CrowdStrike Outage - Insurance Recoveries
Many businesses have suffered losses following a catastrophic IT failure when an update released on 19 July by US cybersecurity firm, CrowdStrike, caused crashes on Microsoft Windows systems globally.
We are recommending that policyholders review the scope of coverage available under their cyber and property damage/business interruption insurance.
What to look out for:
- Is there cyber cover for system failure that responds to accidental (i.e. non-malicious) events such as this?
- Are there any relevant business interruption waiting periods to consider?
- What other losses are covered – such as the cost of data restoration, incident response and voluntary shutdown?
- Is there cover for supply chain failure?
- In the context of PD/BI policies, the ‘damage’ trigger will need careful consideration.
What steps do you need to take?:
- Ensure timely compliance with notification provisions and other claims conditions
- Have steps been taken to mitigate losses so far as possible?
- Make sure accurate records are kept of the sequence of events and the losses that have been incurred as a result of the outage.
Please get in touch if we can be of any assistance, or if you have any queries.
Joanna Grant is the Managing Partner of Fenchurch Law
Covid-19 BI claims update: policyholder-friendly judgment in At The Premises litigation
London International Exhibition Centre Plc -v- Royal & Sun Alliance Insurance Plc and others [2023] EWHC 1481 (Comm)
In the latest instalment in the wave of Covid-19 business interruption litigation making its way through the courts since the pandemic, a group of policyholders have been successful in their claim that the Supreme Court’s approach to causation in relation to ‘radius’ wordings should equally apply to the ‘at the premises’ wordings.
This result has a much broader application than simply for the parties to this litigation, and paves the way for large numbers of policyholders on similar wordings to argue that their claims are covered.
The background
While the FCA test case litigation represented a victory for policyholders in many respects, it also left a number of loose ends – one of which this recent ruling ties up in their favour.
With regard to ‘radius’ wordings, that is, business interruption policies that respond to cases of a notifiable disease occurring within a specified radius of the premises, the Supreme Court concluded that that each case of Covid-19 was a concurrent cause of the restrictions. As such, in order to show that loss from interruption of the insured business was proximately caused by one or more occurrences of Covid-19, it was sufficient to prove that the interruption was the result of government action taken in response to cases of disease which included at least one case of Covid-19 within the geographical area covered by the clause.
‘At the premises’ wordings, namely clauses providing for cover for losses caused by restrictions resulting from cases of notifiable diseases at the premises themselves – as opposed to within a specified radius of the premises – were not within the ambit of the FCA test case.
As a result, there was uncertainty as to whether the Supreme Court’s causation analysis was equally applicable to such clauses. This judgment now clarifies that it is.
The policyholders’ position
The claimant policyholders, who included the London International Exhibition Centre the restaurant chain, Pizza Express, as well as a number of smaller businesses including a hairdresser, two gyms, and various hospitality venues, had all suffered significant BI losses as a result of the pandemic, and all had ‘at the premises’ cover as part of their business interruption insurance. Applying the same approach to proximate causation as adopted by the Supreme Court in the FCA test case, they argued that their policies should respond to cover their losses.
The insurers’ position
The insurers disagreed. One of the main themes was that ‘at the premises’ clauses and ‘radius’ clauses provided a “fundamentally and qualitatively different” nature of cover: they were “chalk and cheese”. The fact that they are engaged by incidents of disease at a precise location means that a direct causal connection is required, which in turns requires proof of ‘but for’ causation between the occurrence of disease at the premises, the action by the authorities, the consequent business interruption and loss.
The judgment
Mr Justice Jacobs held that the policyholders were correct in their submission that “at the premises” is simply about the geographical or territorial scope of the coverage, and where the parties have chosen to draw the line in that respect - it has no impact on the appropriate approach to causation. In their analysis, the Supreme Court did not draw a distinction between ‘radius’ clauses where the radius was 25 miles, 1 mile, or the vicinity, and there was no reason why the radius could not be further shrunk from the vicinity to the premises itself without making any difference to the causation analysis. He added that this seemed to him to be an appropriate result, since any other conclusion would give rise to anomalies which it would be difficult rationally to explain to a reasonable SME policyholder who read the policy.
