Shock horror: "Innocent Non-Disclosure" clause applies to innocent non-disclosure
A case reported on 23 March involved a provision which one might ordinarily have described as an "Innocent Non-Disclosure" clause (albeit it was not entitled that): it protected the policyholder against the consequences of any material non-disclosure unless it had been "deliberate or fraudulent". The Insurers had nevertheless attempted to argue that the clause did not apply where the policyholder had failed to disclose information as a result of an honest but mistaken belief that the information had not needed to be disclosed.
Predictably enough(?), the court (Coulson J) rejected the Insurers' arguments, holding that they would lead to an "absurd [and] wholly unbusiness-like result".
Why did Insurers even take the point? Surely it wasn't simply because there was almost £18m at stake?
See Mutual Energy Ltd v Starr Underwriting & Travellers
The full judgment is here: http://www.bailii.org/ew/cases/EWHC/TCC/2016/590.html
Jonathan Corman is a Partner at Fenchurch Law.
Construction and Professional Indemnity expert Amy Lacey joins Fenchurch Law
Insurance coverage specialists, Fenchurch Law, have announced that Amy Lacey has joined as a partner from Rosling King. Amy will concentrate on insurance disputes with a particular focus on construction and professional indemnity
Acting for brokers and policyholders across a variety of industry sectors, she has considerable experience of complex international litigation and arbitration and regularly advises on coverage issues and policy drafting.
Amy is a member of the British Insurance Law Association and the Society of Construction Law.
In her spare time Amy is a keen equestrian and enjoys sailing with Lloyd‘s Yacht Club.
"We are delighted that Amy has agreed to join our growing team at Fenchurch Law. We welcome the rich mix of new skills and expertise she brings and this is part of a wider objective of improving outcomes for policyholders, and putting policyholders first in everything we do," said David Pryce Managing Partner.
Founded in 2010 Fenchurch Law is a specialist firm of City solicitors providing insurance advice and handling insurance disputes. Based in the heart of the London Insurance Market at 40 Lime Street, they represent policyholders in complex and high value coverage disputes with their insurers.
Fenchurch Law Ltd Move to 40 Lime Street
Please note that from Monday 1st February 2016 Fenchurch Law Ltd will have a new home in the heart of EC3. You can now reach the team at their new offices at 40 Lime Street next to Lloyd's of London.
Fenchurch Law Ltd
40 Lime Street
London
EC3M 7AW
Tel: 020 3058 3070
Fax: 020 3058 3071
DX: 528 London/City
Why not come in and see us in our new home.
The Insurance Act 2015: When excellence was the enemy of the good
In December 2014 a Special Public Bill Committee of the House of Lords took evidence on proposals in the Insurance Bill which, earlier this year, became the Insurance Act 2015. The Bill approved by the Committee saw revolutionary changes to insurance law which, as the law commissioner put it, had not received legislative attention since the period in which the first series of Downton Abbey was set.
The Insurance Act (effective August 2016) does much to realign the power balance between policyholders and insurers:
- The new duty on the policyholder to make a fair presentation (which replaces the old duty of disclosure) will introduce welcome transparency for policyholders in a process in which they were previously left to feel their own way (albeit hand in hand with their broker if they had one).
- Even more importantly, the remedies for breach of the new duty to make a fair presentation are to be proportionate. The new regime will mean that if the policyholder breaches the duty the remedy for the insurer will be proportionate to the breach rather than imposing an indiscriminate remedy of avoidance of the policy regardless of the significance of the breach. If, therefore, the insurer can show that the policyholder breached the new duty, the remedy available to the insurer will depend on what difference that would have made to the writing of policy. For example if the insurer would still have written the policy but have charged twice as much premium, the policy remains valid but the amount the insurer has to pay in claims is reduced proportionately i.e. in this example the insurer would only have to pay half the value of any claims made under the policy.
- Basis of contract clauses are outlawed. Under a basis of contract clause, information contained in the proposal or otherwise provided to the insurer is treated as having been warranted to be true and accurate. A basis of contract clause is a wolf disguised in sheepish lawyerly language and has caught out countless unsuspecting policyholders. lt does not describe itself as a warranty (but it is) and it does not say what the consequence of a breach is (it would be catastrophic to coverage). If it is breached the policy is treated as if it never existed but the insurer gets to keep the premium – regardless of whether the inaccuracy was material to the risk and regardless of whether the insurer paid any attention to it or otherwise relied on it. In 1927 Lord Wrenbury described the use of these clauses as “contemptible”. Now they are to be consigned to legal history.
