Fenchurch Law receives third consecutive nomination for insurance law firm of the year
Following our success at last year’s Post Magazine Claims Awards, we are proud to have been nominated again in 2017 for the Insurance Law Firm of the Year Award.
In 2016, we were honoured to have received the award that recognises, that specifically recognises a firm that demonstrates technical ability and the application of innovative ideas and customer service within legal services. The team are delighted to have received this second nomination for such a prestigious award.
This nomination highlights the increasing recognition that whole industry is driving for improved policyholder outcomes.
The Post Magazine Claims Awards celebrate excellence and innovation in the general insurance claims sector. The 2017 award winners will be announced on 1st June at a ceremony in the Sheraton Hotel on London’s Park Lane.
To find out more about the Awards and a list of all the finalists check out http://www.postevents.co.uk/claimsawards/static/shortlist
Insurance Act 2015: Some Insurers Crying Foul
When the Insurance Act 2015 came into force in August 2016, it was hailed as the biggest reform of this area of law in over a century. The old law had been criticised by the Law Commission as “out of date” and “no longer reflecting the realities of today’s commercial practices”.
The Act addressed those criticisms head-on. It repealed the archaic “duty of utmost good faith” and created a new, fairer, “duty of fair presentation” designed to clarify precisely what is required from policyholders during the disclosure process, and to increase the burden on Insurers to ask the right questions about the risk they wish to write.
Likewise, the Act softened many of the harsh remedies available to Insurers under the pre-Act regime. Where policyholders innocently omitted to disclose a material piece of information (for a wide variety of unfortunate, but quite understandable, reasons), the old law afforded Insurers the draconian remedy of avoiding the policy in its entirety, even if they would have still written the risk in one way or another.
The Act, on the other hand, asks the very sensible question brokers and coverage lawyers have been asking for decades, which is: “What would you have done had you known?”. If the Insurer would have written the risk in any event, the Act’s new system of proportionate remedies provides a more measured redress mechanism to alter policy terms or the premium retrospectively to reflect what ought to have happened in the absence of the Insured’s oversight.
Uncertainty for Brokers and Policyholders
On the face of it, therefore, the Act generally works in favour of policyholders. However, as with all change (even one for the better), the move from a complex, but established, body of law to a more rational, but nonetheless new and untested, set of rules has created much uncertainty for brokers and their clients over the past six months.
In particular, many brokers now ask themselves and their advisors: “Does the Act really put my clients into a better position than they were in under the old law, and, if not, can I use the prevailing market conditions to improve their position in some way?”
The answer, of course, is that it in many cases the Act puts Insureds in a worse position than under the old law, leaving brokers with the challenge of finding an appropriate solution to protect their clients’ interests.
The best (and most controversial) example of this is the use of “Innocent Non-Disclosure” clauses on certain lines of business. Pre-Act, clauses such as the following were largely uncontroversial and commonplace protections against the risk of avoidance:
“Insurers shall not avoid this Policy as a result of any non-disclosure or misrepresentation by the Insured save in respect of a fraudulent non-disclosure or misrepresentation”.
In other words, under the old law Insurers were prepared (for a variety of reasons, not least their eagerness to write business) to agree that nothing short of a fraudulent non-disclosure or fraudulent misrepresentation would give them opportunity to remove that client’s cover in its entirety.
Under the Act’s new proportionate remedies regime, even an innocent breach of the duty of fair presentation might, for example, entitle Insurers to retrospectively increase an Insured’s premium significantly, or to exclude the type of loss that has unearthed the innocent non-disclosure. In the absence of an Innocent Non-Disclosure clause (tweaked to reflect the new order of things), an Insured therefore has far less protection on certain lines than they might have secured in previous years.
Tension between Brokers and Insurers
It is unsurprising, therefore, that many brokers have continued to insist on the inclusion of Innocent Non-Disclosure clauses (as well as a variety of other protections) to ensure that their clients remain protected against non-disclosure remedies under the Insurance Act, much as they were protected under the old law. The reality is that Insurers today continue to compete fiercely, and many are therefore prepared to maintain these same protections afforded to Insureds that were available when the old law applied.
Many Insurers, however, have cried foul-play, arguing that these clauses should no longer be necessary in the post-Act world. Some go further and argue that taking advantage of soft market conditions to include them is in some way “unfair” to Insurers, given the Insurance Act was designed to “level the playing field”.
