their coverage for professional negligence claims, particularly in view of more restrictive cover being introduced on policy renewal, many of which included full or partial exclusions for fire safety and/ or cladding claims. Some policyholders were therefore placed in an unenviable position – either notify circumstances which could give rise to claims to an expiring policy knowing those notifications were likely to be challenged, or face the risk of any claims being excluded from subsequent policies as a result of either fire safety and/ pr cladding exclusions or known or prior circumstance exclusions.
In practice, many policyholders made ‘block notifications’ to their professional indemnity insurance policies in an attempt to salvage some insurance cover in the face of restrictive cover on renewal. Whilst relatively unusual prior to Grenfell, block notifications enable a policyholder to, as the name suggests, notify a large number of related circumstances at one time, although the validity of each will be assessed individually. Although there is a practical benefit to a policyholder in notifying circumstances in this way, it does attract suggestions from insurers that the subsequent claims aggregate as they are related (given that they lent themselves to a block notification).
D. Ensuing Litigation and Government Reactions
In the years that followed the Grenfell tragedy, a wave of claims were brought against contractors and construction professionals in relation to allegedly defective and/ or unsafe buildings. Solomonic reported in September 2024 that over 100 such claims were issued in the Technology & Construction Court since the Grenfell fire[1], although many more are likely to be in the pre-action phase. Policyholders were typically faced with challenges to cover under policies they might expect to indemnify them in respect of liability arising from such claims for numerous reasons, including that:
a) the validity of the notification (block or otherwise) – either that by reference to the applicable threshold and/ or requirements, notifications were made too soon or too late;
b) the claims arose from known circumstances if they were notified to the policy, which renewed in the months following the Grenfell tragedy;
c) some or all of the alleged issues were caused by poor workmanship, as opposed to design or specified, such that the claim was excluded; and/ or
d) even if the policy did respond, then any claims would aggregate as they arose from the same originating cause or the same act or series of acts.
To date, there have not been any significant reported judgments concerning disputed insurance cover for cladding or fire safety claims, although that is potentially a result of policyholders compromising claims when settling the underlying liability claim, or coverage claims being resolved by arbitration (which is a confidential dispute resolution process).
More generally, the necessary work to remove unsafe cladding / external wall systems has led to the discovery of wider issues, including internal fire safety defects (such as poor compartmentation or fire stopping) and structural defects (which were hidden behind external wall systems). These have been the subject of numerous and significant claims of their own right, including BDW Trading Limited’s claim against structural engineer, URS (now part of AECOM), which went all the way to the Supreme Court in 2025.
The drive to remediate unsafe buildings (with reports suggesting that 4,630 residential buildings over 11m still have unsafe cladding[2]) resulted in both the Government having to introduce public funding for those works, including the Building Safety Fund and the Developer Remediation Contract which required developers to remediate unsafe residential buildings or face being excluded from development work or denied building control approval on new developments.
However, notwithstanding the positive action taken by the Government, there were calls to improve the rights and remedies of affected owners, leaseholders, and tenants, as well as avoid repeated instances of systemic failures going forward – both of which were purposes of the Building Safety Act 2022.
E. The Building Safety Act 2022
The first formal step towards legislative change as a result of the Grenfell tragedy was the ‘Building a Safer Future’ publication in June 2019, although it took until 28 June 2022 for the Building Safety Act 2022 (“BSA”) to be implemented. The BSA introduced a raft of retrospective and prospective changes to building safety legislation, with the most significant from an insurance coverage perspective being:
a) Extension of the retrospective limitation period for claims under the Defective Premises Act 1972 (“DPA”) from six years to thirty years (fifteen years prospectively); and
b) The implementation of new remedies in the form of Remediation Contribution Orders (“RCOs”) and Building Liability Orders (“BLOs”) which, in prescribed circumstances, can ‘pierce the corporate veil’ and pass liability for the cost of remediating unsafe buildings from the original contracting party to its ‘associates’
Whilst it typically takes longer for the insurance coverage implications of such significant legislative changes to appear compared with the often more immediate impact on underlying liability claims, the following are already presenting issues in practice:
a) Given the surge in claims being made under the DPA, insurers are adopting a more restrictive approach to coverage under PI policies, including arguing that the duty under the DPA is strict and therefore does not trigger the reasonable skill and care requirement of most PI insuring clauses;
b) That liabilities arising from RCOs or BLOs are similarly uninsured as the act, error or omission giving rise to the liability is that of the associated entity, not the RCO or BLO defendant; and
c) That in any event, any claims which are now available pursuant to the BSA, arise from known or prior circumstances (and are therefore excluded) and/ or do not attach to any existing notifications in the years following the Grenfell tragedy.
These disputes are likely to take many years to resolve, although it seems inevitable that policyholders facing these new claims/ remedies will have little choice but to pursue their insurers given the sums at stake.
3. The Champlain Towers South Collapse
A. Background
In the middle of the night on June 24, 2021, a twelve-story beachfront condominium tower called Champlain Towers South in the Miami suburb of Surfside partially collapsed, killing nearly one hundred people and injuring almost a dozen more. An effort to recover survivors of the collapse began in earnest and continued through late July. Many people had to be rescued from the un-collapsed portion of the building, but only four people were rescued from the building’s rubble, and only three of them ultimately survived.
Champlain Towers South was originally built in the early 1980s, along with two other towers completed in the late 80s and early 90s. In the days leading up to the collapse, emerging cracks and other indications of structural stress were observed, including water leaking into the underground parking garage from an area that had been the site of many cracks and repairs over the years. One resident reported that minutes before the condominium tower fell, the pool deck and street-level parking collapsed into the underground garage.
The U.S. National Institute of Standards and Technology (“NIST”) assigned a team of scientists and engineers to investigate the cause or causes of the collapse, and their work continues to this day. Preliminary findings in 2021 indicated the collapse started in the pool deck rather than in the tower itself. NIST’s subsequent years of investigation determined that the collapse likely started in a pool deck slab-column connection and then progressed through the condominium tower. Their reports also indicate that there were indications of the building’s distress that were visible in the weeks before the partial collapse.
B. Litigation, Investigation and Government Action
Almost immediately, a lawsuit on behalf of the residents of the building and their survivors was brought against the Champlain Towers South Condominium Association’s board in the local trial court. Shortly thereafter, the court appointed class counsel for separate groups of those injured or killed in the collapse, survivors, and former residents. Subsequently, numerous other defendants that were involved in development, maintenance, management, security, or repairs for the tower, as well as their insurers, were added to the suit.
Just before the one-year anniversary of the collapse, the named defendants, as well as some unnamed defendants, and their insurers reached a $1.02 billion settlement with the plaintiffs in the class action. Despite the ultimate cause of the collapse being unknown, nearly half of the settlement came from a single company and its insurers, in relation to an on-duty security guard not triggering a building-wide alarm before exiting the building. Subsequent investigations into the causes of the collapse also raised concerns about significant deferred maintenance of the structure’s concrete components, waterproofing, saltwater corrosion of exposed rebar, inadequate original construction, impacts of construction at an adjacent site, and years of subsidence in the area.
Government reactions to the collapse have been focused locally and regionally, rather than nationally. There are hundreds of high-rise condominiums with thousands of units like those in the Champlain Towers all across Florida. In the wake of the collapse, Florida passed condominium reform legislation creating a state-wide inspection program for condo buildings taller than three stories. Buildings will go through a milestone inspection certification process upon reaching thirty years of age, or twenty-five if they are located within three miles of the coast. They will be inspected again every ten years afterward. Inspection records will be made public, and condominium associations will not be able to waive structural maintenance fund reserve requirements. That statute was later amended to give the local authorities discretion on whether to inspect at 25 or 30 years.
