“One event or two?” What is the proper construction of the phrase “arising from one event” within the aggregation clause in a reinsurance contract?
Re MIC Simmonds v. AJ Gammell
The commercial court upheld an arbitration award and concluded that the arbitrators had correctly applied the test for the interpretation of an aggregation clause. The arbitrators had to decide what was the proper construction of the phrase “arising from one event” within the aggregation clause in a reinsurance contract.
The facts
The dispute centred around on whether or not claims made against the Port of New York (PONY) following the attacks on the World Trade Centre (WTC) were to be aggregated as liabilities arising from that event. The allegation was that PONY had failed to provide adequate protective equipment to around 10,000 rescue workers in the course of the clean-up operation causing respiratory conditions. The claims were settled and a claim was made on the excess of loss reinsurance programme.
The dispute
The arbitrators found that reinsurers were liable to indemnify the loss as the policy provided for cover for “loss, damage, liability or expense or a series thereof arising from one event”. As all claims could be aggregated together as losses or liabilities arising from one event, namely the attacks on the WTC which caused the destruction of the twin towers. The appellants argued that it did not. The argument was this: where the insured’s liability arises as a result of a continuing state of affairs, was this to be treated as a single event of negligence or does the relevant event only arise when the harm giving rise to the insured’s liability occurs? The appellants argued:
- The failure to provide adequate protective equipment did not constitute one event, in other words, the attack on the WTC which was disassociated form the negligence which gave rise to the underlying claims could not be a single event for the purposes of the aggregation clause.
- The respiratory claims arose from a continuing failure and there were therefore many events.
- The attacks on the WTC were too remote to constitute an event.
Judgment
The court reviewed the relevant authorities and affirmed:
There are three requirements for a “relevant event” when considering a “series of losses and / or occurrences arising out of one event” for the purposes of aggregation, namely that:
- there is a common factor which could properly be described as an event;
- the event satisfies the test of causation;
- it is not too remote.
The court agreed with the arbitrators that:
- The event in question here was identified as the attack on the WTC so the issue was whether the losses or liabilities arose from it.
- There was a sufficiently causal connection between the attack on the WTC and the losses that justified aggregation.
- The test is much less strict than that for a proximate cause. Here, although the attack on the WTC may not have been a proximate cause of the respiratory attacks, the causal link between them was clear and obvious, namely the link between the attacks and the inhalation of harmful and toxic dust.
Good news for policy holders? Yes, the court has taken a common sense approach in finding that the attacks on the WTC and the subsequent clean-up operation, was part and parcel of the same event for insurance purposes.
Pauline Rozario is a Consultant at Fenchurch Law.
Exclusion clauses clarified
In the recent decision of Impact Funding v. AIG the Supreme Court gave important guidance on the construction of exclusion clauses in the context of Insurance policies. Whilst of particular interest to Solicitors and their insurers the decision is of wider importance.
Barrington Support Services Limited (Barrington) was a firm of Solicitors who acted for claimants wanted to pursue claims for industrial deafness. Public funding was no longer available for such claims and hence the clients needed to fund their actions by way of CFA and ATE insurance. Impact Funding Solutions Limited “Impact” provided cover for disbursements which would be incurred in pursuit of those claims. The intention was that if the litigation was successful, the loans would be repaid by the defendants to the action and, if unsuccessful, by ATE insurers. Crucially in this case, Impact also had a direct cause of action against Barrington under the terms of a Disbursement Funding Master Agreement (DFMA). It provided amongst other things;
(a) at clause 6.1, that each party would “comply with all applicable laws, regulations and codes of practice from time to time in force… and each party indemnifies the other against all loss, damages, claims, costs and expenses… which the other party may suffer or incur as a result of any breach by it of this undertaking”; and
(b) at clause 13.1, Barrington represented and warranted to Impact that “the services provided or to be provided by [Barrington] to the Customer shall be provided to the Customer in accordance with their agreement with the Customer as set out in the relevant Conditional Fee Agreement”.
Loans amounting to £581,353 were made by Impact. Barrington failed to investigate the claims properly which either failed or were never pursued. ATE insurers refused to pay out as a result of Barrington’s negligence, leaving Impact substantially out of pocket. Barrington became insolvent and Impact brought a claim against Professional Indemnity Insurers, AIG, under the Third Party Rights against Insurers Act.
The professional indemnity policy written by AIG (“the Policy”) was written on materially the same terms as the Minimum Terms and Conditions.
The insuring clause provided: “The insurance must indemnify each Insured against civil liability to the extent that it arises from Private Legal Practice in connection with the Insured Firm’s Practice…”.