Such arguments are unlikely to hold water with brokers. One of the principal reasons the Law Commission recommended changing the law was to ensure that the rights generally afforded to Insurers on all lines of business reflected the realities of today’s market practice. Changing the inherent dynamics of the market was never on the agenda. If soft market conditions mean that Insurers, in competing for business, remain prepared to offer greater certainty and protection to Insureds, then brokers are duty bound to try and secure those things for their clients.
Conclusion
Under the pre-Act regime, the balance of power lay firmly with Insurers. At worst, policyholders might have found themselves without cover for either perfectly innocent non-disclosures or for breaches of terms wholly irrelevant to a particular loss. Market conditions pre-Act gave brokers the ability to protect their clients from those harsh remedies.
While those remedies no longer exist, brokers will continue to use those same market conditions to find ways to eliminate some of the uncertainty the Act has created. Some Insurers will see that as the insurance market working as it should. Others will say that gaining such protections flies in the face of the spirit of the Act.
To those latter Insurers, I can only assure them their own brokers are very probably striving to achieve precisely the same protections for those Insurers’ own exposures. Every cloud?
James Morris is a senior associate at Fenchurch Law.
Fenchurch Law appoints Morris to strengthen financial lines insurance disputes team
Fenchurch Law, the UK’s leading firm working exclusively for policyholders and brokers on complex insurance disputes, announces the appointment of James Morris as senior associate.
In his role, he is specialising in representing policyholders with coverage disputes arising from financial lines insurances including professional indemnity, D&O, crime, cyber and warranty & indemnity.
David Pryce, managing partner of Fenchurch Law, said: "James brings to the team important experience from across the insurance industry including legal advisory work to insurers, adjusting major losses for an insurer and performing in-house advocacy for a leading insurance broker. His background and understanding adds further strength to our financial lines capabilities.”
James joins Fenchurch Law from JLT Specialty where he was legal and technical advocate, financial lines group. He spent a number of years at City law firm RPC where he was an associate in their financial risks practice. While in his role at RPC James was seconded to AIG’s financial lines claims team, where he adjusted both major and complex claims and losses.
James also sits on the British Insurance Law Association’s Under 35s Committee.
No on-going obligation to assess if a claim is likely: Zurich -v- Maccaferri
In a (predictably?) pro-policyholder decision, the Court of Appeal (Black and Christopher Clark LJJ) yesterday dismissed Insurers’ appeal. Instead it agreed with the trial judge that the policyholder (Maccaferri) had not breached a condition in its public liability policy requiring it to notify insurers “as soon as possible after the occurrence of any event likely to give rise to a claim”.
Maccaferri’s business involved the hiring out of “Spenax Guns” (pictured - in effect, giant staplers used to tie steel mesh gabions together) to builders’ merchants, who in turn hired them out to building contractors. In this case, an employee of one such building contractor was badly injured by a Spenax Gun. Maccaferri quickly found out that there had been an incident involving one of its Guns, but did not know either that there had been a serious injury or that the Gun might have been faulty - as opposed to its having been mis-used or the accident having happened without anyone’s fault.
Zurich argued, however, that further information about the incident which Maccaferri subsequently discovered meant that many months after the incident Maccaferri knew or should have known that a claim was likely, and thus should have - but failed - to notify them, thereby disentitling it from cover.
The Court of Appeal disagreed. Instead, it agreed with the trial judge that the clause in question required a reasonable assessment by the insured at the time of the “event” as to whether it was likely to give rise to a claim and did not, as Zurich had submitted, impose an obligation on the insured to “carry out something of a rolling assessment, as circumstances develop, as to whether a past event is likely to give rise to a claim”. The Court of Appeal held that:
“This is a condition introduced by Zurich into its policy which has the potential effect of completely excluding liability in respect of an otherwise valid claim for indemnity. If Zurich wished to exclude liability it was for it to ensure that clear wording was used to secure that result. It has not done so. It is possible to construe the use of the phrase “as soon as possible” as meaning that even if, when the event occurred, it was not likely to give rise to a claim, the obligation to notify would arise whenever thereafter the insured knew or should have known that an event which had occurred in the past was likely to give rise to a claim. But I regard this as a strange interpretation and erroneous.
It is, in any event, far from clear that that is the right interpretation and, given the nature of the clause, the ambiguity must be resolved in favour of Maccaferri.”
