Warranty or Not?

Bluebon Ltd (in liquidation) v Ageas (UK) Limited, Aviva Insurance Ltd and another [2017] EWHC 3301 (Comm)

The assured, owners of the Star Garter Hotel at West Lothian, having purchased the property in December 2007, obtained an insurance policy from insurers, Ageas and Aviva, which incepted on 3 December 2009 for a period of 12 months. The insured property suffered loss by fire on 15 October 2010 and a claim was made. The insurers denied liability on the premise that the Electrical Installation Inspection Warranty was breached. The relevant term in the policy was worded as follows:

“It is warranted that the electrical installation be inspected and tested every five years by a contractor approved by the National Inspection Council for Electrical Installation (NICEIC) and that any defects be remedied forthwith in accordance with the Regulations of the Institute of Electrical Engineers.”

On the premise that the last electrical inspection at the Hotel had taken place in September 2003, the insurers argued that the policy was either void or suspended from the outset. In the case, the trial judge, Bryan, J, was required to determine:

  1. The proper construction of the Warranty – was the five-year period to be calculated from the date of the last electrical inspection, or from Policy inception?
  2. Was the Warranty a True Warranty, a Suspensive Warranty, or a Risk Specific Condition Precedent, and what was the consequence of a breach?

The proper construction of the warranty

The assured argued that the five year period should be calculated from the date the policy has been incepted. Taking into account the commercial purpose of the warranty, i.e. ensuring that the risk of fire is minimised (whilst also protecting the health and safety of the insured and the occupiers of the hotel), the judge rejected this contention. This objective can only be achieved if the electrical installation is inspected at regular intervals, e.g. every five years, and any defects identified are remedied. The judge also suggested that the contention of the assured, i.e. the installation inspected every 5 years from the inception of the policy, would make no commercial sense and not work in the context of a one year policy, like this one.

This outcome makes sense and the judgment is in line with recent authorities on the matter such as AC Ward & Son Ltd v. Catlin (Five) Ltd [2009] EWHC 3122 (Comm) and GE Frankona Reinsurance Ltd v. CMM Trust No 1400 (The Newfoundland Explorer) [2006] EWHC 429 (Admlty), analysed by the author in his contribution to the 4th Volume of The Modern Law of Marine Insurance (2016, Informa Law) “New Parameters in Construing Insurance Contracts”

Legal classification of the clause            

The insurers argued that the clause in question was a true warranty and accordingly in this case breach had the effect of rendering the policy void from inception as the warranty related to a period before the attachment of the risk. Alternatively, they argued that the clause was a “suspensive provision” and as the inspection had not been carried out in 2008, the cover was suspended from the outset, i.e. the insurer never came on the risk. Conversely, the assured argued that the clause was a “Risk-Specific Condition Precedent”- i.e. a term which required compliance in respect of risks relating to the electrical installation. Therefore, in case of breach the assured could not recover for liabilities that emerge from risks associated with the electrical installation but cover should be available for liabilities that emerge from other risks.

The assured’s contention was a novel one and essentially based on the premise that a clause could make compliance with a specific aspect of the risk condition precedent to liability. That is certainly possible but clear and apposite language is required to achieve such an outcome. That does not seem to be the case here and the trial judge finding in favour of the insurers expressed the view that the clause was a “suspensory provision”. In reaching this conclusion, he worked on the assumption that the clause was designed to ensure that the assured undertakes such an inspection immediately if there had been no such inspection in the last five years. In other words, he assumed that the intention of the clause was to encourage the assured to get the inspection done as soon as possible by suspending the cover until it is completed. The author is not certain that this was the original intention of the insurers. The insurers in all probability desired to assess the risk accurately at the outset by ensuring that they were insuring a property that had gone through electrical surveys at regular intervals. To the author, it was clear that the clause went to the root of the contract and bore materially on the risk of fire and damages would not have been an adequate remedy (these are all the attributes of a true warranty as highlighted by Rix, LJ in HIH Casualty & General Insurance v New Hampshire Insurance Co [2001] EWCA Civ 735, at [101]). In fact the judge himself appreciated that the term carried all these attributes! It is, therefore, arguable that this was a true warranty.