Cover for cases pre-5 March 2020
He did however find for insurers in relation to another issue before the court, namely whether cases of Covid-19 that occurred before it was made a notifiable disease on 5 March 2020 were capable of falling for cover. On the basis that a disease must be notifiable at the time of the occurrence or outbreak he found that they did not qualify. He stated that an approach that asks whether the disease was notifiable at the time of the relevant occurrence was straightforward to apply and perfectly sensible. That this meant that some occurrences would, depending upon when they occur, fall outside coverage was simply the ordinary consequence of the application of the words of the policy.
What next?
This is not the end of the story for Covid-19 claims – the next instalments will come towards the end of the year when another group of policyholders with claims against insurers for business interruption losses under policies with ‘denial of access’ wordings will have their cases heard - closely followed by the appeals in the Stonegate, Various Eateries and Greggs cases – it is very much a case of watch this space!
Joanna Grant is a partner at Fenchurch Law
Recent developments in the W&I sector: Q&A with Howden M&A's Head of Claims, Anna Robinson
Hot on the heels of the release by Howden of its annual M&A Insurance Claims Report we caught up with their Head of Claims, Anna Robinson, to find out about trends across the sector in 2020/2021 and her predictions for 2022.
A copy of the full report can be accessed here.
Q: Despite the turmoil of the pandemic, we understand that M&A transactions continue to increase as companies use mergers and acquisitions to grow. Is this increase in deal-making, and increase in the use of M&A insurance, starting to lead to an increase in claims activity?
A: Yes on both counts. Following a significant drop in deal activity at the start of the pandemic, there was a phenomenal and unprecedented increase in deal activity from Q3 2020 onwards and throughout 2021. The same period saw an exponential increase in the use of M&A insurance, and a corresponding increase in the number of notifications. Although the number of notifications in percentage terms has fallen since 2019, the absolute number of notifications has risen, which is a factor both of the increase in use of M&A insurance and the increase in Howden M&A’s market share.
Q: Has Covid had the impact on M&A claim notifications that was envisaged by the insurance industry? Do you expect any COVID-19-related claims trends to emerge in the future?
A: Interestingly the predicted spike in notifications did not materialise. With hindsight, in some ways that is not surprising as the deals done, and associated policies placed, following the emergence of COVID-19 would either have diligenced COVID-19 or excluded claims arising out of it.
Q3: Has there been an impact on when claim notifications are made against the policy i.e. are claims now notified earlier following inception or later?
A: Our research indicates that notifications are being made later. For notifications received from 2015 to 2019, 90% were made within 18 months of the policy’s inception. In 2020/2021 the proportion of later notifications, made after 18 months, rose significantly. There are two potential reasons for this – the first is that longer warranty periods are available, and the other is the increase in tax claims which, of course, have longer notification periods reflecting the time it can take for these to materialise.
Q4. Has there been a change in the claim values being discovered and notified under the policy?
A: It is the larger deals, and in particular the mega-deals (above €1 billion EV) that have a higher notification rate, and which rate increased again in 2021. These large and complex deals are both more difficult to diligence and often conducted at a fast pace meaning issues can be missed.
Q5. What’s the most common cause for claims and are there any emerging trends? Are there any sector trends for claims notifications?
A: The top three most commonly breached warranties that we see are: Material Contract warranties, for example where a known issue with a supply contract wasn’t disclosed; Financial Statement warranties, reflecting errors in the financial statements; and Compliance with Law warranties, where relevant legislation has not been complied with. This latter type of breach is something that arises commonly in relation to real estate deals where planning, environmental and safety laws are not complied with. While Tax warranties have historically been one of the most common breaches, it still takes up a large portion of notifications received at 17.8%. Taken together these four amount to just over three quarters of all notifications.
Q6. Has the percentage of notifications turning into paid claims changed?
A: The data shows that three-quarters of claims were resolved positively, which is a slight reduction from the previous period but is explained, in part, by the increase in precautionary notifications.
Q7. What would be your top tips for policyholders in getting their claims paid?