C. Insurance Implications
On the first party side, there is no real dispute that there was physical loss or damage to the Champlain Towers, but common issues in the property insurance markets are worth noting. Collapse has been a peril of focus for many years, and policies vary widely on whether they cover collapse, whether collapse is limited to certain causes, or whether it is subject to lower sublimits. Wear and tear, inherent vice, subsidence, or exclusions related to defective construction can also be problematic in situations like the Champlain Tower collapse. Undoubtedly, we will see more restrictive variations in these terms emerging as insurance markets react to the risks highlighted by this tragedy. Lenders, property owners, and developers must keep a keen eye on the markets in light of their portfolios’ risk profile to ensure buildings are properly underwritten.
In terms of liability, the collapse implicated a wide swath of operations, from property management and security to maintenance, professional consulting and improvements, and all of the insurance underwriting those operations. Through their association by management control, maintenance or upkeep operations, security services, or otherwise, numerous companies and their insurers were brought into the suits seeking damages caused by the tower’s collapse. Those managing or providing services at the site, or who performed maintenance or construction at the site, would rely on commercial general liability as the primary source of contribution. Any professional service providers, including architects or engineers that might have been involved, were also relying on professional errors and omissions liability insurance. The condominium’s board may also have been relying on errors and omissions coverage for decisions associated with allegedly deferred maintenance.
Although a swift settlement was reached in this case, there are some common and emerging issues in liability insurance that are worth highlighting. One of the most concerning is the market’s creeping limitations on completed operations coverage. Exclusions have started to pop up in liability insurance for work performed before the current policy period, despite no injury or damage ever occurring before the current policy period. So, for example, assume a waterproofing contractor worked at Champlain Towers two years before the collapse. If their insurance in place at the time of the collapse had an exclusion in it for work performed during a previous policy period, the insurance in place at the time of the collapse would not respond. Nor would the policy in place at the time of the work respond, because liability insurance typically requires bodily injury or property damage that did not occur until the collapse itself.
Over the years, we have seen incidents like this driving subtle changes in the market that do not get scrutinized until a loss has occurred and it is already too late. Given the jurisdictional and situational variability in the U.S., commercial parties must take a proactive approach to insurance placement and renewal to ensure they are keeping up with market shifts.
D. Broader Legislative and Commercial Considerations
Unsurprisingly, insurance premiums for condominiums in the area have increased by orders of magnitude since the collapse. Unlike the UK’s response of ensuring remedies for aggrieved survivors, Florida’s responses to increased insurance costs have been “tort reform,” with major legislation coming in the form of HB 837 in 2023. Amongst other things, the bill implemented a modified negligence system, reduced the statute of limitations for negligence claims, eliminated one-way attorney fees for bad faith in many cases, and placed other limitations on attorney fees as well as damages evidence. Insurers have benefited heavily from these reforms, and Florida touts the bill as a tremendous success in their favor.
In the United States, each state has its own scheme of statutes of limitations and statutes of repose. The former being the amount of time after which a claim can no longer be brought by an injured party. The latter being the amount of time after construction operations are completed beyond which construction defect claims cannot long be brought by anyone. In Florida, the statute of repose is seven years from, amongst other things, the date of a certificate of occupancy or completion, or when construction is abandoned. As with the reduced remedies under Florida’s “tort reform” bill, the statute of repose was actually shortened from ten years to seven.
Also, unlike the UK, there is no national corollary to the Building Safety Act, and public funding for proactive remediation of potential risks like those associated with the Champlain Tower collapse is rare. Sometimes, federal disaster relief is granted for specific catastrophes, but not since the implementation of superfund site support has the US seen proactive national support for risk remediation. Further, the general rules regarding corporate immunity and veil piercing, along with statutes of repose, can shield entities historically affiliated with a building like Champlain Towers if they are removed in time or association. The localized administrative requirements issued by Florida in response with respect to building inspections were the only meaningful government response to the tragedy. In the U.S., states and local governments vary significantly in how they balance the interests of builders, property owners or managers, and tenants or buyers.
Without comprehensive remedies to address the serious considerations raised by an event like the collapse, the focus has been on commercial reactions. Property owners and developers are taking stock of their profiles and reassessing risks based on the lessons learned. The operations and decision-making of property managers and boards with respect to needed and deferred maintenance of older buildings are getting a second look in light of known issues at Champlain before the collapse. Certainly, with respect to older concrete buildings near the ocean, contractors engaged in maintenance and upkeep operations are also highlighting the implications of the Champlain collapse in their transactions with owners. The collapse likely impacts the value and risk associated with older buildings, pushing owner and equity groups toward new construction generally, whereas the Grenfell issue is easier to identify as a prospective buyer.
However, commercial entities should also be looking out for changes in the insurance markets. As with other large-scale historic losses, such as Exterior Insulation and Finish Systems, we have seen changing terms creeping into policy terms. New forms and endorsements related to concrete, subsidence, wear and tear, or other similar items should get a second look in light of a company’s portfolio and risk profile. Without a close eye on the market, new exclusions have a habit of popping up when it is already too late.
4. Observations and Conclusions
While remedies available and governmental responses to catastrophes like Grenfell and Champlain vary considerably from country of jurisdiction to another, some risk management considerations are more normalized.
One significant difference we see in Grenfell as compared with Champlain is the relative speed at which survivors of the Champlain collapse settled their claims as compared those of the Grenfell catastrophe. Some observers noted that the Champlain suits settled relatively quickly due to the potential publicity associated with delaying compensation for the victims. This is in part a function of the ability of survivors to bring and establish a class action so quickly and verdict escalation in the U.S., with many potential parties at risk, each with limited insurance and assets to contribute and not wanting to get left out of a settlement. Compensation for Grenfell survivors will take longer, arguably because the criminal and civil proceedings needed to wait for the Public Inquiry to conclude. On the other hand, the UK saw national governmental implementation of new remedies in response to Grenfell, where no such national response occurred in the U.S. after Champlain. Instead, Florida’s pressure from the insurance markets actually eroded policyholder remedies.
In part, the sheer size of the U.S., but also its more recent historical political tendencies, make it unsurprising that national remedies in response to a tragedy like Champlain would be unlikely. As such, changes in remedies tend to be more localized, though still influenced by large commercial interests lobbying power. Additionally, proactive risk management is much more of a commercial exercise rather than adjusting to legal changes. Policyholders in the U.S. benefit substantially from robust reviews and vigorous engagement in the insurance procurement and contractual risk management processes. This should include keeping an eye on insurance markets for reactions to publicized risks and addressing these risks up front through business practices.
By comparison, the national remedies in response to Grenfell in the UK may have taken time to implement, but their impact has been widespread both in terms of the rights and remedies of those effected by unsafe cladding in the built environment, as well as the building safety regime and regulations for new buildings. Those changes have dramatically increased the liability landscape for contractors and construction professionals, inevitably resulting in increased insurance coverage disputes in relation to historic projects. However, at the same time, those measures seek to reduce the building safety risks in future projects, which should, in turn, lead to improved design, procurement, and risk management measures and, ultimately, reduce the liability exposures of those operating in the construction industry.
Despite the jurisdictional differences, there are some risk management and insurance considerations that will be more universal. Policyholders must still pay close attention to managing retrospective dates, aggregation clauses, and notification provisions in claims and risk management practices. Policyholders should also take stock of statutes of limitations or repose in jurisdictions where they have operations, and trends in completed work or continuing damage terms in their insurance markets to stay current on best practices.
Authors
Rob Goodship, Partner Fenchurch Law
Eric Clarkson, Senior Associate, SDV Law
[1] 100+ cladding and fire safety claims seven years on since Grenfell Tower fire — Solomonic
[2] Housing block residents still caught in cladding crisis after Grenfell tower fire | The Independent
Ten years on: has the Insurance Act 2015 actually delivered for policyholders?
The Insurance Act 2015 (“the IA 2015”) was introduced to level the playing field for insurers and policyholders, and to move away from outcomes that were perceived as outmoded.
