Image of business section of newspaper

Insurance and Reinsurance Update - Redman v Zurich and what insurers need to know about SMCR

Article

Posted by , on

Summary: This is our pick of the key legal issues in the insurance and reinsurance sector including Ted Baker v AXA, Redman v Zurich and what insurers need to know about SMCR.

USA Hurricanes

Insurers and reinsurers are still trying to grapple with and refine their loss estimates following the horrific damage caused by the recent hurricanes in the USA. As claims materialise, all manner of questions may arise, including:

  • what is “wind” damage and what is “flood” damage? In what State? What does English law say (if applicable)?
  • is reinsurance cover “back to back”?
  • are US insurers making ex gratia settlements or waiving deductibles? Does your contract have a follow clause, and what does it say?
  • can all Harvey losses be attributed to a single event/occurrence – does your contract contain an “hours” clause?
  • have industry loss warranties (ILWs) been breached? What does your ILW clause say?
  • is contingent business interruption (CBI) covered? Harvey has disrupted entire supply chains.
  • while property and business interruption claims tend to be anticipated, what about liability claims?
    • there are rumoured escapes of contaminants or pollutants, and Harvey threatened an area containing 45% of total US oil refining capacity
    • did the authorities/utility companies have adequate planning in place/make contingency plans?
  • have you provided/received notification in accordance with your notification clause?
  • what does your contract say about claims control and/or inspection of records?

Our team has considerable experience assisting clients with insurance and reinsurance issues arising out of catastrophic weather events including hurricanes Katrina, Rita and Sandy, the 2011 Thai floods and the volcanic ash cloud.
 

Ted Baker v AXA

The Court of Appeal recently found that an insurer may be estopped from relying on a breach of a condition precedent if the insurer failed to speak when it had a duty to do so.

At first instance, it was held that Ted Baker’s failure to provide profit & loss management accounts to its insurers was a breach of a claims cooperation clause concerning the provision of information. However, the Court of Appeal referred to authority in relation to commercial contracts which supports the “duty to speak”. Although it was found that an insurer is generally under no duty to warn an insured as to the need to comply with policy conditions, the Court of Appeal found that Ted Baker could have reasonably expected the insurers to make it clear if they required the accounts, especially if failure to provide the accounts would be fatal to the claim and the issue could have been easily rectified. Whilst the insurers had not acted dishonestly or with impropriety, AXA had not made it clear to Ted Baker that anything was outstanding until the insurance coverage had been agreed in principle. That being said, Ted Baker’s claim failed on other grounds concerning quantification of loss.

This case demonstrates the importance of proactive claims management and that care should be taken by insurers so that an estoppel argument does not unintentionally arise.

Aspen v Kairos Shipping

This case serves as a useful reminder as to who can be subject to a jurisdiction clause in a contract (whether contained in an insurance policy, settlement agreement or otherwise).

In Aspen, a non-party bank domiciled in the Netherlands contested jurisdiction on the basis it was not party to an insurance settlement agreement. However, it was an equitable assignee of the policy and had benefitted from the insurers paying a claim pursuant to a settlement agreement that the insurers later sought to claw back. The Court noted that the bank was not exercising rights to sue as an assignee, nor was it clear on the facts that the settlement agreement had intended to bind or benefit anyone other than the insured. That the bank could be expected to benefit from an insurance pay-out the subject of a contract was not enough.
Insurers can avoid this issue by naming any party expected to benefit from the payment of a claim in the settlement agreement.

In Aspen, the bank did not escape completely - it was bound to submit to the English Court’s jurisdiction in respect of tortious allegations pursuant to Article 7(2) of the Brussels Regulation, since the harmful event took place in England.

Redman v Zurich

Mr Justice Turner has held that the provisions of the Third Party (Rights Against Insurers) Act 2010 (the “2010 Act”) does not have retrospective effect.
The 2010 Act came into force on 1 August 2016. It repealed the Third Party (Rights Against Insurers) Act 1930 (the “1930 Act”) and addressed the process by which third party claimants (in this instance, the widow of an employee of an insolvent insured) can pursue the insurer of an insolvent insured.

The Claimant is the widow of an employee who died of lung cancer in 2013. The employee had been exposed to asbestos up to 1982 and it is alleged that this is what caused his death. His employer was wound up in 2014 and dissolved on 30 June 2016.

The Claimant wanted to use the 2010 Act to bring a claim directly against insurers rather than use the more convoluted process provided for by the 1930 Act. The 2010 Act allows a victim (or his estate) to bring a claim against an insurer without having to first establish liability against the insured. Under the 1930 Act, a third party claimant often has to first apply to have the insolvent insured restored to the Company Register, it then has to prove liability against that insured, often through proceedings. Only once liability (and quantum) is established, can the third party claimant proceed against the insurer who will ultimately pay any claim (often resulting in a further set of proceedings). The 2010 Act is generally regarded as more cost effective and time efficient in that the third party claimant can proceed directly against the insurer where liability, quantum and coverage will be determined in one set of proceedings.

The Court held that the Transitional Provisions of the 2010 Act were clear in that the 2010 Act applies only where either liability was incurred by the insured on or after 1 August 2016 or where the insolvency process commenced on or after that date. This was not the case in Redman v Zurich in either respect and the Court accordingly held that the 1930 Act applied.

ILU Guarantees and Part VII Transfers

Where a Part VII transfer includes policies written through the ILU, the ILU expects the parties to ensure that the guarantee of policy liabilities provided as a condition of ILU membership will continue following the transfer. The usual approach of is therefore to take steps to preserve the guarantee. The ILU’s view that there is an absolute obligation to do this in all cases was recently challenged in Re Colbourne Insurance Limited & NRB Victory Reinsurance, where BLP acted for the parties to the transfer.

Colbourne’s financial position was woeful, and its parent had already expended considerable time and resource in promoting a transfer which significantly improved policyholder security. The US guarantor was insolvent, and there was no prospect of the guarantee having any value. Its continuation would also involve the parent in yet more expense, by complicating the process of winding down the guarantor. The Judge agreed that in these circumstances there was no requirement for the guarantee to continue. The parties were entitled to design a scheme which suited their commercial objectives. The Court’s role was to consider whether the scheme was fair. In this case, the proposals were fair, and significantly improved the position of policyholders.

Please feel free to contact Geraldine Quirk at BLP for further information.

The Senior Managers’ Regime for insurers – what you need to know

On 26 July 2017, the PRA and FCA published their long overdue consultation papers on extending the Senior Managers and Certification Regime (“SMCR”) to insurers, reinsurers and managing agents.

What will this mean in practice?

The key changes for Solvency II insurers and large Non-Directive Firms are:

  • Introduction of personal regulatory duties for all staff, except for those performing merely administrative duties
  • Introduction of a new Certification regime for insurers
  • A longer list of senior management functions will exist under the new regime
  • A longer list of prescribed responsibilities will exist under the new regime
  • New regulatory notification duties where a firm takes disciplinary action against a member of Conduct Rule staff for a breach of any Conduct Rule
  • New requirements for handover notes
  • Introduction of a ‘duty of responsibility’ for senior managers

What can you be doing now?

From our experience helping banks to prepare for the implementation of the original-scope SMCR, implementing these new requirements takes longer than you would think. Our advice is to start as soon as you can.

Read about the proposed requirements for SMCR in more detail.

Stay informed

Sign up to receive email alerts from our award winning Expert Insights team

Sign up now

See more insights by category

This site uses cookies to help us improve our services and your browsing experience. For further information about cookies, including about how to change your browser settings to no longer accept cookies, please view our privacy policy.