Putting the boot in (or kicking an insurer when it’s down), the Court of Appeal went on to find that, even if Zurich’s construction of the clause had been correct, nothing in fact had subsequently occurred which meant that Maccaferri ever knew or should have known that a claim was in the offing, until it had eventually received (and promptly notified) civil proceedings against it.
The Court of Appeal’s decision is yet another instance of the courts deciding coverage disputes in the policyholder’s favour when that outcome is open to it on the relevant policy wording and when there is no evidence of any real culpable conduct by the policyholder.
However, one should sound a note of caution. As the Court of Appeal mentioned in passing (see paragraph 33 of the judgment), while the above might apply to a typical clause in a public liability policy requiring the policyholder to notify “an event likely to give rise to a claim”, the position will be different in professional indemnity policies, where the obligation is to notify a circumstance which is likely to (or, depending on the wording, which might) give rise to a claim. Whereas an event is a one-off occurrence, whose likelihood to give rise to a claim is (as we now know) to be assessed then and there, circumstances can and do evolve during the currency of a professional indemnity policy. Thus, whereas a client’s failure to pay a professional's invoice would, in isolation, almost always fall short of a notifiable “circumstance”, the position would change if, a few months later, the client explained that his failure to pay was the result of his dissatisfaction with the services which he had received.
See: Zurich Insurance plc -v- Maccaferri Ltd [2016] EWCA Civ 1302(12/01/2017)
http://www.bailii.org/ew/cases/EWCA/Civ/2016/1302.html
Jonathan Corman is a partner at Fenchurch Law.
“The Worst of Both Worlds”: Spire Healthcare Ltd v RSA
2016 was a bumper year for aficionados of aggregation cases. (One might say that it saw a series of related cases…) In April the Court of Appeal in AIG v Law Society considered aggregation under the Solicitors’ Minimum Terms, with the outcome of AIG’s expedited appeal to the Supreme Court expected this month or next. In October, the Commercial Court in MIC Simmonds v AJ Gammell had to decide whether claims for respiratory injuries suffered by thousands of rescue workers after 9/11 arose out of one event. And just before Christmas the Commercial Court, in Spire Healthcare Ltd v RSA, again considered aggregation, this time in the context of a private healthcare company facing claims from over 700 patients alleging that one particular surgeon had carried out unnecessary and/or negligent procedures.
The case involved a combined liability policy taken out by Spire, which included cover for medical negligence. Put crudely, the intention of the policy seems to have been to confer an indemnity limit of £10m for any one claim together with an annual aggregate cap of £20m. There was also a badly drafted clause, whereby all claims attributable to one source or original cause would attract only one “Limit of Indemnity”.
Thus, if that clause operated as a conventional aggregation clause, the policyholder could only recover £10m from insurers, since all 700 claims would be treated a single claim. If the clause didn’t have that effect, it could recover £20m.
In addition, the policyholder and insurers disagreed about whether aggregation applied to the £25,000 each-and-every-claim excess. The policyholder argued that it did, and that it only had to pay the £25,000 once. The insurers disagreed, arguing that the excess was payable in respect of each claim (albeit, as it happened, capped at £750,000 in all).
The case involved some interesting comments by the Judge (HHJ Waksman QC) about principles of policy construction. He confirmed, as had the Court of Appeal in the AIG case, that aggregation clauses should be construed neutrally, without any preconceptions that they should work in one or other of the parties’ favour. He also held that, just because a particular phrase or clause was redundant or duplicative in one part of the policy, that didn’t mean that it had no function or effect elsewhere in the policy.
Desperately interesting though this might all be to insurance lawyers, brokers and underwriters, the outcome of the case was disastrous from the policyholder’s perspective. The Judge held that the clause in question did mean that there was indeed only £10m of cover available. To rub salt into the policyholder’s wounds, the Judge also rejected its fall-back contention that, in that case, there should be “parity of aggregation” and that it should be implied - in the absence of an express provision to that effect - that the 700 claims, unquestionably linked as they were, should attract only one excess. So the policyholder, which had fought the case arguing that there was £20m of cover and just one £25,000 excess due, was held to be entitled to just £10m of cover and liable to pay £750,000-worth of excesses.
I understand that, predictably enough, the policyholder is applying to the Court of Appeal for permission to appeal.