As the IA 2015 approaches its 10-year anniversary, this article will examine whether it has achieved those objectives – with particular focus on property damage claims – as well as the areas where uncertainty remains.
Duty of fair presentation: a shift in framework, as well as insurer behaviour?
One of the central reforms introduced by the IA 2015 was the introduction of proportionate remedies for breaches of the duty of fair presentation, which replaced the previous draconian “all or nothing” regime. In principle, this marked a significant and welcome shift. In practice, however, disputes concerning fair presentation and remedies remain common, particularly in the context of property damage claims.
A common example arises where, for example, following a fire, insurers allege that the policyholder failed to disclose historic alterations to the property, deficiencies with electrical compliance, or that one of its directors had previously been involved with insolvent companies. Had these matters been disclosed, insurers may assert that they would have only agreed to insure the policyholder on different terms or, as is more often the case, that they would not have agreed to insure the policyholder at all.
Insurers have increasingly sought to characterise alleged breaches of this nature as deliberate or reckless, thereby entitling them to avoid the policy outright (as well as keep the premium and refuse all claims), whilst sidestepping a detailed analysis of what they would have done differently. The result is that, rather than reflecting a fundamental change in behaviour, some claims handling practices have adapted tactically to fit within the structure of the IA 2015.
As a matter of law, the evidential burden remains firmly on insurers. It is for them, not policyholders, to prove how the alleged non‑disclosure or misrepresentation influenced their underwriting. In practice, insurers are frequently reluctant to disclose the evidence said to support their position, such as contemporaneous underwriting guidelines, contemporaneous exchanges at the time of placement, or a witness statement from the underwriter involved. In those circumstances, policyholders are left with an invidious choice: they can either accept the insurer’s position at face value, or commence litigation without fully understanding the strength of the case they must meet. Neither outcome sits comfortably with the intended purpose of the IA 2015, particularly in high‑value property damage claims where the consequences of avoidance can be severe.
Section 11 – a causation test, or not?
Section 11 of the IA 2015 (“s.11”) was intended to prevent insurers from declining claims on the basis of technical breaches of policy terms that had no connection with the loss. In straightforward cases, its application is uncontroversial. A breach of a fire alarm warranty should not entitle an insurer to avoid liability for a flood loss, just as a failure to maintain a burglar alarm should not defeat a claim for storm damage.
More complex property damage claims, however, expose the underlying difficulty in applying s.11 ie., where the breach can be shown not to have caused the loss per se, but it is harder to say that compliance could not have reduced the risk of that loss in different circumstances. So, for example, a failure to comply with a condition to store combustible waste in a particular place might not have caused a fire, but it nonetheless could have done. This gives rise to a fundamental question: does s.11 require a strict causation test, or is it sufficient that compliance with the term could theoretically have reduced the risk of the loss occurring?
The Law Commission appeared to favour a non‑causation approach ie., they said that the test is whether compliance could realistically have affected the loss that actually occurred, rather than requiring a strict causation analysis. However, the wording of s.11 focusses on whether the breach “could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred”. That language strongly suggests that there is, in fact, an element of causation, because the emphasis is on the way in which a particular loss occurs. In practice, this shifts the inquiry toward a counterfactual assessment of whether compliance with the relevant term could have made a difference. So, in the context of an alleged breach of a requirement to carry out a 30‑minute fire watch following hot work, it would be open to a policyholder to assert that the breach could not have made any difference if fire did not break out until three or four hours later.
The High Court’s decision in Mok Petro Energy Ltd v Argo (No.2) [2024] EWHC 1935 (Comm) is the first decision on s.11. However, the provision was dealt with only briefly, and no more than a few paragraphs. The court’s observation – that the correct question is whether compliance with the term as a whole could have reduced the risk of the loss – was obiter, and not central to the outcome of the case. While the comments are nonetheless of interest (and are now frequently relied upon by insurers to reject a causation analysis), they fall short of providing definitive guidance. As a result, considerable uncertainty remains.
Damages for late payment: the theory and the reality
Section 13A of the IA 2015 (“s.13A”) introduced a statutory right for policyholders to recover damages for the late payment of insurance claims. For example, following a major fire loss, an insurer may decline cover and take many months to investigate and maintain that position, during which time the policyholder is unable to fund reinstatement and suffers continuing business interruption losses. If it is later established that the insurer had no reasonable basis for its declinature, s.13A would, in principle, entitle the policyholder to claim damages for losses flowing from that delay, such as additional loss of profits, or increased reinstatement costs.
In theory, s.13A represents a significant shift in the balance between insurers and policyholders, with the aim of discouraging unreasonable delays. In practice, however, its impact has been limited so far.
The threshold for a successful claim under s.13A is a demanding one. It is not enough for a policyholder to establish that an insurer was wrong to deny or delay payment of a claim; the policyholder must also prove that the insurer acted unreasonably. Where an insurer can demonstrate that it had “reasonable grounds” for disputing the claim, liability under s.13A will not arise, even if the coverage position is later shown to be wrong. This creates something of an asymmetry: a relatively low bar for insurers to resist liability, and a correspondingly high bar for policyholders seeking to recover losses caused by delay.
That imbalance is particularly acute in property damage claims. Following fires, or escapes of water, insurers often rely on extended investigations into causation, compliance with policy terms, or alleged non‑disclosure as giving rise to “reasonable grounds” to investigate a claim. While some degree of investigation is plainly required, the availability of “reasonable grounds” as a defence under s.13A offers insurers considerable latitude to justify prolonged delay.
There are also significant practical constraints. Claims for s.13A damages are evidence‑heavy, requiring detailed scrutiny of the insurer’s decision‑making process and the reasonableness of the time taken. Policyholders must also continue to comply with their duty to mitigate loss, which can be particularly challenging where reinstatement cannot happen without funding. As a result, the remedy is costly to pursue and, in many cases, commercially unattractive. It also raises the question as to whether well-resourced policyholders, who might be able to mitigate more easily, are able to establish claims for s.13A damages at all.
The case law reflects these difficulties. For example, in Quadra Commodities SA v XL Insurance Co SE [2022] EWHC 431 (Comm), the court suggested that a period of “not more than about a year” was reasonable for a complex claim. While that is helpful in principle (particularly as a benchmark against which delay in straightforward claims might be assessed), the policyholder ultimately lost its s.13A claim because the insurer was found to have had reasonable grounds for disputing coverage.
To date, there have been no successful reported claims under s.13A, and its effectiveness in future claims will depend, amongst other things, on the courts’ willingness to draw firmer lines around what constitutes an unacceptable delay. Until then, damages for late payment claims are likely to remain more of a strategic lever than a routinely deployed remedy.
A developing framework
While there has been meaningful case law in relation to the duty of fair presentation, other aspects of the IA 2015 remain comparatively underdeveloped. In particular, further authoritative case law on s.11 is needed to resolve the continuing uncertainty as to its proper application, especially in complex property damage claims where issues of causation and risk frequently overlap.
Similar uncertainty surrounds s.13A, and in particular the threshold for what constitutes “unreasonable” grounds for refusing or delaying payment of a claim. Absent any successful reported claims under s.13A, its true potential as a remedy for policyholders remains to be seen.
A decade on from its introduction, the IA 2015 has unquestionably reshaped the legal framework governing commercial insurance disputes. However, it has not eliminated all of the underlying tensions between insurers and policyholders. Further case law, particularly in relation to s.11 and s.13A, will be critical in determining how the IA 2015 operates in practice over the next decade.
Author
Alex Rosenfield, Partner
Levelling the Playing Field?: the Impact of Section 13A, almost a decade on
Despite having been introduced almost nine years ago, the impact of section 13A remains to be seen. In this article, we consider whether it has achieved its purpose of levelling the playing field for policyholders, or whether it has fallen short of the reform that was originally promised.
