David Hadfield of Hextalls reviews recent insurance related decisions

Aspen Insurance UK Ltd v Adana Construction Ltd

 

There is no doubt that in the right case an application by an insurer for a court declaration of non-liability under a policy can be a practical and useful answer to a coverage dispute. This case, although giving valuable guidance on Public and Products liability policies, illustrates the potential perils in making such an application.

The case arose out of the collapse of a tower crane, for which Aspen’s insured, Adana, had constructed the footing and supplied and installed the dowels that fixed the crane in place. Investigations after the accident indicated that the dowels had not been installed as specified but that (a) they had not actually failed, and (b) even had they been properly installed, the accident would still have occurred because the original design, for whichAdanawas not responsible, was inadequate. There had been no finding as to whetherAdanawas or was not liable to any of the many claimants who suffered loss as a result of the accident. This factor caused both the judge at first instance and the appeal court concern because the courts were being asked to assume a liability onAdana’s part that might never materialise.

The policy covered public liability for faulty workmanship and product liability, subject to exclusions. As is usual, liability could not fall under both sections of the policy. Exclusion 2 stated that insurers would not indemnify the insured “against any liability … arising in connection with the failure of any Product to fulfil its intended function”. “Product” was defined as something manufactured, constructed, installed or supplied by or on behalf of the insured.  Both exclusion and definition are typical of this type of policy.

Aspenargued the crane’s base was a ‘Product’ and liability was excluded by virtue of Exclusion 2.Aspenalso argued, additionally, that there could be no liability for the damage to the crane itself because the policy excluded liability for damage to “any superstructure” resulting from the failure of the insured’s foundations.Aspenlost the main coverage point both at first instance and on appeal – the crane base was not a ‘product’. The court held a ‘product’ is something tangible, possession of which could be transferred from one person to another.  The dowels were ‘products’ but they had not failed. On appeal, however, Aspen did succeed in its argument that the crane was a ‘superstructure’.

The result was that in the event that Adana was held to be liable, Aspen had established that much of the claim was covered by its policy, and was also left to pick up a large chunk of the insured’s costs. The appeal court also commented that insurer’s approach was “unusual and could be said to be commercially unwise”.

The moral is as always, choose carefully which cases to fight and when to fight them.

 

Hayward v Zurich insurance Company PLC

 

This case is about whether a settlement contract could be rescinded (set aside) by virtue of the claimant’s fraudulent conduct in pursuing his claim for personal injuries.

In 1998 Mr Hayward injured his back at work and in 2001 he began proceedings against his employer (aZurichinsured) in which he claimed just under £420,000.  Insurers conducted the defence. They admitted liability subject to a deduction for contributory negligence but they also alleged Mr Hayward was exaggerating the consequences of his injuries for financial gain, and allegation that was pleaded in the employer’s defence. Despite that, however, in 2003 the case was settled byZurichfor just under £135,000.

A couple of years later neighbours of Mr Hayward approached Mr Hayward’s employers and told them Mr Hayward had been dishonest about the extent of his injuries. In 2009Zurichbrought proceedings against Mr Hayward seeking damages for deceit and alternatively rescission of the settlement contract. Eventually,Zurichsucceeded at trial and the damages were reduced to £14,720.

Mr Hayward’s appeal succeeded, basically because in reaching the settlementZurichhad not relied on his fraudulent conduct. Quite the opposite in fact becauseZurichhad of course alleged that Mr Hayward was being dishonest. They had settled to avoid the possibility they might not succeed at trial.

The court recognised the result might seem unattractive but held there was a wider principle at stake; namely that parties who reach settlements with their eyes wide open should not be able to reopen things simply because better evidence subsequently turns up.

If there is a lesson for insurers in this case it is that this is an example of commercial reality.  Clearly, things would have been different hadZurichnot had any inkling of fraudulent behaviour when the settlement was agreed but they took a commercial decision and had to stick with it.

 

Teal Assurance Co Ltd v (1) W R Berkeley Insurance Europe Ltd (2) Aspen Insurance UK Ltd

 

This was a dispute between a reinsured captive insurer and its reinsurers. The issue was one that arisen on more than one occasion, namely ascertaining the date when an insured had sustained a loss entitling it to recover an indemnity under a liability policy.

The facts are a little unusual. The underlying insured B had been subject to a claim from a client, A, for breach of contract on a construction contract. The parties agreed that B would pay around $13.5 million into an escrow account and upon fulfilment of certain conditions A would be able to draw down sums from the escrow account to pay for remedial works. If the conditions were not met, the sum in the escrow account would be repaid to B, ad would any amount left in the account once the remedial works were complete.

B was facing a number of other claims and T had unsuccessfully tried to argue that it could order these claims so as to maximise its reinsurance recoveries. The court had held that the claims attached to the policies when and in the order that B’s liability was ascertained.

The issue to be decided was whether B’s suffered a loss, and thus acquired a right to an indemnity, when it made the payment into the escrow account or on some subsequent date(s) when A drew down sums from the account. Reinsurers argued the former, using by analogy the decision in Cox v Bankside where it was held that an insured ordered to pay provisional damages suffered a loss for the purposes of its claim for indemnity under its liability insurance when so ordered.

T argued that there was no loss until then sums due and owing to A were ascertained and drawn down and the court agreed. An interim payment order was a legal liability to pay “damages” because a court would only order an interim payment if satisfied that the claimant would obtain judgment for substantial damages from the defendant. An order for an interim payment involved a determination by the court that the defendant was liable to pay damages to the claimant, and of the likely minimum amount of the liability. The agreement between B and A was not an agreement to pay damages and B had acted voluntarily rather than pursuant to a court order.

This scenario is unlikely to arise, certainly in the usual course of events but the decision underlines the existing line of cases that it is when an insured’s legal liability is ascertain that it becomes entitled to an indemnity

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