See: Spire Healthcare Limited v Royal & Sun Alliance Insurance plc [2016] EWHC 3278 (Comm) http://www.bailii.org/ew/cases/EWHC/Comm/2016/3278.html
Jonathan Corman is a partner 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
“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.
“When the lie is dishonest but the claim is not” – collateral lies and dishonest exaggerations
Two recent Supreme Court judgments have considered the impact of dishonesty – on an insurance claim and on a settlement agreement.
In one, where ship owners sought to embellish their insurance claim through the inclusion of a false, but irrelevant, statement, the court held that the owners were nevertheless able to recover under their insurance policy.
In the other, evidence that an employee had dishonestly exaggerated the extent of injuries sustained in the work place entitled his employer’s insurers to set aside a settlement entered into with him before that evidence was available.
Through their differing outcomes, these cases serve to illustrate that, while the courts remain as ready as ever to take a strong stance whenever there is evidence of fraud, nevertheless and in line with the current trend towards a more level playing field for policyholders, where “the lie is dishonest but the claim is not”, for an insurer to avoid all liability for the claim will not be an appropriate sanction.
Versloot Dredging BV v HDI Gerling Industrie Versicherung AG
In Versloot Dredging BV v HDI Gerling Industrie Versicherung AG, the owners of a ship damaged by a flood in the engine room made a false statement that the bilge alarm had sounded. The Supreme Court found that this did not prevent the ship owners from being able to recover under their insurance policy. This was because, although the lie was dishonest, the claim was genuine. On the facts, the policy would have responded in the same way and for the same amount whether or not the statement was true. The dishonest statement did not therefore go to the recoverability of the claim, and was not material. The insurer was required to meet the liability, which was a liability that it had always had.
This type of dishonest statement was previously known as a “fraudulent device” and is now termed a “collateral lie”. The question for the court was whether collateral lies, statements that dishonestly strengthen what would otherwise be entirely genuine claims, constitute “fraudulent claims”. Fraudulent claims entitle the insurer to avoid liability. They encompass both claims that have been fabricated in their entirety and claims that have been dishonestly exaggerated as to their amount. Following the judgment in Versloot Dredging it is now clear that collateral lies no longer fall to be considered as a further category of fraudulent claim and will not entitle an insurer to reject the claim.
The scope of ‘fraudulent claims’, and in particular whether it extends to collateral lies, was an issue that had been left open by the wording of the Insurance Act 2015 (the Act). The Act, which applies to policies entered into after 12 August 2016, sets out an insurer’s remedies for fraudulent claims. These include the right not to pay the claim and the right to recover from the insured any sums paid by the insurer. The decision in Versloot Dredging has resolved the uncertainty as to whether a collateral lie would be caught by the Act. It is now clear it is not. Where a policyholder seeks to strengthen a genuine claim with a collateral lie, if that collateral lie is immaterial to the insured’s right of recovery, the insurer is not entitled to avoid the claim.
Hayward v Zurich Insurance Company plc
By contrast, Hayward v Zurich Insurance Company plc demonstrates that, in line with the usual maxim, fraud will still unravel all. In this case, by dishonestly exaggerating his injuries, an employee had obtained a settlement from his employer’s insurer that was significantly higher in value than what he would otherwise have recovered. When conclusive evidence proving the dishonesty later emerged, the insurer sought to set aside the settlement. To do so, it was necessary for the insurer to show that it had been induced by the misrepresentation as to the extent of the injuries to enter into the settlement. The issue for the Supreme Court was whether the insurer could still be said to have been induced by the misrepresentation in circumstances where, at the time of entering into the settlement, the insurer suspected that the employee was dishonestly exaggerating his injuries. The court found that it was sufficient that the misrepresentations were a material cause of the insurer entering into the settlement. There was no requirement for the insurer to have believed the misrepresentations to be true and the settlement could consequently be set aside.
Significantly, in Hayward, where the Supreme Court was considering the impact of the fraud on a settlement agreement not an insurance policy, the employee remained entitled to damages for his actual, albeit modest, injury. Were the same type of dishonest exaggeration to occur in the context of a claim made under an insurance policy, it would constitute a fraudulent claim for which a policyholder could not recover anything at all, whether at common law or under the new statutory regime.
See Versloot Dredging BV v HDI Gerling Industrie Versicherung AG [2016] UKSC 45; Hayward v Zurich Insurance Company plc [2016] UKSC 48.