A (brief) history
Section 13A of the Insurance Act 2015 (the “Act”) was enacted by section 28(1) of the Enterprise Act 2016 and came into force on 4 May 2017. It introduced an implied term into every contract of insurance that the insurer must pay claims within a reasonable time (including time to investigate and assess the claim) and marked a significant development in UK insurance law.
To date however, there have been only two section 13A claims heard by the courts, both of which have failed: in Quadra Commodities S.A v XL Insurance Co SE and Others [2022] because the insurer succeeded in presenting a “reasonable grounds” defence, and in Delos Shipholding SA & Ors v Allianz Global Corporate and Specialty SE & Ors [2024] because the insured had failed to establish its loss.
You can read our analysis of Quadra here – Better late than never: the first reported case on damages for late payment - Fenchurch Law.
While limited inferences can be drawn from the outcomes of only two claims, there are some obvious challenges to policyholders wanting to pursue these claims.
We consider those challenges below.
What is a “reasonable time” in which a claim should be paid?
The first issue is that the burden of proof is on the insured to demonstrate that the insurer failed to pay within a reasonable time.
The Law Commission Report, and the Explanatory Notes to the Enterprise Act, make it explicit that a reasonable time will always include a reasonable time for investigating and assessing a claim, that claims under business interruption policies will usually take longer to value than claims for property damage, and that larger more complicated claims will take longer to assess than straightforward claims.
In Quadra the Commercial Court commented that assessing what was a reasonable time was “not an easy one to decide”. The facts involved transport and storage operations across different jurisdictions and there were a number of factors outside of the insurers’ control including the destruction of evidence and the fact that legal proceedings had been issued in another jurisdiction three years prior.
The good news for policyholders was that, even in what the Court termed “complicated circumstances”, it was found that a reasonable time was not more than about a year from notification: the inference being that more straightforward losses should be paid in a number of months.
However, the challenge remains that, in circumstances where the insurer has reasonable grounds for defending the claim (in respect of liability and/or quantum), a section 13A claim may not succeed even in circumstances where an insurer has failed to pay the claim within that period.
When is an insurer both wrong and unreasonably wrong?
It was on that basis that, in Quadra, insurers successfully defended the insured’s section 13A claim, despite the insured’s coverage claim succeeding at trial.
The Commercial Court found that insurers had reasonable grounds for disputing the claim and that their arguments on policy coverage were not unreasonable merely by virtue of being mistaken.
Whilst the court can take into account insurer’s conduct in handling the claim, Quadra makes clear that slow claims handling, unnecessary investigations and improper construction / application of the policy terms will not be enough to deprive an insurer of the “reasonable grounds” defence.
So what kind of conduct would operate to deprive an insurer of a defence?
In Quadra, the Court found that insurers had instructed a loss adjuster, and sought legal advice, within the “reasonable time” for paying the claim, which suggests that not to have done so would be unreasonable. In addition, the Explanatory Notes to the Enterprise Act tell us that it will be unreasonable if an insurer is slow to change its position when further information confirming the validity of the claim comes to light.
Importantly, it is also necessary for the insured to highlight the insurer’s unreasonableness: in Quadra, the Court commented that the insured had not attempted to rebut the insurer’s argument that it had reasonable grounds to defend the claim.
Establishing loss – do pecunious policyholders have poorer prospects of succeeding under s13A?
In Delos, the claimant, who was the registered owner of a detained bulk-carrier, argued that it had suffered a loss of opportunity as a result of the insurer’s failure to pay the claim within a reasonable time, because the insurance funds would have been used to purchase a replacement vessel, which could have been traded at a profit.
The Court noted that no evidence had been adduced to show that the Claimant had been serious about pursuing that opportunity (by way of correspondence or a business plan, for example) and therefore it had not established its loss.
Controversially, Mrs Justice Dias commented that there was force in the argument that, because the Claimant was a profitable group and could have purchased a vessel without the benefit of the insurance proceeds, it had not incurred a loss as a result of the insurer’s alleged failure to pay the claim within a reasonable time.
That begs a further question: do policyholders with deeper pockets (for example, blue-chip companies) have poorer prospects of succeeding under section 13A, because of their ability to mitigate their own loss?
Arguably, yes, although there are no reported decisions on this issue. In Quadra, the Commercial Court emphasised that s13A damages are not automatic and must satisfy strict causation and mitigation standards, meaning that a claimant cannot recover loss which it could reasonably have avoided.
In other words, section 13A may operate most effectively where late payment renders a claimant impecunious, because causation and mitigation is easier to establish in such cases.
Suitability of Section 13A claims for preliminary hearings
Recently in The Members of The Probitas Syndicate 1942 at Lloyd’s -v- Pro 2 Care Limited [2025], the Commercial Court refused to consider a Claimant’s section 13A claim at a preliminary hearing, advising that evidence is crucial to assessing the period of the delay, and any loss.
In presenting its claim under section 13A, the Claimant, a care home business, argued that it had taken about 19 months for the insurer to pay its property damage claim, which was unreasonable by about 11 months (8 months having been sufficient to investigate and assess the claim), causing losses in excess of £2 million. It argued that, had the claim been paid sooner, repair works would have commenced and completed, and revenue would have been earned. In contrast, the insurer argued that the Claimant had not set out the basis for unreasonable delay, and relied on the fact that it had made staged interim payments as and when elements of the claim had been evidenced and accepted by its loss adjuster.
At a summary judgment hearing, the judge commented that, although the Claimant’s claim under section 13A was “clearly arguable”, claims under section 13A are a paradigm example of factual disputes which require evidence, and cannot be resolved summarily.
We query whether arguably this might present a further hurdle for policyholders if it can be inferred from the fact that the case has gone to trial that the insurer must have a reasonable basis to defend the claim, even if that defence ultimately fails, as otherwise the claim would likely have settled.
Conclusion
Almost nine years on, it is hard to see that section 13A has – yet – succeeded in levelling the playing field for policyholders.
Nevertheless, the optimistic view is that, in different circumstances, the path has been laid for section 13A claims to succeed. If the precedent set by Quadra is that even complicated claims should be paid within a period of 12 months, the real challenge lies in contesting an insurer’s “reasonable grounds” defence.
Despite the apparent hurdles, section 13A claims remain a powerful negotiating tool for policyholders in disputes with insurers. No insurer wishes to be the first to be subject to a successful damages claim for late payment, or to risk establishing a precedent which is unfavourable to the market.
For that reason, even almost a decade on, the jury is out; and only time will tell.
Author
Abigail Smith, Associate
The Iran War: Property and Business Interruption Insurance Implications for Policyholders
The ongoing Middle East conflict has significant implications for many insurance issues facing policyholders. In the first of a two-part series, our partners Julian Teoh and Chris Wilkes highlight areas of concern for downstream policyholders outside of the conflict zone, and what these potentially affected policyholders should be looking out for.
Physical Damage Insurance
The effective closure of the Strait of Hormuz and Iranian attacks on energy infrastructure across the Middle East has resulted in a shortage of oil and gas and a spike in energy and related prices.
Energy price spikes are already translating into significant increases in the costs of reinstatement and rebuilding property which has been damaged.
- Petroleum-based materials such as waterproof membranes, paint and sealants have become more expensive as oil prices surge.
- Increased costs of insurance and shipping (due to increased fuel costs and the need to take longer routes to avoid the warzone) will also be baked into the end price of building materials.
- Large cranes consume large amounts of fuel. Coupled with labour shortages, crane hire rates have increased significantly since the start of the conflict.
- Energy costs feed directly into the cost of raw materials e.g. steel and aluminium, not to mention inflation causing a general increase in prices across the board, plus shortages of supply compounding price increases (and delay in supply).
The impact on supply chains is also likely to be severe, leading not only to increased direct costs, but also prolonged time scales for deliveries leading in turn to time inflation and related indirect costs.