A: Good question! Notify early and in accordance with the policy provisions; particularise each element of the warranty breach and provide robust supporting evidence; keep the insurer updated and provide them with the documentation they need to investigate the claim, and, perhaps most importantly, make sure you can evidence the impact of the breach on the purchase price. Also, involve your broker as their relationship with the claims handler can be key to ensuring a smooth claims process.
Q8. What role does Howden M&A play in getting claims paid, can you give an example?
A: We provide assistance with the claims process as a W&I claim is often the first time an insured has dealt with an insurer in this context. We also assist clients with policy interpretation and quantum issues – quantum is typically the most complex part of a W&I claim. As brokers, we are able to deal directly with the insurers, and we can negotiate outcomes based on commercial as well as legal imperatives.
Q9. What role do coverage specialists, like Fenchurch Law have to play in the claims process?
A: Where a case turns on a point of law or policy interpretation, and the insurer/insured have reached stalemate and commercial negotiation has not assisted (which is rare!), it is vital for us, and our clients, to be able to have specialist advisers to call in that situation. Knowing that Fenchurch Law offer a free preliminary advice service is very reassuring!
Q10. Finally, what are your predictions for the coming year?
A: We predict a tidal wave of notifications in the coming year, reflecting the phenomenal increase in policies placed in 2020 and 2021. In similar vein, given the increasing number and size of the deals on which we advised in 2021 we anticipate that claim size and complexity will increase. In line with the trend for more policies (title and tax in particular) to include cover for ‘known issues’, we anticipate that notifications and claims arising under these policies will increase. Watch this space!
Short and sweet: insurers liable for bank’s cocoa product losses
ABN Amro Bank N.V. -v- Royal & Sun Alliance Insurance plc and others [2021] EWCA Civ 1789
The Court of Appeal has given insurers short shrift in their appeal against the finding of the Commercial Court that they were liable to the claimant bank, ABN Amro for losses it incurred following the collapse of two leading players in the cocoa market.
In a judgment notable for its brevity – a mere 26 pages compared to the 263-page first instance judgment - the Court of Appeal took just 5 paragraphs to set out their reasons for dismissing the appeal, finding that it simply did not ‘get off the ground’. It was, however, a sweet victory for the defendant broker, Edge, who, was successful in its appeal from the first instance decision, with an earlier finding of liability against it, arising from an estoppel by convention, being overturned.
The short first appeal
At first instance, the claimant bank, ABN Amro, succeeded in its claim for indemnity under an insurance policy placed in the marine market, relying on a clause the effect of which was to provide the equivalent of trade credit insurance. Such a clause was unusual in that marine policies typically provide an indemnity for physical loss and damage to the cargo, and not for economic loss. However, the court found the wording of the clause to be clear and to extend to the losses incurred by the bank on the sale of the cargo.
The insurers appealed this finding on the basis that the judge ought to have interpreted the clause as providing only for the measure of indemnity where there was physical loss or damage to the cargo.
The Court of Appeal disagreed, finding firstly that add-ons to standard physical loss and damage cover were common in the market and, where there were clear words, could result in wider cover; and secondly, that the wording of the clause was clear and operated to provide cover for economic loss. The wording of the clause was that of coverage, not of measure of indemnity or basis of valuation contingent on physical loss. Therefore, the bank’s losses incurred when selling the cargo, comprising various cocoa products, following the default by its cocoa market playing-customers on their credit policies, were covered by the policy.
The sweet second appeal
At first instance, the broker had been found liable to two of the defendant insurers, Ark and Advent, as a result of a finding of estoppel by convention. Ark and Advent had contended that they had been induced to write the policy following a representation that the policy being renewed was the same as the prior policy. It was, however, not in fact the same but included the clause in question providing trade credit cover. Neither Ark nor Advent read the policy and so were unaware of the inclusion of the clause. The representation that the policy was “as expiry” was found to give rise to an estoppel by convention meaning that the bank could not rely on the clause as against Ark and Advent, which in turn gave rise to a liability for the broker.