- The law relating to warranties is significantly reformed. Previously a policy was vitiated from the moment of a breach of warranty regardless of whether or not the breach was remedied and regardless of the relevance of the breach to the type of loss actually suffered and claimed under the policy. Lord Mance was asked about this at the Special Public Bill Committee. He had considerable sympathy for a change in the law and gave a personal example of its unfairness:
“When I moved a very long time ago into our present house, I observed that there was in our household insurance a warranty that the cellar pump would be kept in working order. That seemed to me rather stringent if there was a burglary and I insisted that they confined the warranty in its operation to flooding in the cellar”
Lord Mance’s self-help exercise with his household insurance will now be applied generally under the new Act.
Insurance Act: good but not excellent
On its way through Committee the Lords asked why a proposal to make insurance companies liable to policyholders for losses they suffer as a result of unreasonably late payment of claims was not contained in the Bill (as the law commission had originally suggested). The problem with the law as it stands is that a Policyholder who suffers loss as a result of a valid insurance claim being paid unreasonably late is not entitled to compensation for that loss beyond interest on the policy claim amount. The problem with including this proposal was that the parliamentary fast track procedure being used for the Bill was suitable only for “uncontroversial” proposals. Among some sections of the insurance community (in particular Lloyd’s and those in the London Market writing US business) an obligation to pay claims within a reasonable time was controversial. The proposal was, therefore, jettisoned because it could have stymied the bill as a whole. As Lord Lea said “Excellence can be the enemy of the good”.
Is excellence honing into view?
The Insurance Bill having become law without any provision for damages for late payment of claims it seemed that this particular reform of the law was deep in the long grass. In the Enterprise Bill currently in Parliament, however, the government is striving to turn the ”good” reforms in the Insurance Act into “excellent” ones by now adding a provision relating to damages for unreasonably late payment of claims. This new provision is no less controversial than it was. Lloyd’s and others in the London Market oppose it and are understood to be trying to water down the proposed rights of policyholders by suggesting that damages for late payment should be limited to circumstances where the delay by the insurer is deliberate or reckless. That would leave the policyholder with the risk of incompetent or careless claims handling by the insurer. To some this may appear like an inappropriate allocation of risk. Shouldn’t the insurer bear responsibility in damages for its own negligence or unreasonable behaviour? Insurers may well face uncertainty if the proposal is introduced: for example as to whether this potential additional liability will be covered under reinsurances. But does this matter? Claims handling is part of the professional service insurers are providing. Other service providers protect themselves against negligence with professional indemnity insurance. Why can’t insurers? It might be a profitable new line of business for PI insurers – after all, they should understand the business!
The Enterprise Act is currently in committee in the House of Lords (the committee hearing commenced on 2 November). It may be worth watching to see if Lord Lea’s “excellence” does now have its day.
John Curran
Partner
Fenchurch Law Grows its Expertise with Insurance Litigation Specialist Hire
Insurance coverage specialists, Fenchurch Law, have announced that John Curran has joined as a partner. John will concentrate on insurance disputes with a particular focus on Energy, Industrial, and Institutional risks.
John joined Fenchurch Law after 20 years at Clifford Chance, and more recently six years at DLA Piper, where he acted for insurers, brokers, and policyholders in disputes arising in the London market and internationally.
As well as acting in insurance disputes, John has extensive experience in advising on insurance wordings and the use of insurance in financial and corporate transactions. John is a qualified as a solicitor in Hong Kong as well as in England, and is a Solicitor Advocate.
"We are delighted that John has agreed to join Fenchurch Law. Adding his expertise and skill is part of a wider objective of improving outcomes for policyholders, and putting policyholders first in everything we do," said David Pryce Managing Partner.
Founded in 2010 Fenchurch Law is a specialist firm of City solicitors. They provide insurance advice, and handle insurance disputes. Based in the iconic Gherkin building in the heart of London Insurance Market, they represent policyholders with complex and high value coverage disputes with their insurers.
Fenchurch Law moves up Legal 500 Rankings
The new Legal 500 rankings have been published and we are pleased to announce that Fenchurch Law has moved up to Tier 2.
"We are very pleased to have improved our ranking in Legal 500. We really appreciate all the support that we’ve had from all our clients and their brokers, and we’re committed to repaying that support with an ever-improving level of service. Our mission is to put policyholders first in everything we do." said David Pryce, Managing Partner.