At clause 6.6 the Policy contained an exclusion for:
(a) trading or personal debt of any Insured; or
(b) breach by any Insured of the terms of any contract or arrangement for the supply to, or use by, any Insured of goods or services in the course of the Insured Firm’s Practice; or
(c) guarantee, indemnity or undertaking by any particular Insured in connection with the provision of finance, property, assistance or other benefit or advantage directly or indirectly to that insured…”
The judge at first instance decided that the exclusion applied. The Court of Appeal overturned that decision, holding that it was inapplicable and that AIG were liable under the policy. AIG appealed to the Supreme Court. By a majority of 4 to 1 the Appeal was allowed. The Supreme Court had to decide:
(a) Whether the contract between Impact and Barrington was a contract or arrangement for the supply of services to Barrington by Impact and hence excluded (notwithstanding that Impact’s loss arose from Barrington’s negligence in handling its clients claims)
(b) Whether it was necessary to construe the exclusion clause narrowly limiting its effect so as to make it consistent with the purpose of the Policy as a whole, given that this was a Professional Indemnity policy.
In relation to (a) the Supreme Court found that the contract was indeed a contract for Impact to supply services to Barrington: (i) Barrington contracted with Impact as a principal and not as an agent for the clients (ii) Barrington clearly obtained a benefit from the funding of disbursements since it enabled the claims to be fully funded. Barrington’s clients were able to pursue their claims which they could not otherwise afford and hence it was able to earn fees (iii) Barrington itself had paid an administration fee and had agreed to pay the loan itself should the client(s) breach the credit agreement.
In relation to (b) the Supreme Court found that there was no reason to imply additional words to limit it’s scope, it was not necessary to give the contract business efficacy or was so obvious that it went without saying. The Policy should be construed as having a broad insuring clause but subject to a number of exclusions which were “an attempt to identify the types of liability against which solicitors are not required by law to be covered by way of professional liability insurance”. There was no reason to construe those exclusions narrowly.
Good news for Insurers and bad for insureds? Not necessarily. Although obviously bad news for Impact. The decision as a whole should be welcomed as it provides clarification in relation to the construction of the policy. Many firms are considering their options not only in relation to Alternative Business Structures, but also in relation to litigation funding as a whole. We would also suggest it is good news for the Solicitors Profession as a whole. As had the decision gone the other way, potential sky high premiums for next renewal should insurers be obliged to cover claims such as this?
Pauline Rozario is a Consultant at Fenchurch Law
The ordinary measure of indemnity: Great Lakes Reinsurance (UK) SE v Western Trading Limited
In the latest in a series of pro-policyholder decisions by the courts, the Court of Appeal yesterday handed down a judgment upholding the trial judge’s ruling that a policyholder was entitled to be reimbursed by its insurers as and when it reinstated its premises (the historic Boak Building in Walsall) which had been destroyed by fire.
The Insuring Clause in the policy merely stated that insurers agreed “to the extent and in the manner provided herein to indemnify the Assured against loss of or damage to the property specified in the Schedule.” However, there was a separate reinstatement clause (“the Memorandum”) which stated that, in the event of damage or destruction, the indemnity was to be calculated by reference to the reinstatement of the property destroyed or damaged but only if the reinstatement was carried out “with reasonable despatch”, failing which only the amount which would have been payable under the policy, absent the Memorandum, would be due.
No reinstatement had occurred by the time of the trial, for the simple reason that the insurers had denied all liability under the policy, relying on various defences in relation to misrepresentation, breach of warranty and insurable interest. These were all rejected by the Judge, and there was no appeal on that score, the Insurers’ appeal being confined to the correct measure of indemnity.
There was disagreement between the parties as to whether the Memorandum could be relied on, and thus the Court of Appeal considered what would be the correct measure of indemnity assuming it were indeed inapplicable.
Insurers argued that, on the facts of this case, the relevant measure of indemnity was the reduction in the building’s value. Its market value just before the fire had been a mere £75,000. That reflected the fact that it was virtually derelict but, since it was Grade II Listed, it was not capable of being economically converted into (say) a block of flats. Ironically, its value had increased after the fire, since it lost its listed status and thus could now be redeveloped. Insurers thus argued that there was no loss, and nothing for them to indemnify.
The Court of Appeal disagreed. It held that, where the policyholder was the owner of the property or, if not, where it was obliged to replace the property (here the policyholder was the lessee of the building and owed the owner an obligation to repair it), the indemnity under the policy was ordinarily to be assessed as the cost of reinstatement. The Court of Appeal recognised that the position would be different if, at the time of the loss, the policyholder was trying to sell the property or intended to demolish it anyway.