In appealing the finding of estoppel by convention, the broker sought to argue that the terms of a non-avoidance clause in the policy, which provided that the insurers would not seek to avoid the policy or reject a claim on the grounds of non-fraudulent misrepresentation, operated to preclude them from doing so. The Court of Appeal agreed, finding that the “as expiry” representations were non-fraudulent misrepresentations and as such, pursuant to the terms of the non-avoidance clause, the insurers could not rely on them to reject the claim. The judge at first instance was found to have erroneously focused on the ‘non-avoidance’ aspect of the clause, overlooking the fact that it also prohibited the rejection of a claim.
In sum
Given what the Court of Appeal described as the “sound and comprehensive” nature of the first instance analysis on the interpretation of the clause, it is perhaps surprising that the insurers sought to appeal, and certainly no surprise that they were not successful. Equally, the first instance finding of liability on the part of the broker was regarded by many as being out of keeping with the rest of the judgment – not least since Ark and Advent were effectively being relieved of their obligations by virtue of their failure to read the terms of the policy. As such, the finding is a welcome one on both counts, making it clear that, for good or ill, parties will be bound by the terms of the contracts they enter into.
Joanna Grant is a partner at Fenchurch Law
If your name’s not down…: no policy cover where developer incorrectly named
Sehayek and another v Amtrust Europe Ltd [2021] EWHC 495 (TCC) (5 March 2021)
A failure to correctly name the developer on a certificate of insurance has entitled insurers to avoid liability under a new home warranty policy.
The homeowner claimants had the benefit of insurance that covered them for the cost of remedying defects in their new build property at the Grove End Garden development in St John’s Wood.
Under the policy, “developer” was a defined term, being an entity registered with the new home warranty scheme from whom the policyholder had entered into an agreement to buy the new home, or who had constructed the new home. Cover was available under the policy for the cost of rectifying defects for which the developer was responsible, but had not addressed for various reasons including its insolvency.
Following the discovery of significant defects at their property, the claimants sought to bring a claim under the policy.
The certificate of insurance named a particular company called Dekra Developments Limited (Dekra) as the developer. Dekra was an established developer and had been registered with the new home warranty scheme since 2005. One of Dekra’s directors had confirmed to insurers that it was the developer of the Grove End Garden development. However, in fact, the developer was an associated company of Dekra set up for the purpose called Grove End Gardens London Limited.
Insurers therefore declined the claim on the basis that Dekra did not meet the policy definition of developer, being neither the entity named as seller on the sale agreement, nor the builder of the new homes. Its insolvency was not therefore a trigger for cover.
The homeowners sought to argue for an implied term extending the definition of developer to include its associated companies, and brought alternative claims based on estoppel and waiver.
Their claims did not succeed. The court found that this was not a “misnomer” case, in that the claimants were not able to demonstrate that there was a clear mistake on the face of the certificate of insurance as an objective reading of the evidence was consistent with cover having been agreed between Dekra and the insurer. Further, the proposed correction to imply the words “associated companies” was not a clear correction nor one that would be understood by an objective reader as needing to be made.
The alternative case based on estoppel and waiver also failed as no representation was made by the insurers to the effect that the cover extended to associated companies of Dekra. Nor did the initial rejection of the claim by insurers on other grounds amount to a waiver of the right subsequently to refuse cover on a different ground.
While undoubtedly legally correct, this was a harsh result in circumstances where Dekra effectively held itself out as being the developer, both to insurers and the world at large. This case highlights some of the challenges claimants under new home warranty policies can face as a result of the fact that, despite being the policyholders and having the benefit of the insurance, they are not involved in placing the policies. Nor will they necessarily be aware of the complex corporate structures common in the construction industry, including the use by developers of special purpose vehicles for different projects. The mismatch between the entity named on the sale agreement and that referred to on the certificate of insurance may however be one that they, or their conveyancing solicitor, might have been expected to identify and query at the time of purchase.
Joanna Grant is a partner at Fenchurch Law
All round protection for brokers: how protecting the underwriter can protect your client and protect you!
Our March 2021 article ‘Insurers bound by the small print? I should cocoa!’ briefly noted that the judgment in ABN Amro considered the scope of a broker’s duty to procure cover that meets the insured’s requirements and protects it against the risk of litigation. But what does that mean in practice, and can it really extend, as was argued in this case, to a duty to explain unusual clauses to underwriters?