What the Legal 500 is saying about Fenchurch Law:
Fenchurch Law is a niche firm with ‘strong expertise in acting for policyholders’, providing ‘excellent service and a client-centred approach’. Co-founders David Pryce and Rob Fink head the team, and senior associate [now partner] Daniel Brooks joined the group in April 2014. Pryce ‘comes up with ideas that are intelligent but different; his thinking often delivers unexpectedly good results out of unpromising situations’.
Find our full Legal 500 2015 profile and rankings here:
http://www.legal500.com/c/london/insurance/insurance-litigation-for-policyholders
Founded in 2010 Fenchurch Law is a specialist firm of City solicitors. They provide insurance advice, and handle insurance disputes. Based in the iconic Gherkin building in the heart of London Insurance Market, they represent policyholders with complex and high value coverage disputes with their insurers.
AIG Europe Limited –v- OC320301 LLP and Others
While some in the market may regard the recent decision of AIG Europe Limited -v- OC320301 LLP [2015] EWHC 2398 (Comm) (14/08/2015) as a fairly dry analysis of a particular aggregation clause, others will see it as yet another example of the courts’ instinctive inclination to side with policyholders/claimants whenever that feels consistent with the overall “justice” of the case.
The dispute in AIG -v- OC320301 LLP was in substance between a large group of 214 claimants and AIG, the PI insurers of the firm of solicitors whom those claimants had retained.
The claimants had all become involved with a UK property developer, Midas International Property Development Plc (“Midas”), which planned to develop holiday homes at two sites, one in Turkey and one in Morocco. The claimants had either invested in one or other of those developments or had made payments in order to purchase a holiday home once the developments were complete.
Midas retained the Solicitors in respect of both developments. The claimants were told that they would be protected by security interests in the underlying assets (land, in the case of the Turkish development; shares in the company which owned the land, in the case of the Moroccan development) and that their funds were only to be released once the promised level of security was in place (“the cover test”).
In fact, and for different reasons in relation to each of the two developments, there was never adequate security. In both cases the Solicitors failed to apply the cover test properly, with the result that the claimants’ funds were released without their positions being protected.
Midas subsequently went into liquidation, so that the claimants’ only possible recovery was by claiming against the Solicitors. Crucially, the claimants’ claims totalled over £10m (albeit the average claim was for only about £46,000), whereas the limit of cover in the Solicitors’ PI policy was £3m. .
The aggregation clause was Clause 2.5 of the Minimum Terms & Conditions (“the MTCs”), which aggregated all claims, whether arising against one or more insured, arising from:
“(i) one act or omission;
(ii) one series of related acts or omissions;
(iii) the same act or omission in a series of related matters or transactions;
(iv) similar acts or omissions in a series of related matters or transactions…”
AIG argued that sub-clause (iv) applied, ie that the 214 separate claims arose from “similar acts or omission in a series of related matters or transactions”.
The claimants sought to persuade the court (Mr Justice Teare) that, since solicitors are obliged to carry professional indemnity insurance so as to ensure that they are able to compensate their clients, the aggregation clause should be construed so as to give the public the greatest level of protection. The court held that this submission was “too simplistic”. It observed that the MTCs - including the aggregation clause - were the result of discussions between the SRA and the insurance industry: doubtless the aggregation clause could have been more narrowly expressed, but then the limit per claim might have been lower or the premium might have been greater. “Thus, when construing the MTCs, and in particular the aggregation clause, the court should do so in a neutral manner, neither predisposed to assist the public nor predisposed to assist the insurer.”
The court then went on to consider how the two limbs of sub-clause (iv) applied to the facts of this case.
“Similar acts or omissions”
The claims had to arise from “similar” acts or omissions, but what was meant by “similar” in this context? The court held that “the requisite degree of similarity must be a real or substantial degree of similarity as opposed to a fanciful or insubstantial degree of similarity”. It might be said that this is so obvious or trite as to deprive this supposed test of any utility.
Be that as it may, the court had little hesitation in concluding that, in relation to both the Turkish and Moroccan developments, all the claims arose from the Solicitors’ failure to ensure that there was effective security (albeit in the one case over land and in the other case over shares), so that the cover test was not properly applied and the claimants were exposed to loss in the event that, as occurred, the developments failed. The claims thus arose out of similar - if not identical - acts or omissions.
“In a series of related transactions”
The court concluded that this phrase has at least three possible meanings, which were variously supported by the claimants and AIG.