It would be prudent for policyholders and their brokers to re-examine their physical damage sums insured under property, machinery and construction policies to reflect these issues. Policy average / under-insurance clauses can be applied even in partial loss situations, proportionately reducing any indemnity due under the policy.
Business Interruption and Increased Costs of Working Cover
Most operational policies contain cover for business interruption following damage and increased costs of working (ICW). In short, ICW are the additional costs incurred by the policyholder to mitigate BI losses (which may be highly relevant if there are delays in the supply of components or materials).
ICW cover is subject to various tests, including the “economic test”: the increase in costs must be less than the reduction in turnover due to the incident (i.e. the saving must exceed the cost of the additional expenses). In other words, uneconomic expenditure will not be covered.
Where the costs of inputs are spiking, it would normally be more difficult to pass this economic test. Policyholders will need to consider the interaction between cost and time-related savings when considering such mitigating measures.
Business Interruption (BI) Insurance
Non-Damage BI Extensions
Many BI policies contain non-damage BI extensions, i.e. they allow the policyholder to make a BI claim even where there has not been damage at the policyholder’s premises. Most relevant to the current conflict would be:
- Suppliers’ extensions: BI resulting from supply chain disruptions at suppliers.
- Denial of access: BI resulting from an inability to access the policyholder’s premises.
- Public authority order: BI resulting from an order from a civil or military authority.
The coverage triggers for these extensions is usually damage, whether at the premises of the supplier, within a certain radius of the policyholder’s premises or which has caused the authority to issue the order. But this is not inevitably the case. Especially in bespoke wordings, the coverage triggers may be far more permissive, and policyholders are encouraged to review their non-damage BI extensions.
Where the coverage triggers are damage-based, the policy’s war risks exclusion will also come into play. While these exclusions can be quite comprehensive, we would encourage policyholders to review the wordings carefully and seek advice on whether or not the exclusion applies.
Adequacy of BI Indemnity Periods
The BI indemnity period is the period for which the insurer agrees to indemnify the policyholder during which the interruption to business is ongoing.
If, for example, the policy BI indemnity period lasts for 12 months but the interruption persists for 18 months, the insurer is required to pay an indemnity for only 12 months. The policyholder would not enjoy any cover for its BI losses for the last 6 months.
If the conflict is prolonged and materials are in short supply and/or cannot be shipped to the premises in a timely manner due to the conflict or the knock-on effects, this may result in the interruption period extending beyond the policy’s BI indemnity period. In situations where critical parts of complex machinery are needed for the business to resume and are difficult to source in a timely manner, the shortfall between the indemnity period and the duration of the interruption will come into sharp focus.
Authors
Julian Teoh, Partner
Chris Wilkes, Partner
Insurance amid uncertainty: Implications of the Iran conflict for Policyholders
On 28 February 2026, the US and Israel launched a coordinated military operation against the Iranian regime. Iran has since responded with missile and drone attacks across the Gulf, creating risk across several major trading centres including Qatar, Bahrain, Oman, Saudi Arabia and the UAE.
In addition to the very real and devastating risk to life, the escalation of the conflict is causing significant disruption to global trade, transport and energy markets alongside extensive physical damage to insured property.
Below, we consider the implications of the conflict for policyholders across key classes of business, and the coverage disputes that may arise as claims emerge.
STANDARD WAR EXCLUSIONS IN PROPERTY INSURANCE POLICIES
Standard commercial property policies typically exclude damage or loss “directly or indirectly” caused by “war, invasion, acts of foreign enemies, hostilities (whether war be declared or not)…military or usurped power”, and whilst the parties to the conflict are yet to formally declare war, whether the conflict amounts to war under the rules of contractual interpretation is a separate question.
Since the 1930s, English courts have said that “war” does not have a technical meaning and should be interpreted in a “common sense way”. Since then, caselaw has provided deliberately wide guidance as to the definition of war, including the presence of opposing sides and the number of combatants involved.
The breadth of that definition, together with standard war exclusions which override the concept of proximate cause (by applying to damage / loss even indirectly caused by war), mean that many commercial insureds are without the benefit of war-related property cover under their standard property insurance policies. An unwelcome consequence of that is that significant business interruption losses following airport closures, port shutdowns, supply chain disruption and government restrictions are likely to fall outside of the scope of cover.
Much will depend on the precise wording of the exclusion and the factual matrix of the loss. We recommend that property and business interruption policies be scrutinised for war exclusions as soon as possible and, in addition, policyholders across the leisure and manufacturing industries assess their force majeure exposure under supply and services contracts.
THE “GRIP OF THE PERIL” DOCTRINE IN AVIATION AND MARINE INSURANCE
In light of the above, policyholders may look to recover under specific political violence / war risk insurance policies and extensions.
In June last year, we reported on the long awaited Russian aviation judgment handed down by the Commercial Court. The trial involved the detention of Western-leased aircraft following Russia’s invasion of the Ukraine in 2022. You can read our analysis of that decision here - Commercial Court grounds War Risks insurers in landmark Russian aircraft judgment - Fenchurch Law.
Of particular concern to policyholders was Mr Justice Butcher’s commentary on “the grip of the peril” doctrine. He held 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.”
He concluded that lessors whose cover had been terminated by insurers prior to the point at which the court considered they had been permanently deprived of the aircraft were entitled to cover, on the basis that the loss of the aircraft arose in a sequence of events that followed in the ordinary course of restraints and detentions that took place in the policy period. In other words, the aircraft were in the grip of the peril by the time the relevant policies were terminated.
That ruling may be of particular relevance to aviation and marine policyholders affected by the present conflict. As a result of the closure of airspace, airline fleets remain grounded across the Gulf. Those fleets are at considerable risk of being permanently lost as a result of missile strikes on airports in Dubai, Abu Dhabi, Bahrain and Kuwait. Whilst the market will no doubt issue review notices to terminate or vary cover in those instances (as they did in the Russian aviation case), its possible that insured aircraft may already be deemed in the grip of the peril depending on the precise factual and temporal sequence of events.
Similarly, in relation to marine insurance, standard hull and cargo policies also exclude war and political perils. As a result, shipowners and charterers trading in high‑risk areas typically rely on separate war risks policies which are cancellable on short notice, requiring vessels to leave designated danger zones within a defined period. We know that cancellation notices have already been issued in respect of the current conflict so, where those vessels are unable to leave for whatever reason (for example, as a result of port closures or government restrictions), the grip of the peril doctrine may become relevant.
Whilst that analysis may offer some comfort to certain policyholders with property in the conflict zone, political violence policies include their own standard exclusions, and losses caused by perils not purchased will be excluded in any event. If, for example, an insured has only purchased terrorism or civil unrest cover, they are likely to be uninsured for war-related losses.
We recommend that political violence and war risks cover be analysed immediately, alongside the delay provisions in any related sale and trade contracts.
AGGREGATION WORDING
Where losses are covered, significant disputes may arise in relation to aggregation. Iran’s missile and drone attacks have, to date, been segmented and geographically dispersed, raising questions as to whether losses arise from a single event, a series of related events, or multiple separate occurrences for the purposes of policy limits, deductibles and excess erosion.
Whilst the outcome of any dispute is likely to be driven by the aggregation wording in a specific policy, insurers are likely to argue for a narrow interpretation and policyholders should be alive to that issue.
POLITICAL RISK AND TRADE CREDIT INSURANCE
Finally, unlike political violence policies, political risk policies do not require physical damage to trigger cover. They insure against, for example, the confiscation or deprivation of assets and are concerned with the permanent or prolonged loss of rights in, or control over, those assets. Outcomes under these policies are likely to be driven by the definition of expropriation, whether the deprivation is permanent for the purpose of the policy terms, and any relevant waiting periods.