One of the many roles brokers perform is in relation to policy placement, which role involves advising their clients and dealing with underwriters. As part of that exercise a broker must: (i) ensure that it understands its client’s instructions and in the event of uncertainty query, clarify or confirm the instructions given; (ii) explain to its client the terms of the proposed insurance; and (iii) ensure that a policy is drawn up, that accurately reflects the terms of the agreement with the underwriters and which are sufficiently clear and unambiguous such that the insured’s rights under the policy are not open to doubt. It is well-established law that in the performance of these tasks, a broker must exercise reasonable care and skill.
If the coverage is unclear, the client will be exposed to an unnecessary risk of litigation, and the broker will be in breach of its duty.
The scope of this duty was considered in the recent ABN Amro Bank case. By way of brief factual background, the claimant bank provided instructions to its broker that it required cover against its clients defaulting under a finance agreement. The broker placed the risk with RSA under an all risks marine policy. A bespoke clause was added to the policy midway through the policy period which had been drafted by the bank’s external lawyers. The effect of the clause was to provide the equivalent of trade credit insurance.
When subsequently presented with a £33.5 million for financial losses suffered by the bank, the insurer refused cover on the basis that the clause had widened the scope of the policy beyond what a marine policy would ordinarily provide. That disputed claim resulted in litigation, as part of which the court had to consider the role of the broker and what it was required to do in order to fulfil its duty to arrange cover which clearly and indisputably met the client’s requirements, and did not expose the client to an unnecessary risk of litigation.
On the facts, it was held that:
- a reasonably competent broker would have advised its client from the outset that the credit risk market and not the marine insurance market was a more appropriate market in which to place the cover the bank had instructed it to obtain. Such advice would have enabled the bank to make an informed decision as to how to proceed;
- having gone to the incorrect market, it became important for the brokers to explain to the underwriters what the clause was intended to cover; and
- any reasonably competent broker would have specifically pointed out the clause to the underwriters and talked through the amended wording and its implications.
The broker argued that this effectively imposed an unprincipled “duty to nanny”. The court clarified that there was nothing in its reasoning or conclusions which was intended to suggest that brokers generally owe duties to their clients to explain particular clauses, including unusual clauses, to underwriters.
Rather, in order to fulfil its duty to obtain cover that met the bank’s requirements and did not expose it to an unnecessary risk of litigation, and thereby protect its client’s position, the broker needed to give information to underwriters and discuss the implications of that information. In doing so, it would avoid problems which would potentially arise in the future if underwriters did not share the bank’s understanding of the unusual clause.
As such, the requirement did not amount to a duty to protect underwriters, it was about the steps that needed to be taken to fulfil the duty of a broker to protect its own client.
Having failed to take those steps, on the facts of this case the broker was in breach of its duty and consequently liable to the underwriters and the bank for costs.
In this case, protecting the underwriter was a necessary part of protecting the client, and, in turn, protecting the broker from the consequences of failing to obtain cover that met its client’s requirements.
Authors
Waste not, want not: recycling plant’s claim for cover upheld
Zurich Insurance PLC v Niramax Group Ltd [2021] EWCA Civ 590 (23 April 2021)
Finding that the ‘but for’ test is insufficient to establish inducement, the Court of Appeal has dismissed an insurer’s claim that it would not have underwritten the policy had the material facts been disclosed.
Zurich’s appeal was from a first instance decision that had found largely in its favour in respect of cover for losses arising out a fire at the policyholder’s waste recycling plant. Zurich challenged a finding of partial cover in respect of mobile plant on that basis that, as with the policyholder’s claim for the fixed plant that had not succeeded, it had similarly been induced by a material non-disclosure to underwrite the Policy renewal.
The main focus of the appeal was on whether, in circumstances where the premium charged would have been higher had full disclosure been made, the judge at first instance had been wrong to hold that inducement had not been established. Zurich argued that the increase in premium that would have resulted was of itself sufficient to meet the causation test for inducement, irrespective of the amount of the increase or the thought process by which the additional premium would have been calculated. Niramax contended that the non-disclosure had to be an effective and real and substantial cause of the different terms on which the risk would have been written if full disclosure had been made and there was no such causation on the facts.