First, as submitted by AIG, the phrase could mean simply a number of transactions which, on the facts of the particular case, were sufficiently similar and/or connected. The court rejected that submission: “If it were correct, the scope of the unifying factor and hence of the aggregation clause would be very wide with no clear limit. Claims would be aggregated where they arose out of similar acts or omissions in … transactions which are sufficiently similar and/or connected… But such test is vague, uncertain and soft-edged. AIG offered no assistance as to how one judged whether transactions were “sufficiently” similar and/or connected…”
Secondly, the phrase “a series of related matters or transactions” could mean, in the context of this particular case, a number of independent transactions which nevertheless were related because they were investments in one particular development. That was the claimants’ fall-back position. It would at least have meant that they could recover £3m for the claims in respect of the Turkish development and a further £3m for the claims in respect of the Moroccan development.
Finally (and this was the claimants’ primary case), the phrase could mean a series of transactions which were related by reason of being dependent on each other. By dint of what can only be described as some very abbreviated reasoning, this was the construction favoured by the court, which held that this was the most natural meaning of the phrase in the context of a solicitors’ insurance policy, since it was “difficult to talk of transactions being related unless their terms are in some way inter-connected”.
That construction constituted an unambiguous triumph for the claimants, since it was not suggested that any of the 214 transactions was dependent on any of the others. Thus there was no aggregation, and AIG was left potentially liable to pay the entire £10m sought by the claimants.
However, it is far from clear why the court felt compelled to hold that transactions should only be described as “related” if “their terms were in some way inter-connected” or if the transactions were “dependent on each other”. Many might say that transactions can be “related” simply by virtue of having a near identical subject matter (in this case, the investment in one or other of the two developments) or involving the same central participant (in this case, Midas).
The court plainly appreciated that a different opinion on this issue might prevail, since it is understood that it gave AIG permission to appeal.
Insurance Coverage Partner joins Fenchurch Law
Insurance coverage specialists, Fenchurch Law, have today announced that Jonathan Corman has joined as a partner.
Jonathan has been an insurance specialist for over 20 years, concentrating primarily on professional indemnity claims, as well construction, EL/PL and D&O. He has fought numerous coverage disputes for London Market insurers over the years, his reported successes including Total Graphics Ltd -v- AGF Insurance Ltd [1997] 1 Lloyd's Rep. 599 and Burgess Wreford & Unsworth -v- Aegon Insurance Co (UK) Ltd LTL 20.7.99 as well as a number of confidential arbitrations.
"We are delighted that Jonathan has agreed to join Fenchurch Law. Recruiting someone with such experience fits perfectly with our objective of improving outcomes for policyholders, and putting policyholders first in everything we do," said David Pryce Managing Partner.
Founded in 2010 Fenchurch Law is a specialist firm of City solicitors. They provide insurance advice, and handle insurance disputes. Based in the iconic Gherkin building in the heart of London Insurance Market, they represent policyholders with complex and high value coverage disputes with their insurers.
Fenchurch Law promotes Daniel Brooks to Associate Partner
Fenchurch Law, the policyholder-focused coverage specialists, have promoted Daniel Brooks to Associate Partner.
Daniel joined Fenchurch Law in 2014 and his work is focused on contentious coverage disputes and uninsured defence work for a broad range of policyholders in the UK.
Daniel has a particular focus on insurance disputes for construction professionals, although Daniel is also instructed in many other sectors involving D&O, Professional Indemnity and Product Liability.
"I would like to congratulate Dan. His promotion is part of a wider plan for our firm and developing our own talented lawyers is critical to achieving our goals," said David Pryce Managing Partner.
Founded in 2010 Fenchurch Law is a specialist firm of City solicitors. They provide insurance advice, and handle insurance disputes. Based in the iconic Gherkin building in the heart of London Insurance Market, they represent policyholders with complex and high value coverage disputes with their insurers.
Fenchurch Law Ltd shortlisted for Insurance Law Firm of the Year Award.
Fenchurch Law Ltd has been shortlisted for the Insurance Law Firm of the Year in the prestigious Claims Awards 2015, which celebrate excellence and innovation in the general insurance claims sector.
The Insurance Law Firm of the Year Award recognises technical ability and the application of innovative ideas and customer service within legal services.
Managing Partner David Pryce commented: “We are very pleased to have been shortlisted for this award. Since founding Fenchurch Law in 2010, our aim has not only been to lead the market for complex policyholder coverage disputes in the UK but also to innovate in the interests of the policyholder and broker. Over the last 12 months we have put in place a number of unique funding arrangements for policyholders across the UK and secured over £9million in payments from insurers.”
Final winners will be announced at The Claims Awards evening at the Royal Garden Hotel in London on the 4th June.