UK Court Opinions

ENGLISH COURT CIRCUMVENTS ARBITRATION CLAUSE AND RETAINS JURISDICTION OVER DISPUTE BETWEEN FRENCH AND ENGLISH CO-INSURERS

June 11, 2009 by Carlton Fields

A UK appellate court recently dismissed a French insurer’s jurisdictional challenge to a lawsuit initiated against it by an English insurer. After settling a personal injury claim, the French insurer sought to recover $2.45 million from the English insurer as its proportionate share of the settlement. The English insurer, however, denied coverage for the claim, and commenced proceedings in England for a declaration of non-liability. In response, the French insurer argued that the English court lacked jurisdiction because of an arbitration clause in the insurance policy that required all disputes to be arbitrated in Paris. It further noted that European Union Regulation 44/2001 has an arbitration exclusion that precluded English jurisdiction. The lower court rejected this argument, and the French insurer appealed.

The appellate court rejected the French insurers’ jurisdictional argument, holding that—under the EU Regulation—both the subject matter of the claim and the preliminary issue of the enforceability of the arbitration clause were within the English court’s jurisdiction. The court reasoned that “the mere fact that a claim is the subject of an arbitration agreement does not deprive a court of its jurisdiction to determine the dispute.” Rather, a court has to look at the subject matter of the proceeding to decide whether it is within the scope of the arbitration agreement or the EU Regulation. Applying this standard, the court found that the English insurer’s claim did not arise from the insurance policy’s arbitration agreement; instead, it arose out of a separate liability agreement between the co-insurers. Youell v. La Reunion Aerienne [2009] EWCA Civ 175.

This post written by John Black.

UK COURT DETERMINES THAT INSURED CAN GIVE EFFECTIVE NOTICE OF POTENTIAL CLAIMS FOR PROFESSIONAL NEGLIGENCE BY APPRISING INSURER OF GENERAL CIRCUMSTANCES THAT MIGHT LEAD TO SUCH CLAIMS

March 6, 2009 by Carlton Fields

In this action for declaratory relief, the UK Court of Appeal issued a judgment on the construction and application of notification provisions in a claims made policy, which may be of interest in interpreting similar provisions in reinsurance agreements. The court held that where a professional indemnity insurance policy required the insured to notify the insurers of potential claims against the insured “as soon as practicable,” the insured could satisfy this requirement by notifying the underwriters of circumstances which might give rise to claims for professional negligence, if made within the insured period, even if the notification of the claim itself was not given until after the policy period. However, notification of such circumstances given after the policy expired relating to new potential claims was not effective.

The essential issue was whether Kidsons gave the underwriters effective notification of the circumstances that might lead to subsequent claims for professional negligence within the policy period. The policy provided no details as to how a notification was to be made, other than that it must be in writing and given as soon as practicable after awareness of circumstances which might give rise to a claim. This was a factual issue, requiring an analysis of various letters and presentations. The court held that the “as soon as reasonably practicable” language was, in effect, a condition precedent in the claims-made policy. This result was not undone by another policy provision stating that “Where the assured’s breach of or non-compliance with any conditions of this Insurance has resulted in prejudice to the handling or settlement of any loss or claim the indemnity afforded . . . shall be reduced to such sum as in the underwriters’ opinion would have been payable by them in the absence of such prejudice.” Although the provision referred to “any conditions of this Insurance,” it did not in terms refer to – and therefore modify – conditions precedent. One Justice dissented, agreeing with the judge below that the letter relied upon as providing notice of the circumstances was incapable of constituting an effective notification because it was too nebulous. HLB Kidsons v. Lloyd’s Underwriters [2008] EWCA Civ 1206 (Ct. App. Nov. 5, 2008).

This post written by Brian Perryman.

UK COURT OF APPEALS DELIVERS SPLIT DECISION ON REINSURANCE AVOIDANCE

February 24, 2009 by Carlton Fields

The UK Court of Appeals has entered a decision dealing with reinsurance avoidance issues which may be of interest to US practitioners due to the similarity of avoidance standards in the UK and the US. On October 31, 2007 we reported on a decision of the UK Commercial Court, Queen’s Bench Division, avoiding two facultative reinsurance agreements due to misrepresentations by the placing broker as to the amount of deductibles required for ceded risks. The UK Court of Appeals has agreed that the initial reinsurance agreement (covering risks from July 1, 1996 through June 30, 1997, extended by endorsement through January 31, 1998) should be avoided, but has decided that the second reinsurance agreement (covering risks from February 1, 1998 through January 31, 1999) should not be avoided. The representation at issue was made prior to the placement of the first reinsurance agreement, and stated that “[a]s a matter of principle they [the cedents] maintain high standards and would not normally write construction unless the original deductible were at least £500,000 and preferably £1,000,000.”

The Commercial Court characterized this statement as a statement of “current policy,” which continued to be effective through the placement of the second reinsurance agreement. There was testimony that this was the policy and practice of the cedents up to the placement of the first reinsurance agreement, but that due to market conditions it was not possible to continue this practice after July 1996. The Court of Appeals stated that the claim of avoidance was based upon an alleged misrepresentation, not upon an asserted failure to disclose, and that to be actionable: (1) a statement must be a representation of existing fact, not of future fact or opinion; and (2) that a representation as to expectation or belief is not actionable if it is made in good faith. The first point is similar to the elements of fraud claims in many US jurisdictions.