The Court of Appeal found that the relevant test is whether the non-disclosure was an efficient cause of the difference in terms: it is not sufficient merely to establish that the less onerous terms would not have been imposed but for the non-disclosure.
The distinction is of particular relevance on the facts of this case because the impact of the non-disclosure was that the premium was calculated by a junior trainee who made a mis-calculation. Conversely, had the disclosure been made, the risk would have been referred to the head underwriter who would have priced the premium correctly. The non-disclosure therefore fulfils a ‘but for’ test of causation in that it provided the opportunity for a mistake to be made in the calculation of premium that would not otherwise have been made.
It was, however, necessary to apply the relevant test, namely whether the non-disclosure was an effective, or efficient cause, of the contract being entered into on the relevant terms. On the facts of this case, the process by which the premium was calculated took into account: the amount insured, nature of the trade, and the claims history. The undisclosed facts, which related to Niramax’s attitude to risk, were irrelevant to the rating of the risk. Therefore, the non-disclosure could not have had any causative efficacy in the renewal being written on cheaper terms than would have occurred if disclosure had been made.
The underlying principle is that if a non-disclosure has not had any influential effect on the mind of the insurer, impacting on the underwriting judgment, then there is no connection between the wrongdoing and the terms of the insurance, and no justification for the insurer to be awarded a windfall.
Of note is that this decision is based on the law prior to the Insurance Act 2015, the application of which may have led to a different outcome. Under the provisions of the Act, an insurer has a remedy for a breach of the duty of fair presentation if, but for the breach, the insurer would not have entered into the contract of insurance at all or would have done so only on different terms. Policyholders should be aware, therefore, that under the new law, the ‘but for’ test alone may be sufficient to entitle the insurer to a remedy.
Joanna Grant is a Partner at Fenchurch Law
Insurers bound by the small print? I should cocoa!
ABN Amro Bank N.V. -v- Royal & Sun Alliance Insurance plc and others [2021] EWHC 442 (Comm)
In the latest in a line of policyholder-friendly judgments, this recent ruling from the Commercial Court confirms that underwriters will be bound by the terms of policies they enter into whether they have read them or not.
The court found no grounds for departing from the important principle of English law that a person who signs a document knowing that it is intended to have legal effect is generally bound by its terms. Any erosion of that principle, which unpins the whole of commercial life, it was noted, would have serious repercussions far beyond the business community.
A foregone conclusion perhaps? Indeed the judge commented that prior to this case he would have regarded as unsurprising the proposition that underwriters should read the terms of the contract to which they put their names. What was it then that spurred the 14 defendant underwriters to seek to argue the contrary, apparently oblivious to the irony of their taking a point which routinely falls on deaf ears when more commonly made by policyholders unaware of implications of the small print for their claims?
In brief, the claimant bank, ABN Amro, was seeking an indemnity of £33.5 million under a policy placed in the marine market that unusually, and perhaps unprecedentedly, contained a clause the effect of which was to provide the equivalent of trade credit insurance, and not simply an indemnity for physical loss and damage to the cargo. As such, when the cargo, which in this instance comprised various cocoa products, was sold at a loss following the collapse of two of the leading players in the cocoa market and the default by them on their credit facility, the bank incurred losses that it contended were covered by the policy.
The underwriters submitted that the non-standard nature of this clause was such that clear words would have been required to widen the scope of cover beyond physical loss and damage, given the presumption that marine cargo insurance is limited to such loss. The court however found that, applying the well-established principles of legal construction, the wording of the clause was clear, and therefore its natural meaning should not be rejected simply because it was an imprudent term for the underwriters to have agreed, given the adverse commercial consequences for them.
The underwriters further submitted that they had not read the policy, and that the particular wording and its effect should have been brought to their attention as it was unfair to expect a marine cargo underwriter to understand the purpose of the clause. The bank contended that it was “frankly bizarre” for the underwriters to be essentially arguing that they, as leading participants in the London insurance market had to be told what terms were contained in the written policy wording presented to them and what those terms meant. The court agreed, finding that the underwriters could not properly allege that the clause was not disclosed to them when it was there in the policy to which they subscribed, and that further, as the bank contended, the insured was under no duty to offer the insurer advice. The insurer was presumed to know its own business and to be able to form its own judgment on the risk as it was presented.