Joanna Grant is a Partner at Fenchurch Law.
Fenchurch Law Ltd shortlisted for Insurance Law Firm of the Year Award
Fenchurch Law Ltd has been shortlisted for the second time for the Insurance Law Firm of the Year in the prestigious Claims Awards 2016, 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 again. 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. Putting policyholders first is at the heart of everything we do and over the last 12 months we have continued to put in place a number of unique funding arrangements for policyholders across the UK and secured over £9 million in payments from insurers.”
Final winners will be announced at The Claims Awards evening at the Royal Garden Hotel in London on the 2nd June.
INDIRECT CAUSATION MUST STILL BE REAL CAUSATION
In the recent decision of Arc Capital Partners Limited v Brit Syndicates Limited [2016] EWHC 141, the courts have yet again had to grapple with causation issues in the insurance context.
The case concerned a claim on a professional indemnity policy by a Fund Manager, which was facing a very substantial negligence claim from a former client.
The Commercial Court (Cooke J) was required to construe a Retroactive Exclusion, which excluded:
“… any claim … arising from or in any way involving any act, error or omission committed or alleged to have been committed prior to 5th June 2009”.
One of the key issues was how the phrase “in any way involving” should be construed, as compared with the phrase “arising from”.
The Insured contended that the two phrases in question were near identical, with both in effect equating to “proximately caused by”.
By contrast, the Insurers, while agreeing that “arising from” did indeed mean “proximately caused by”, argued that “in any way involving” meant only that there had to be “a broad or loose connection” between the claim and the act/error/omission which had occurred prior to 5 June 2009.
Ironically, in the event that their respective primary arguments failed, both the Insured and the Insurers had identical fall-back positions - namely that, while “arising from” meant “proximately or directly caused by”, the phrase “in any way involving” was to be construed as meaning “indirectly caused by”.
Perhaps unsurprisingly, the court held that this unintended compromise between the parties was indeed the correct construction, a construction which resulted in the two phrases being given recognisably distinct meanings and the clause hanging together as whole.
The court then went on to consider what was meant by “indirectly caused by”. It stated that it derived considerable assistance from the decision of Scrutton J (as he then was) in Coxe v Employers’ Liability Assurance Corporation Limited [1916] 2 KB 629, which involved a life insurance policy taken out by an Army Captain who had been fatally hit by a train while inspecting sentries guarding a railway line. The question was whether the insurers could rely upon an exclusion for death or injury “directly or indirectly caused by, arising from or traceable to … war”.
Scrutton J held, and nowadays this might be thought obvious, that:
“…A line must be drawn somewhere. For instance, the birth of Captain Ewing, even though it may be said to have led in the chain of causation to his being in the position in which he was killed, could not be considered as causing his death…”
Thus, stated Scrutton J, if for example Captain Ewing had been struck by lightning while he happened to be at a military camp, it could not be said that his death was indirectly caused by the war. In this case, however, he had been killed by the train while undertaking military duties, and thus his death was indeed indirectly caused by the war, so that the claim by his estate on the life policy failed.
Against that background, the court in Arc Capital held that the “act, error or omission” referred to in the Retroactive Exclusion had to have causative effect, and thus must have been the type of act, error or omission which could in principle give rise to liability on the part of the insured. Thus:
“It is not enough that circumstances arise prior to 5th June 2009 in which a wrongful act takes place thereafter. That would merely represent the historical context or background against which wrongful acts occurred. There must be some act, error or omission which could give rise to liability which occurs prior to the Retroactive Date which is genuinely part of a chain of causation which leads to liability for the claim in question.”
So, whereas “arising from” (or any other phrase connoting direct causation) requires an immediate causal connection between an event and an outcome, “in any way involving” (or any other such phrase connoting indirect causation) still requires a genuine causal connection between the two albeit not an immediate one. It is sufficient that the two are connected by a “chain of causation”, however many links apart they may be in that chain.
About the author
Jonathan Corman Partner
T: 020 3058 3077
E: jonathan.corman@fenchurchlaw.co.uk
Jonathan is a partner specialising in insurance disputes, with a particular focus on Professional, Financial and Construction risks. 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 litigated at all levels of the court system, is familiar with the arbitration process and a strong believer in mediation whenever it is appropriate.