Insurance

Global Process Systems Inc & Anor v Berhad [2011] UKSC 5 01/02/2011

Thu, 24 Feb 2011 23:54:41 GMT

During the transfer of an oil rig by a barge from Texas to Malaysia three of its four legs became detached. This arose as a result of [1] a build up of stresses within each leg during the course of the voyage; [2] which resulted in weakness within the structure; [3] such that the impact of a particular wave in a particular direction resulted in the shearing of the metal of one leg; [4] this in turn led to more concentrated stresses in the other three legs; and [5] the loss of two further legs following further directional impacts with other waves. The nature of the waves that ultimately led to the loss of the legs was foreseeable. Insurers sought to rely on the inherent vice exclusion in the policy however the Supreme Court unanimously held that the proximate cause was the perils of the sea rather than inherent vice – the breaking of the legs was neither expected nor contemplated and only occurred under the influence of a wave of a direction and strength catching the first leg right at the ri ght moment. The Supreme Court expanded on Lord Diplock’s definition of inherent vice in Soya GmbH Mainz Kommanditgesellshcaft v White [1983] 1 LLR 122.

Global Process Systems Inc and another (Respondents) v Syarikat Takaful Malaysia Berhad (Appellant), [2011] UKSC 5, 01/02/2011

Fri, 11 Feb 2011 00:14:32 GMT

This appeal concerns the scope of the exclusion in a marine insurance policy for loss caused by “inherent vice” in the subject matter insured.

The oil rig “Cendor MOPU” had been laid up in Galveston, Texas. In May 2005, it was purchased by the Respondents for conversion into a mobile offshore production unit for use off the coast of Malaysia. The Respondents obtained insurance from the Appellant for carriage of the oil rig on a towed barge from Texas to Malaysia.

The oil rig consisted of a platform and three legs extending down to the seabed. The rig was carried on the barge with its legs in place above the platform, so that the legs extended some 300 feet into the air.

The tug and barge set off from Galveston in August 2005 and arrived at Saldanha Bay, just north of Cape Town, in October 2005 where some repairs were made to the legs. The voyage then resumed but on the evening of 4 November 2005 one leg broke off and fell into the sea. The following evening the other two legs fell off. The breakages were the result of metal fatigue caused by the motion of the waves. In addition, the impact of a “leg breaking wave” was required to generate the final fracture. The weather experienced on the voyage was within the range that could reasonably have been contemplated.

The Respondents made a claim under the policy for the loss of the three legs. The Appellant rejected the claim and the matter came for trial before the Commercial Court. The Judge held that the proximate cause of the loss was the fact that the legs were not capable of withstanding the normal incidents of the insured voyage, including the weather reasonably to be expected. Therefore the cause was inherent vice within the meaning of Clause 4.4 and the Appellant was not liable. The Court of Appeal reversed the decision, holding that the proximate cause of the loss was an insured peril in the form of the “leg breaking wave”. The Appellant appealed to the Supreme Court.

The Supreme Court unanimously dismisses the appeal. The Court finds that the proximate cause of the loss was a peril of the sea, for which the insurers were liable, and not inherent vice.

Lexington Insurance Company (Respondents) v AGF Insurance Limited (Appellants) and one other action; Lexington Insurance Company (Respondents) v Wasa International Insurance Company Limited (Appellants) and one other action, [2009] UKHL 40

Thu, 03 Sep 2009 12:51:06 GMT

The issue in this case is whether certain financial consequences can be passed by an American insurer, Lexington Insurance Company (“Lexington”), to two London reinsurers, Wasa International Insurance Company Limited (“Wasa”) and AGF Insurance Limited (“AGF”).

Lexington insured Aluminum Company of America (“Alcoa”) and its subsidiary, Northwest Alloys, Inc. (“NWA”) under an American “all risks difference in conditions” (“DIC”) property damage insurance policy issued for the period from July 1977 to July 1980. Under this policy, Lexington paid Alcoa and NWA some US$103 million in respect of environmental damage to property. It paid this sum in settlement of an even larger potential liability flowing from a decision of the Supreme Court of Washington. That decision exposed Lexington to liability to Alcoa and NWA for contamination occurring at particular sites over periods much longer than the three year policy period. Wasa and AGF had a 2½% line on a London market slip reinsuring Lexington for the three year period. They maintained that, whatever the position under the insurance, the reinsurance as a matter of construction only covered property damage occurring during that period.