The Court of Appeal held that the alleged representation was a statement of intention that was a representation of existing fact prior to July 1996, and that it was a material misrepresentation. The Court found that since the extension of the first reinsurance agreement for an additional seven months was an amendment to an existing contract, rather than a new contract, the reinsurance was avoided through January 31, 1998. The Court stated that the representation was not continuing in nature 19 months after it had been made, rather that it “relates to the time when it is made ….” The Court therefore held that the alleged misrepresentation was not a basis to avoid the second reinsurance agreement. Although not stated, the fact that there was testimony that the market conditions made it impossible for the cedents to maintain a policy or practice of maintaining deductibles at the levels represented after July 1996 supports this conclusion. The Court of Appeals was careful to state that it had not been contended that the cedents were under an obligation to disclose the level of deductibles intended to be written with respect to the second reinsurance agreement, leaving open the question of whether avoidance could be based upon a failure to disclose as opposed to an affirmative misrepresentation. Limit No. 2 Limited v. Axa Versicherung AG [2008] EWCA 1231 (Ct.App. Nov. 12, 2008).

This post written by Rollie Goss.

AVOIDANCE AVOIDED BY REINSURER

February 19, 2009 by Carlton Fields

Legion Insurance Company provided casualty insurance to businesses in the United States, including a Workers Compensation Act cover. This cover comprised two sections: Section A gave cover for statutory benefits in respect of death or bodily injury arising from an accident at work, and Section B gave cover for payments in respect of an employer’s fault based liability for an accident, killing or injuring an employee. This business was part of what was known as the “Mainframe Account.” In 1998, Hannover Re underwrote some excess of loss reinsurance policies giving cover to Legion for its liabilities in respect of business allocated to the Mainframe Account. By four excess of loss retrocession contracts, Syndicate 53 at Lloyd’s was a retrocessionaire of some of the Mainframe Accounts. One Ian Crane was the Syndicate’s active underwriter. Three of the four retrocessions included Hannover as reinsured. The retrocessions were limited to Section A of the cover.

The Syndicate avoided as against Hannover. During the ensuing trial, the Syndicate’s claims focused on nondisclosure by Hannover of underwriting and claims audits which it had conducted of Legion; misrepresentation and nondisclosure concerning the “comparative strictness of the underwriting requirements for the Mainframe Account”; and misrepresentation and nondisclosure concerning Legion’s underwriting practices (specifically, it was alleged that Legion had underwritten by reference to an “underwriting box” and had not used actual loss histories to calculate expected losses). In response, Hannover principally argued that the underwriting audits were not relevant and that the Syndicate’s criticism of Legion’s loss rating approach was not material since Crane had ample information with which to form his own judgment. Further, the claims audits did not reveal any serious problems relating to a Mainframe carve-out renewal proposal.

The court found that the underwriting and claims audits contained serious issues that were known to Hannover, and that Crane had not been able to consider these audits. Nonetheless, the 1998 carve-out renewal proposals described Legion’s loss rating approach, so Crane was in an equally good position as Hannover to form his own judgment about Legion’s loss rating practice. Regarding the nondisclosed claims audits, it was found that they described Legion’s practices as average, so this would not affect the judgment of a prudent underwriter. Regarding the allegation of the “comparative strictness of the underwriting requirements for the Mainframe Account,” the court found that these requirements had been explained to Crane. Finally, regarding the allegation on the use by Legion of an underwriting box was rejected as failing to understand how the box actually worked: Legion’s underwriters would individually underwrite each new piece of business going into the program and that business had to have enough experience to qualify it for the Mainframe Account, so Legion was providing cover to individual insureds by reference to their actual loss histories. The requirements for use of the underwriting box were consistent with the actual loss histories. Moreover, Crane was informed of the underwriting box in a November 1998 discussion. Thus, the Syndicate was not entitled, as against Hannover, to avoid the 1998 Mainframe carve-outs. Crane v. Hannover Ruckversicherungs-Aktiengesellschaft [2008] EWHC 3165 (Q.B. Comm. Div. Dec. 19, 2008).

This post written by Brian Perryman.

U.K. COURT FINDS IN FAVOR OF INSURER ON CLAIMS AGAINST ROGUE AGENTS

February 11, 2009 by Carlton Fields

A British commercial court tried claims on December 8 and 9, 2008 made by Markel International Insurance Company (“Markel”) and QBE Insurance (Europe) Limited and Amalfi Underwriting Limited as against certain allegedly rogue agents who devised a scheme to defraud the plaintiffs of premium. The agents signed a number of unauthorized bonds on behalf of the principals, and shielded the receipt of premium through a complex accounting scheme.

The court found certain of the agents more or less culpable depending on their level of involvement in the conspiracy. The court also analyzed the appropriate quantum of damages in reference to the amount of premium concealed, and declined to entertain a number of failure-to-mitigate arguments raised by the defendants as untimely, having first been raised after trial. Markel International Insurance Company Limited v. Surety Guarantee Consultants Limited, [2008] EWHC 3087 (Comm. Ct. Queens Bench Div. Dec. 17, 2008)

This post written by John Pitblado.