Also written within the political risk market is trade credit insurance. As the conflict progresses, disruption to energy sources and supply chains may impact a policyholder’s ability to perform its payment obligations under a contract. In those circumstances, whilst trade credit policies are likely to contain fewer war exclusions than property or marine policies, policyholders may still have challenges to overcome in relation to causation and aggregation.
CONCLUSION
Already, the market is taking steps to limit its exposure to the conflict by making amendments to certain wordings, and issuing cancellation notices in respect of hull and cargo. Policyholders would be well placed to undertake early analysis of policy terms, particularly in relation to relevant exclusions and the likely interpretation of aggregation wording. Early, careful engagement with policy wording and claims strategy will place policyholders in the strongest possible position as the insurance consequences of the conflict continue to unfold
Author
Daniel Robin, Managing Partner
Abigail Smith, Associate
Legal 500 Insurance Disputes Comparative Guide – 3rd Edition (UK Chapter)
The 3rd Edition of The Legal 500: Insurance Disputes Comparative Guide has now been released. The guide offers a practical overview of insurance disputes law and practice across multiple jurisdictions, highlighting key issues shaping the landscape today.
Fenchurch Law is pleased to contribute once again. Daniel Robin and Chloe Franklin authored the United Kingdom chapter, while Caglar Kacar authored the Türkiye chapter.
Each chapter provides insights into current trends in insurance disputes, covering topics such as insurance policies, dispute resolution, appeals, claims and causation, along with commentary on future developments in the field.
View the UK chapter here: https://www.legal500.com/guides/chapter/united-kingdom-insurance-disputes/
When Policies Collide – Untangling “Other Insurance” Clauses
At our recent London Symposium, Associate Abigail Smith discussed the potential challenges posed by other insurance clauses in insurance policies. The session covered:
- The genesis of these clauses;
- The types of other insurance clauses used to limit an insurer’s liability in the event of double insurance; and
- How competing other insurance clauses are interpreted, in practice.
What is double insurance?
Double insurance occurs when the same party is insured with two or more insurers in respect of the same interest on the same subject matter against the same risk. In other words, it occurs where an insured’s loss is covered under two or more separate policies. Whilst it can be a commercially prudent guard against insurer insolvency, it most often arises inadvertently (for example, where a composite policy overlaps with dedicated cover).
The common law position
Under common law, a policyholder that is double insured for its loss can claim against whichever policy or policies it chooses, in whichever order it chooses, subject to each policy’s limits. Then, to ensure the risk is fairly distributed between insurers, the paying insurer is entitled to claim a contribution from the non-paying insurer (a principle known as rateable contribution – Drake v Provident [2003]).
Industry challenges
Unfortunately, the common law position gives rise to some complicated issues.
The main issue is that, because there is no general rule or common law duty requiring a policyholder to disclose that it is double insured, unless an insurer asks the question directly, or notification of other insurance is a condition of the policy, a paying insurer may not be aware that they are entitled to claim a contribution.
Adding another layer of complexity, the limitation period for bringing a contribution claim is two years from the date that the right accrued under section 10(1) Limitation Act 1980. That date, which is likely to be the date of a judgment, settlement or arbitration award, is not necessarily when an insurer becomes aware that they are entitled to a contribution. In fact, with no duty to disclose, it is possible for limitation to expire without an insurer ever knowing that it had been entitled to a contribution.
Types of “other insurance” clauses
It was in recognising these challenges that the industry came up with a solution: other insurance clauses, which are standard clauses in insurance policies which limit an insurer’s liability in circumstances where another policy covers the same loss.
In The National Farmers Union Mutual Insurance Society Limited v HSBC Insurance (UK) Limited [2011], Gavin Kealey KC identified 3 main types of other insurance clauses, being:
- Escape Clauses – those that exclude cover altogether in the event that another policy covers the same loss.
- Excess Clauses – those that state that the policy will only respond in excess of any other insurance.
- Rateable Proportion Clauses – those that limit an insurer’s liability in proportion to the total cover available.
Abigail explored how each type of clause is interpreted, and how competing clauses interact, in practice.
Escape Clauses
Owing to the fact that Escape Clauses seek to exclude cover altogether in the event of double insurance, there was at the outset the potential for policyholders to be left without any cover at all where two or more policies each included an Escape Clause.
That issue was addressed in Weddell v Road Transport [1932], with the Court ruling that it would be unreasonable to leave a policyholder without any primary cover in circumstances where multiple policies were in place and multiple premiums had been paid. As such, where two or more policies include an Escape Clause, they will cancel each other out so that the policyholder can claim against whichever policy (or policies) it chooses (essentially reverting to the common law position).
Excess Clauses
The same question was more recently considered in Watford Community Housing v Athur J Gallagher Insurance Brokers Limited [2025], this time in respect of Excess Clauses. Ultimately, the Commercial Court held that, because Excess Clauses also seek to avoid primary liability in the event of other insurance, they cancel each other out in the same way that Escape Clauses do.
Escape Clause v Excess Clause
Whilst there’s no English authority addressing a scenario in which two or more policies include competing Escape and Excess Clauses, Australian caselaw does provide some assistance.
In Allianz Insurance Australia Ltd v Certain Underwriters at Lloyds of London [2019] the New South Wales Court of Appeal held that competing Escape and Excess Clauses would also cancel each other out on the basis that both seek to avoid primary liability in the event of double insurance – an Escape Clause seeks to avoid any liability, whilst an Excess Clause recognises only a secondary one.
The New Zealand courts, by contrast Abigail noted, have on one occasion reached the conclusion that an Escape Clause will prevail (albeit relying heavily on the insurance provisions in an underlying contract). As such, the outcome will always come down to the specific policy wording and the wider context; “there is no universal hierarchy that automatically applies.”
Rateable Proportion Clauses
The final type of other insurance clause limits an insurer’s share of the loss in proportion to the policy limit. For example:
- An insured incurred £900,000 of loss covered under two separate policies.
- Policy A with a limit of £1m, and Policy B with a limit of £2m.
- Policy A’s insurer would be liable for 1/3 of the loss (their £1m portion of the total £3m insured), which is £300,000, and Policy B’s insurer would be liable for 2/3 which is £600,000.
If Policy A contained a Rateable Proportion Clause, and Policy B was silent, Policy B’s insurer would have to pay the whole of the loss and then claim a contribution from Policy A’s insurer.
Rateable Proportion Clause v Escape / Excess Clause
Unlike Escape and Excess Clauses, Rateable Proportion Clauses acknowledge that an insurer does have a primary liability in the event of other insurance, albeit a limited one. For that reason, an Escape or Excess Clause will prevail over a Rateable Proportion Clause.
If Policy A included a Rateable Proportion Clause whilst Policy B included an Escape Clause, the effect of the Escape Clause is that there would be no double insurance and Policy A’s insurer would be liable for the loss without being entitled to claim a contribution from Policy B’s insurer.
Whilst there has been some controversy over how an Excess Clauses might compete with a Rateable Proportion Clause (Austin v Zurich [1944]), in NFU v HSBC, Gavin Kealey KC sought to clarify the position. He remarked that, as a matter of construction, an Excess Clause should prevail over a Rateable Proportion Clause because a Rateable Proportion Clause recognises that an insurer has a primary liability in the event of double insurance, whereas an Excess Clause does not.
Abigail produced the table below as a starting guide for interpreting competing clauses, but was careful to note that the position will always depend on the policy wording, and the wider context.
Remaining questions
One issue that the courts are yet to address is whether, where an insured has multiple policies forming a horizontal primary layer of cover, followed by an excess layer that sits above, the entire horizontal layer must be exhausted before the excess policy responds.
The issue hasn’t arisen in caselaw to date, but Abigail remarked that it will be interesting to see how the courts approach the question when the times comes.
Key takeaways
The good news, for policyholders, is that the courts have so far refused to entertain any scenario in which an insured is left without primary cover.