Many other principles of insurance law were raised by this case and are covered in the wide-ranging 263-page judgment including (i) the applicable principles of legal construction; (ii) the incorporation and impact of a non-avoidance clause in the policy (it prevented the insurers from repudiating the contract for non-disclosure or misrepresentation in the absence of fraud); (iii) whether the underwriters had affirmed the policy by serving a defence that was consistent with a position that recognised its continuing validity (they had); (iv) whether mere negligence, as opposed to recklessness, was sufficient to breach a reasonable precautions clause in the policy (it was not); and (v) the scope of a broker’s duty to procure cover the meets the insured’s requirements and protects it against the risk of litigation (which duty had been breached and would have led to a liability on the part of the broker had the claims against the underwriters not succeeded).
However, the key takeaway for insurers, policyholders and commercial contracting parties alike is that a court will not step in to relieve a party of the adverse consequences of a bad bargain: the purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. In other words, it always pays to read the small print.
Joanna Grant is a Partner at Fenchurch Law.
The Good, the Bad & the Ugly: 100 cases every policyholder needs to know. #2 (The Ugly). Kosmar Villa Holidays plc
Welcome to the latest in the series of blogs from Fenchurch Law: 100 cases every policyholder needs to know. An opinionated and practical guide to the most important insurance decisions relating to the London / English insurance markets, all looked at from a pro-policyholder perspective.
Some cases are correctly decided and positive for policyholders. We celebrate those cases as The Good.
Some cases are, in our view, bad for policyholders, wrongly decided, and in need of being overturned. We highlight those decisions as The Bad.
Other cases are bad for policyholders but seem (even to our policyholder-tinted eyes) to be correctly decided. Those are cases that can trip up even the most honest policyholder with the most genuine claim. We put the hazard lights on those cases as The Ugly.
At Fenchurch Law we love the insurance market. But we love policyholders just a little bit more.
#2 (The Ugly)
Kosmar Villa Holidays plc -v- Trustees of Syndicate 1243 [2008] EWCA Civ 147
The issue in Kosmar Villa Holidays plc was whether an insurer’s conduct in investigating a claim prevented it from subsequently relying on a breach of a condition precedent to avoid liability.
The policyholder, a tour operator, Kosmar, made a claim under its public liability insurance in respect of injuries suffered by an individual who was paralysed after diving into the shallow end of a swimming pool at apartments in Greece operated by Kosmar.
In breach of a condition precedent requiring it to notify the insurer immediately after the occurrence of any injury, Kosmar did not do so for a year.
Once notified, the insurer did not immediately deny liability for breach of condition precedent but sought further information about the accident.
The Court of Appeal had to consider whether in dealing with the claim in this way, without expressly reserving its position or denying liability, there had been a waiver, either by election or estoppel, that meant that the insurer was no longer able to decline indemnity because of the late notification.
The Court found that waiver by election had no application to a breach of a procedural condition precedent. However, where, through its handling of a claim, an insurer made an unequivocal representation that it accepted liability, or would not rely on a breach of a condition precedent, and where there had been detrimental reliance by the policyholder, the doctrine of estoppel would protect the policyholder.
On the facts, there had been no unequivocal communication by the insurer and insufficient reliance or detriment on the part of Kosmar. It was not therefore inequitable for the insurer to rely on Kosmar’s breach of the condition precedent to decline indemnity.
In its judgment, the Court explored the tension between an insurer’s need to have sufficient time to investigate claims and the insured’s need to know where it stands as regards policy coverage. On one hand, insurers were not to be encouraged to repudiate claims or to reserve their rights without asking questions about the claim simply to avoid being taken to have waived their rights in respect of a breach of a condition precedent. To do so would be to push insurers into an over-hasty reliance on their procedural rights. On the other hand, insurers were not entitled to give the impression that they were treating the claim as covered without running the risk of having waived their right to avoid the policy.
The message for policyholders is that, in the absence of an express communication to that effect, it is not safe to assume from conduct alone that an insurer has waived a breach of a procedural condition precedent.