The issue in short is whether the English law reinsurance mirrors or follows the American insurance, so as to oblige Wasa and AGF to pay their relevant percentages of what Lexington have paid.

The House held that the “full reinsurance” clause and the “follow the settlements” clauses in general, did not and do not have the effect of bringing within the cover of a policy of reinsurance risks that, on the true interpretation of the policy, would not otherwise be covered by it. As per Lord Phillips of Worth Matravers, “Did the parties to the reinsurance implicitly agree that whatever law might be applied to interpretation of the primary cover, and whatever result this might produce, would apply equally to the reinsurance?” If yes, the contract of reinsurance would effectively be treated as one to indemnify the primary insurer in respect of any liability sustained under the primary cover. There might, as the original judge considered, be much to be said for adopting this approach. However, those who, in 1977, were party to this reinsurance did not do so.

The House unanimously allowed the appeal.

Lexington Insurance Co v AGF Insurance Ltd [2009] UKHL 40 (30 July 2009)

Thu, 30 Jul 2009 14:10:00 GMT

Under English law a contract of reinsurance in relation to property is a contract under which the reinsurers insure the property that is the subject of the primary insurance for the period of the cover; it is not simply a contract under which the reinsurers agree to indemnify the insurers in relation to any liability that they may incur under the primary insurance. Thus even where a contract of reinsurance contained a ‘full reinsurance’ clause and a ‘follow the settlements’ clause it would not extend reinsurers’ liability to pre and post cover periods of insurance even where a judgment on this basis has been made against primary layer insurers.

Brit Syndicates Ltd & Ors v Italaudit SpA & Ors [2008] UKHL 18 (12 March 2008)

Wed, 12 Mar 2008 00:00:00 GMT

The umbrella ‘not for profit’ company responsible for managing and maintaining the worldwide organisation of Grant Thornton firms was listed as an Assured Firm by an extension ‘solely in respect of claims made against [it] arising from claims made against a member firm of Grant Thornton International insured by the terms and conditions of the policy”. Grant Thornton Italy had audited the accounts of a Parmalat company. Claims by Parmalat investors were brought against both Grant Thornton Italy and the umbrella company. Insurers sought to avoid the policy against Grant Thornton Italy ab initio and therefore declined to cover the umbrella company on the basis that there was no insurance in place in terms of Grant Thornton Italy. The House of Lords overturned the Court of Appeal in holding that the umbrella company was covered for vicarious / partnership liability irrespective of whether insurers were entitled to avoid liability on the underlying policy.

Zeller v. British Caymanian Insurance Company Ltd (Cayman Islands) [2008] UKPC 4 (16 January 2008)

Wed, 16 Jan 2008 00:00:00 GMT

Life Insurance: The insurer of a group health policy could not repudiate liability where the assured had believed he had answered the questions on the health questionnaire accurately.

Insurancewide.com Services Ltd v Revenue & Customs Rev 1 [2007] UKVAT V20394 (15 October 2007)

Mon, 15 Oct 2007 00:00:00 GMT

This VAT case looked at whether a ‘comparison service’ provided by a company on a website used by prospective customers for insurance cover from various insurers was exempt from paying VAT. The company, acting as an intermediary, received commission from the insurers to whom it introduced clients. The company treated the supply of the services as exempt under the Value Added Tax Act 1994 Sch.9 Group 2. The Tribunal found that although the company was acting as an intermediary, it failed to qualify as an 'insurance agent’ at any stage a as it did not have the power to bind the insurers. Therefore, the company was liable to pay VAT on the supply of such services.

HLB Kidsons (A Firm) v Lloyds Underwriters Subscribing to Lloyds Policy No 621/PKID00101 & Ors, Rev 1 [2007] EWHC 1951 (Comm) (09 August 2007)