That doesn’t mean, Abigail warns, that other insurance is an insurer’s problem. In circumstances where an Escape or Excess Clause prevails, an insured can be left without access to a policy that it paid a premium for, and which may well be preferable on its terms. Similarly, the disadvantage of Rateable Proportion Clauses from an insureds point of view is that the risk of insurer insolvency transfers back to the insured.
For those reasons, it is worth understanding whether there is another policy that responds to a risk and, if so, how any other insurance provisions might be interpreted.
Author
Abigail Smith, Associate
When Clauses Collide: Court of Appeal Backs MRC Over New York Arbitration
A recent Court of Appeal decision, Tyson International Company Ltd v GIC Re, India, Corporate Member Ltd [2026] EWCA Civ 40, provides valuable clarification on the approach taken by English courts when confronted with conflicting jurisdiction and arbitration provisions contained within layered reinsurance documentation.
Background:
Tyson International Company Ltd (“TICL”) is the Bermudan captive insurer for Tyson Foods, a major US‑based global food producer. In 2021, TICL arranged facultative reinsurance for its property risks with several reinsurers, including GIC Re, India, Corporate Member Ltd (“GIC”).
Two layers of facultative reinsurance were first placed on 30 June 2021 by way of a London Market Reform Contract (the “MRC”). The MRC provided for English governing law and contained a clause granting the courts of England and Wales exclusive jurisdiction over all matters relating to the reinsurance.
On 9 July 2021, this placement was supplemented by the execution of a second set of contracts in the form of the Market Uniform Reinsurance Agreement (the “Certificate”). The Certificate, instead, required disputes to be resolved by arbitration in New York under New York law. They also incorporated three amendments, the second of which stated that the MRC would “take precedence over reinsurance certificate in case of confusion” (the “Confusion Clause”).
A fire at a Tyson Foods facility in Hanceville, Alabama on 30 July 2021 gave rise to a claim under the captive policy. TICL accepted coverage and notified GIC. GIC later purported to rescind its reinsurance participation based on alleged misrepresentation relating to property valuations. TICL commenced proceedings in England relying on the jurisdiction clause in the MRC, while GIC sought to compel New York arbitration under the Certificate.
At first instance, the Commercial Court granted TICL a permanent anti‑suit injunction restraining GIC from pursuing the New York arbitration. In response, GIC appealed to the Court of Appeal.
Parties’ positions and key issues:
GIC’s principal argument was that the Confusion Clause was narrow in scope and applied only to internal drafting inconsistencies within the Certificate itself. GIC also maintained that, even if the clause applied more broadly, the English jurisdiction clause in the MRC and the New York arbitration clause in the Certificate should be read together in a manner that gave effect to both, with the English courts assuming a supervisory role over arbitration in New York.
TICL submitted that the Confusion Clause operated as a genuine hierarchy provision intended to resolve inconsistencies between the two documents. Once invoked, it required the English governing law and exclusive jurisdiction provisions in the MRC to prevail, leaving no room for the New York arbitration clause to operate.
Hence, the key issues for consideration were:
- The proper construction of the Confusion Clause; and
- Whether the English jurisdiction clause in the MRC and the New York arbitration clause in the Certificate could operate together
Analysis:
- The proper construction of the Confusion Clause:
GIC submitted that the Confusion Clause applied only where the Certificate itself contained internal inconsistencies and did not extend to conflicts between the Certificate and the MRC. The Court rejected this interpretation. It held that the natural and commercially coherent meaning of the wording was that it addressed inconsistency arising between the two documents. The MRC and Certificate were executed nine days apart and contained materially different provisions; it was, thus, far more plausible that the clause was intended to identify the document that should prevail where such differences arose.
Critically, the Court also commented that GIC’s narrow construction would be commercially unsound in rendering the clause ineffective when the most obvious form of “confusion” occurred; namely, a contradiction between the documents themselves.
- Whether the English jurisdiction clause and New York arbitration clause could operate together?
GIC argued that even if the MRC prevailed, the English jurisdiction clause could be read as supervisory or auxiliary to New York arbitration. The Court, however, rejected this in finding that the MRC conferred exclusive jurisdiction on the English courts in clear and unqualified terms, while the Certificates mandated binding arbitration in New York. To reinterpret the English clause as merely supervisory would invert the contractual hierarchy expressly agreed through the Confusion Clause and substantially distort the meaning of the exclusive jurisdiction provision.
The permanent anti‑suit injunction was, therefore, correctly granted.
Conclusion:
The decision provides clear confirmation that ordinary principles of contractual interpretation remain paramount in resolving disputes arising from inconsistent reinsurance documentation. The Court emphasised that where parties have chosen express language, particularly as to precedence, the courts will give effect to that language according to its natural and literal meaning. It is not the role of the court to retrospectively correct what may, in hindsight, be commercially disadvantageous to one party, nor to remodel the parties’ bargain by reading fundamentally inconsistent clauses together.
Authors
Michael Robin, Partner
Pawinder Manak, Trainee Solicitor
Motor Finance and the FCA Redress Scheme: Insurance Coverage implications for policyholders
Background and Supreme Court Decision
The UK Supreme Court’s judgment in Hopcraft v Close Brothers Ltd, together with Johnson & Wrench v FirstRand Bank Limited [2025] UKSC 33, clarified the law on secret commissions in motor finance. The Court held that car dealers arranging finance do not owe fiduciary duties to customers, which removed the foundation for claims based on breach of fiduciary duty. It also confirmed that English law does not recognise a free‑standing tort of “bribery” or secret commission absent a fiduciary relationship.
However, the Court significantly tightened the standard for commission disclosure. It held that a statement that “a commission may be paid” is inadequate: lenders and brokers must disclose both the fact and the amount, or the basis, of any commission prior to the finance agreement being signed. The Court reaffirmed that undisclosed or partially undisclosed commissions can render a lender–borrower relationship “unfair” under section 140A of the Consumer Credit Act 1974.
In Johnson, the Court found an unfair relationship where an entirely undisclosed commission – approximately 55% of the total loan– created a misleading impression and contributed to the unfairness. This was held to be sufficiently opaque and extreme to create an unfair relationship, leading to an order that the lender refund the commission together with interest. In the other joined cases, however, the commission arrangements were either less substantial or subject to some level of disclosure, and the borrowers did not obtain relief. The Court also held that lenders can only be liable as accessories to a dealer’s misconduct if they acted dishonestly, which was not established on the facts.
FCA Industry‑Wide Redress Scheme
In response to the judgment, the FCA announced an industry redress scheme under s.404 FSMA, covering motor finance agreements entered from April 2007 to November 2024. The FCA has estimated that approximately 14 million agreements involved undisclosed or excessive commissions, and that around 44% (about 6.2 million loans) may be considered unfair under the new standards.
The FCA published its consultation on the mechanics of the scheme in December 2025, with responses due in early 2026. The FCA has indicated that, subject to feedback, the final rules are expected to be issued in mid‑2026, with the redress scheme going live shortly thereafter
Compensation is expected to average £700 per loan, which implies a total payout of around £8.2 billion, with the possibility that it could reach £9–10 billion. Firms will additionally incur substantial operational expenditure, estimated at £2.8 billion, to administer the scheme. Any FCA fines for misconduct would be imposed separately and would not form part of the compensation pool.
The proposed scheme requires lenders to identify affected customers and provide compensation directly. Dealers and brokers will be expected to supply relevant information, and lenders may attempt to recover a portion of the cost from brokers via indemnity arrangements.
Application to FI Liability Policies:
Motor finance lenders and brokers will look primarily to their professional indemnity (PI) or civil liability policies, and, in certain circumstances, to D&O policies. Many of these policy wordings will be bespoke to Financial Institutions (FIs).
FI PI policies cover claims arising from wrongful acts in the insured’s provision of professional services, which is likely to include providing consumer credit and complying with regulatory disclosure obligations. Many FI PI policies define a “Claim” in broad terms, often including civil claims and regulatory proceedings that could result in an order requiring payment of compensation. An FCA-mandated redress scheme is likely to fall squarely within this definition.