The Court of Appeal also recognised, as had the trial judge, that an insurer who paid out the cost of reinstatement would have no redress if the policyholder then decided simply to keep the insurance proceeds. It held that the insurers could be protected if, rather than their being ordered to pay an immediate sum of money, the court instead made a declaration requiring insurers to reimburse the policyholder for the actual reinstatement costs as and when incurred.
Finally, it should be noted that the Court of Appeal held that, where a reinstatement clause required the policyholder to undertake the works of reinstatement “with all reasonable despatch”, it would not be in breach of that requirement unless and until insurers had confirmed indemnity under the policy. That is an obvious victory for common sense, even if it might be thought depressing that the Insurers would really have wished to argue that a policyholder could legitimately be prejudiced by a combination of its own impecuniosity and insurers’ unlawful refusal to affirm cover.
See: Great Lakes Reinsurance (UK) SE v Western Trading Limited [2016] EWCA Civ 1003.
http://www.bailii.org/ew/cases/EWCA/Civ/2016/1003.html
Jonathan Corman is a Partner at Fenchurch Law.
Fenchurch Law boosts insurance disputes team with three new appointments
Fenchurch Law, the UK’s leading firm working exclusively for policyholders and brokers on complex insurance disputes, announces the expansion of its team with three new appointments.
Joanna Grant joins as a partner in the firm’s financial and commercial practice. She was previously senior associate at Allen & Overy. Her broad experience in complex multi-jurisdictional proceedings and arbitrations includes acting for financial institutions and global corporates in high-value commercial coverage disputes. A particular focus of her insurance practice is advising on political risk, crime, and D&O policies. She also has considerable experience of Bermuda Form arbitration.
Pauline Rozario will be a consultant to the firm specialising in professional indemnity insurance disputes, with a particular focus on disputes involving solicitors. She has over 20 years’ experience in handling such claims, initially at the Solicitors Indemnity Fund and latterly at a leading professional indemnity insurer.
Sara-Jane Reilly joins as trainee solicitor from a large insurer where she specialised in construction claims and later moving on to handling professional indemnity claims. Prior to this, she worked for the Financial Ombudsman Service as part of their insurance division, arbitrating disputes between policyholders and insurers. Sara-Jane is due to qualify as a solicitor in March 2017.
Commenting on the appointments, David Pryce, managing partner at Fenchurch Law, said: “We are delighted that Joanna, Pauline and Sara-Jane have agreed to join the firm. We are committed to investing in the growth of our business and this continued investment in the expansion of capabilities is part of our wider objective of improving outcomes for policyholders.”
The new appointments brings the total number of partners at the firm to seven.
Fenchurch Law launches combined legal service and costs cover for policyholders with insurance claims disputes
Fenchurch Law, the UK’s leading firm working exclusively for policyholders and brokers on complex insurance disputes, has launched Fenchurch Law Unlimited (Unlimited) with the goal of protecting policyholders and levelling the playing-field with insurers.
Most policyholders are unable to match the financial resources or the specialist professional support networks that their insurers can call upon. This means that if insurers refuse to pay a claim, very few policyholders are able to challenge the decision on a commercially level playing-field.
As part of the package, policyholders also have access to unlimited legal advice in relation to their rights and obligations under their insurance policies and cover for the cost of pursing a claim against the insurer. Costs such as counsels’ fees, experts’ and court fees, and the risk of having to pay insurer’s costs are also covered, for claims with good prospects of success. It will be sold through brokers on a delegated authority basis, alongside the policyholder’s existing commercial or personal lines insurance.
How does it work?
The policyholder buys the service at the same time as they take out their insurance policy, for a single up-front fee calculated as 1% of the premium of the policyholders’ insurance policies.
Commenting on Unlimited David Pryce, managing partner at Fenchurch Law, said: “When an insurer refuses to pay a claim very few policyholders are able to challenge them on a commercially level playing-field. Unlimited is all about improving outcomes for policyholders, and addresses a risk faced by all policyholders but for which there was no protection available, until now”.
“Working in conjunction with a group of like-minded providers we have been able to produce a package of services offering the same high quality representation insurers already receive in dealing with disputes. We will now be working to introduce the benefits of Unlimited across the UK insurance broking sector as a key part of their client support offering.”
For further details about Unlimited and how it could benefit you or your clients please contact us either by email at address unlimited@fenchurchlaw.co.uk or call our dedicated Unlimited phone number 020 3058 3088.
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.
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.
Article from Post Magazine
For Post Magazine's comments on Fenchurch Law opening our doors, please click on the following link: http://www.postonline.co.uk/post/news/1593348/fenchurch-temple-tie