Thu, 09 Aug 2007 00:00:00 GMT

The claimant was a firm of chartered accountants and in 2002 merged with Baker Tilly. The defendants were Lloyd’s underwriters and insurance companies and had provided the claimant with professional indemnity insurance cover on a claims-made basis under an insurance policy incepting on 1st May 2001 for a period of 12 months. The claimant became insured under Baker Tilly’s policy when it was time for renewal from 1st May 2002. The action was to obtain a declaration from the Court as they believed that they should be indemnified for having notified the insurers of circumstances giving rise to claims in accordance with a general condition in the insurance policy. The claimant relied on two letters dated August 2001 and March 2002 sent during the currency of the policy as constituting valid notice of the claims. The Court ruled that the letter of August 2001 did not constitute effective notification to the underwriters of any circumstances which might give rise to a loss or claim against the claimant. The notifications were in some instances deliberately vague as to the possibility of a claim and sent to the placing rather than the claims teams. The letter sent to the claims team was insufficiently clear and was also inadequate for purposes of notification. That letter which did amount to notification of a claim was only in respect of the limited claims identified and not the broader scheme contended for.

Colonial Fire and General Insurance Company Ltd v. Harry (Trinidad and Tobago) [2006] UKPC 53 (22 November 2006) (View without highlighting)

Wed, 22 Nov 2006 00:00:00 GMT

Third Party Rights. The Privy Council held that for the purposes of s. 10 (3) of the Motor Vehicles Insurance (Third-Party Risks) Act it was only necessary to join the policyholder and where the driver was a different individual, this was a matter of commercial judgment.

Freakley & Ors v. Centre Reinsurance International Company & Ors [2006] UKHL 45 (11 October 2006)

Wed, 11 Oct 2006 00:00:00 GMT

Insolvency. Insurers provided cover against the company’s net loss which included established liabilities in respect of asbestos claims. A condition of the policy was that on an insolvency event or the reaching of a retained limit, insurers had the exclusive right to handle and defend claims and were entitled to reimbursement of their expenses. Insurers sought to recover these expenses under s. 19 (5) of the Insolvency Act on the basis that these expenses had a super-priority over the administrators’ remuneration and expenses. The House of Lords held that there was no reason to extend the administrator’s power under section 19 to cover expenditure that neither the administrator nor the court had specifically approved and thus insurers could not obtain such a priority.

Ford Motor Co Ltd v Revenue & Customs UK VAT 31/8/06

Thu, 31 Aug 2006 00:00:00 GMT

Insurance Partnerships. Free insurance cover provided by Norwich Union and breakdown services provided by the RAC was given to customers of Ford as part of a promotion on the supply of certain models of the Ford car. The insurance issue between the parties was whether some part of the price paid by the customer was for the benefit of this “free” insurance and, as such, it would give rise to the supply of two separate agreements for VAT purposes: the car (being standard rated) and the insurance (being exempt). In the circumstances of this case, the Tribunal decided that the supply of the insurance could not be separate and distinct from the supply of the Ford car and therefore the appeal by Ford that the free insurance given to customers should be exempt was dismissed.

Stemson v. AMP General Insurance (NZ) Ltd (New Zealand) [2006] UKPC 30 (21 June 2006)

Wed, 21 Jun 2006 00:00:00 GMT

Liability. The Claimant appealed to the Privy Counsel against a decision of the New Zealand Court of Appeal upholding a decision of the lower courts that the Defendant was entitled to avoid liability under the insurance policy. Stemson owned a property, which had been partially destroyed by fire. He made a claim on his insurance policy and following an investigation, there was overwhelming evidence that Stemson had started the fire deliberately. The Claimant’s insurance claim was taken to have been fraudulent from the outset. The Privy Council dismissed the appeal against the findings of fact in the lower courts as it could not be said that salient facts had been overlooked or that an erroneous view had been taken of the evidence.

Diab v. Regent Insurance Company Ltd (Belize) [2006] UKPC 29 (19 June 2006)

Mon, 19 Jun 2006 00:00:00 GMT

An insured was still required to comply with the conditions relating to the presentation of a formal written claim with adequate particulars of loss and damage where an insurer had repudiated liability on an unconnected ground. There was no rule of law to the contrary in either the UK or Belize.

Horton v. Sadler & Anor [2006] UKHL 27 (14 June 2006)

Mon, 19 Jun 2006 00:00:00 GMT

Limitation. Where a claimant in a personal injury action had initially issued proceedings before the time limit had expired and then had a brought a second action in respect of the same injuries after time limited had expired, the court could use its discretion under the Limitation Act 1980 s.33 to disapply the three-year time limit. The decision in Walkley v Precision Forgings Limited [1979] 1 W.L.R. 606 was overruled as it had deprived claimants of a right that Parliament had intended them to have.