In the end, the judge’s classification of the clause as a “suspensory provision” had no impact on the outcome. In the present case, the cover was suspended from the outset as the electrical survey had not been concluded 5 years after the previous one by the time the policy had been incepted.

The outcome is in line with the recent trend in the judiciary, i.e. to avoid classifying terms as warranties due to the harshness of the remedy they attract in case of their breach. (see, for example, Sugar Hut Group v. Great Lakes Reinsurance (UK) Plc [2010] EWHC 2636 (Comm)) Of course, had the case been considered under the Insurance Act 2015 a different outcome could have been possible. Under s. 11 of the 2015 Act, the assured could possibly argue that this was a term designed to reduce the risk of a particular type (i.e. fire that is caused by electrical default) and the assured should be able to recover for the loss if he can show that its breach did not increase the risk of the loss which occurred in the circumstances in which it occurred.

It is worth noting that s. 11 is not available in cases where the term in question is designed to define the risk in a general way. The author does not think that the clause in question is of that nature but nevertheless one should be alert to the fact that this kind of disputes could arise under the new Act as s. 11 introduces a type of causation test from the backdoor (even though the Law Commissions were desperate to avoid such an outcome!). (for a more analytical evaluation on s. 11 and the effect of changes on law see- B. Soyer, “Risk Control Clauses in Insurance Law: Law Reform and the Future” (2016) Cambridge Law Journal 109)

IISTL’s Engagement with Insurance Industry on IUU Fishing

The Institute of International Shipping and Trade Law (IISTL), a research centre within the College of Law and Criminology, continues to expand its operations. On 26 June, it collaborated with marine advocacy group Oceana to organise an afternoon seminar in London on the insurance and regulatory aspects of irregular fishing (known in the trade as fishing that is illegal, unreported and uncontrolled (IUU)). The main purpose of the event was to disseminate as widely as possible the results of a study carried out by three members of the Institute (Barış Soyer, George Leloudas and Dora Nikaki) in collaboration with researchers from University of British Columbia (Canada). In summary, the study found that it had been disconcertingly easy for vessels involved in IUU fishing to get liability insurance in the market. The study recommended an urgent review of underwriting processes and consideration of regulatory changes to put insurers under a legal duty to deny cover to vessels known to be connected with IIU activities.

soyer2
Professor Soyer delivering the findings of the project to the delegates

The event, which attracted an impressive 60 delegates, provided an excellent opportunity for those throughout the sector to engage in the debate. Presentations from Lasse Gustavsson (Senior Vice President of Oceana Europe) , Kjetil Saeter (Norwegian Business Daily), David Vajnai (Vice President Marsh Global Marine Practice),  Baris Soyer and Gerorge Leloudas (IISLT) and Dana Miller (a marine scientist with Oceana Europe) were followed by a lively debate led by insurers, brokers and policy-makers. The afternoon ended with a reception generously sponsored by the Waterloo Foundation, which was also the funder of the project. An academic article, which is co-written by Professor B. Soyer, Associate Professor G. Leoudas and Dr D. Miller, detailing main findings of the project is to appear in Transnational Environmental Law later this year.

Vajnai22
Mr David Vajnai (Marsh Global Marine Perspective) debating the matter from the perspective of the insurance brokers
leloudas6_154920

Dr Leloudas talking about the regulatory aspects of the issue

Dilatory English underwriters must watch out from next year

One of the most appalling rules of English insurance law finally bites the dust next year. The Enterprise Act 2016 received the Royal Assent earlier this month. From 4 May next year it inserts a new section (s.13A) in the Insurance Act 2015 finally allowing damages for late payment of insurance claims.

Quick overview: see our friends at Clyde & Co.

Detailed coverage: see The Insurance Act 2015: A New Regime for Commercial and Marine Insurance Law (ed M.Clarke & B.Soyer), ISBN: 9781138683303, Chapter 6 (by an author of this blog). Available from all good bookshops from August.

Double insurance and contribution, EU-style — where can you sue?