Moreover, if a firm fails to make the payments required under s.404 redress scheme, the FCA can treat that failure as a breach of its rules under s.404F(7) and use the full range of its enforcement powers, including directions, financial penalties and public censure, to compel compliance, while consumers also have a direct right of action under s.404B(1) to sue for the compensation owed. Additionally, the FCA may apply to the courts under its general powers (including ss.380–382 FSMA) to obtain orders compelling a firm to remedy the breach, meaning that both the FCA and the courts ultimately can require an FI to pay compensation. Hence, any such proceedings would, likely, satisfy the definition of a “Claim” sufficient to engage the insuring clause for cover.
Notwithstanding, various coverage issues may still arise as follows.
Key Coverage Issues
Issue 1: Whether Commission Refunds Constitute an Insured “Loss”
A central coverage question is whether returning commission and interest constitutes an insured “Loss.” PI policies usually cover damages or compensation that the insured is legally liable to pay. A redress scheme under s.404 can only compensate customers where they have a private legal remedy so insureds who pay compensation should be able to demonstrate to insurers that they had a legal liability.
As regards loss, the proposed redress scheme generally seeks to restore consumers to the position they would have been in if commissions had been properly disclosed, which suggests a compensatory purpose. However, there is no causation requirement under the FCA’s proposals, in that consumers will not have to prove that they would not have entered into the loan if full disclosure had been made (although the presumption that non-disclosure caused loss is rebuttable by lenders in certain circumstances, e.g. if the consumer was deemed to be “sophisticated”).
Insurers may argue that part of the relief is restitutionary because it involves disgorging a commission that the insured (or its agent) earned. Many PI policies exclude loss consisting of the return of fees or commissions. Some policies include “carve‑backs” where commissions are linked to a wrongful act by an employee, which can restore cover. Courts and insurers often distinguish between returning an improper gain (normally uninsurable) and compensating a third party’s financial loss (insurable).
While there remains a grey area, especially under policies that expressly exclude “improper profit,” it is likely that courts will view these payments as compensatory and therefore insurable. Nonetheless, disputes may arise where policy language is particularly broad or where a settlement includes elements that resemble pure disgorgement.
Issue 2: Regulatory Fines and Penalties
Although consumer compensation would probably be covered, regulatory fines are not. FI PI policies universally exclude fines, penalties, and punitive damages, either expressly or on the basis that they are uninsurable by law. Any FCA fines imposed in parallel to the redress scheme will therefore fall outside insurance cover. Statutory interest added to customer compensation is generally considered part of the damages and is normally covered.
Issue 3: Claims‑Made Basis and Notification
FI PI policies operate on a claims-made basis, making notification a central coverage issue. Many claims will arise in 2025–2026 when consumers complain or are deemed to do so under the scheme. Policies in force at that time should respond unless exclusions for known circumstances apply.
Insurers may seek to frame a failure to disclose commission levels as a material non-disclosure. This would require an insurer to show (i) the information would have influenced a prudent insurer in setting terms, and (ii) the policyholder knew (or ought reasonably to have known) the information. Historically, however, commission setting practices in motor finance were industry‑standard, widely known, and the regulatory risk was already in the public domain due to the FCA’s 2019 work. All of that, will make it harder for insurers to say they were “unaware” of the risk, or that non‑disclosure was material in a fair‑presentation sense.
Insurers are closely examining such arguments but are aware that the hurdle is relatively high, particularly as many had opportunities during renewals to ask targeted questions and add exclusions specifically targeting motor finance commission issues, as occurred with Arch Cru and BSPS.[i]
The effectiveness of “circumstance notifications” is, therefore, critical. Notifying when the Court of Appeal judgment was issued or when the Supreme Court granted permission to appeal would have preserved cover in the corresponding policy period, but insurers may argue that any such notifications were too late and not in accordance with the policy provisions. There may be disputes over when circumstances crystallised to the point of being notifiable. English case law suggests that something more than a remote possibility of claims is required, and the Court of Appeal’s expansive judgment in relation to commission disclosure arguably met that threshold.
Issue 4: Aggregation
Given the potential number of claims, aggregation will have a major impact on available limits and deductibles. PI policies often state that a series of related or continuous acts or omissions will be treated as a single claim, or that claims arising from the same originating source are treated as a single claim.
Depending on the policy wording therefore, all instances of inadequate commission disclosure by a single lender may constitute one aggregated claim.
This approach would benefit insurers in that it would cap the insurer’s liability at a single policy limit (often £10–20 million), regardless of the scale of consumer redress.
However, it would also benefit insureds in that it would mean that only one deductible applies.
Issue 5: Allocation Issues
Where a regulatory proceeding includes both compensatory and non‑compensatory elements, policies usually require allocation between covered and uncovered parts. Although fines are excluded, defence costs for regulatory investigations are often almost fully covered because the work typically relates to the compensatory issues as well.
Further, if policies do not provide for allocation, in accordance with the principle expounded in Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corp [1974] QB 57, where regulatory proceedings are proximately caused by both covered and excluded matters, insurers may argue that the exclusion will prevail to preclude cover. However, it is important to note that Wayne Tank is not in fact authority that defence costs caused by two concurrent and interdependent proximate causes will be excluded, and the actual position is likely to turn on careful analysis of the policy (and the facts, as regards the reasons defence costs were incurred).
Wider Implications for Insurers and Intermediaries
This episode has substantial implications for financial services and insurance markets. PI underwriters are likely to adopt more restrictive terms, including specific exclusions, reduced limits, and higher deductibles. There may also be increased scrutiny of other products involving commission structures, such as mortgage broking or insurance distribution.
The scale of the redress means insurers will need to increase reserves and manage potential disputes within insurance towers, especially regarding aggregation and allocation. Insurers may also look to pursue subrogated claims against brokers under indemnity agreements. Reinsurers will also be significantly affected.
The ruling and redress programme reinforces the importance of transparency in remuneration across all intermediary sectors. Insurance brokers and financial intermediaries should reassess commission disclosure practices in light of the FCA’s broader focus on consumer fairness and the new Consumer Duty. Firms that continue opaque practices may face both regulatory scrutiny and increased insurance restrictions.
Although D&O exposure will, hopefully, be limited, senior managers may also face FCA attention under the Senior Managers & Certification Regime.
Conclusion
The motor finance commission litigation and resulting FCA action create extensive compensatory liabilities for lenders. FI PI policies are likely to respond, subject to limits, aggregation, notification requirements, and exclusions for fines and proven dishonesty. Commission refunds are most likely to be treated as compensatory and therefore insurable. The case underscores the importance of transparent consumer practices, early notification under claims‑made policies, and careful review of policy wording in the context of large‑scale regulatory actions.
[i] Arch Cru was a mis‑selling scandal involving investment funds marketed as low‑risk but in fact exposed to high‑risk, illiquid assets. When the funds collapsed in 2009, the FCA established a consumer redress scheme, and although many PI insurers argued that firms had breached the duty of fair presentation by failing to flag emerging regulatory concerns, those arguments were largely unsuccessful because the issues had already been widely publicised. Insurers later introduced Arch Cru‑specific exclusions once the risks became well known.
BSPS involved unsuitable advice given to steelworkers to transfer out of the British Steel Pension Scheme into riskier personal pensions. The FCA subsequently implemented a statutory redress scheme, and PI insurers again sought to rely on fair‑presentation breaches, but these arguments similarly gained little traction because the regulatory concerns were already in the public domain by the time many policies renewed. Insurers ultimately responded by adopting BSPS‑specific exclusions as the scale of the issue became apparent.
Authors
Chris Ives, Partner (Head of Financial Institutions)
Jonathan Corman, Partner
Pawinder Manak, Trainee Solicitor