A decision last Friday from a deputy High Court judge which may raise the odd Euro-eyebrow: see XL Insurance Company SE v AXA Corporate Solutions Assurance [2015] EWHC 3431 (Comm) (available on BAILII).

Put simply, in 2008 there was a nasty railroad smash in California involving Connex. Connex’s insurer XL paid up to the victims. They then alleged that AXA, a French insurer, had insured the same risk and claimed contribution from it in London on the basis of double insurance. AXA applied to strike on the basis that, being French-based, it had the right to be sued in France under Brussels I Recast, Art.4. XL countered on the basis that this was a claim “relating to a contract” under Art.7(1), or one “relating to tort, delict or quasi-delict” under Art.7(2); in which case AXA could be sued in the place of performance or the place where the harmful act occurred as the case might be.

HHJ Waksman QC obliged by striking out.

This was not a claim relating to a contract, since although there were a couple of insurance contracts in the background, a claim relating to a contract involved a contractual duty of some sort obliging the defendant to render performance to the claimant: this wasn’t the case here. If anything, one insurer’s liability to contribute to the other’s payment is a claim in unjust enrichment. True, an EU Advocate-General had said exactly the opposite a couple of months earlier in Ergo Insurance v P & C Insurance Cases C-359 and 475/14 (see http://curia.europa.eu/juris/document/document.jsf?text=&docid=168543&pageIndex=0&doclang=EN&mode=req&dir=&occ=first&part=1&cid=281090), opining that this was a contract claim, with the place of performance being that of the underlying insurance policies. But the judge did not mince his words: he said that Adv-G Sharpston (incidentally an English ex-academic long since inveigled away by the good life in Brussels) did not understand the matter and was simply wrong.

Nor was this anything “relating to tort, delict or quasi-delict”. Taking the narrow view of this as requiring at least some degree of liability for wrongs (see Reichert v Dresdner Bank [1992] I.LPr. 404), it didn’t embrace contribution: no wrong was committed by one insurer not paying while another insurer did.

This all matters, if only because contribution claims can’t normally be subjected to a jurisdiction agreement. Put shortly it seriously raises the bar for those seeking contribution if their lawyers may potentially have to jurisdiction-hop anywhere in the EU to obtain their money. But the betting is strong that this isn’t the last word. Watch this space.

Insurance Fraud Pays – Professor Barış Soyer Wins BILA Book Prize

It has just been announced that Professor Soyer’s recent book “Marine Insurance Fraud” has won the 2015 BILA Book Prize. This prize, for the best book on insurance law, is awarded annually by the British Insurance Law Association Charitable Trust, a body existing to promote research on the interrelationship between law and insurance.

image7

BILA 2015 Prize for Professor Barış Soyer’s book “Marine Insurance Fraud”

The announcement was made at BILA’s Annual General Meeting on 16 October 2015. Alison Green, Chair of the BILA Charitable Trustees, congratulated Professor Soyer, not only for having written a highly relevant, interesting and accessible book, but also for being the only author to win the Prize twice (having first won the Prize in 2002 for his first monograph on warranties in marine insurance).

soyerHis most recent prizewinning monograph, published last year, gives a comprehensive and coherent legal analysis of the impact of fraud on the position of various parties to a marine insurance contract. At the time of publication it was seen as a winner. In the foreword, Sir Bernard Rix (formerly a Lord Justice of Appeal) stated: “Professor Soyer has written a book on an important and fascinating theme which not only states the law in a clear and concise way, but also analyses it critically, insightfully and helpfully. I am confident that it will be used profitably by a wide range of readers.”

Professor Barış Soyer is the Director of the Institute of International Shipping and Trade Law, a research institute based in the College of Law at Swansea University. He has taught marine insurance and other aspects of commercial law at Swansea for some 15 years.

Insurance and fraudulent claims

Hard on the heels of legislation in the Insurance Act 2015 about fraudulent claims by the insured, readers may like to know that insurers can now take comfort from s.57 of the Criminal Justice and Courts Act 2015 concerning third party dishonesty. Essentially where there is substantial dishonesty in or about an injury claim the entire claim falls to be dismissed, subject to a “substantial injustice” exception.

Andrew Tettenborn