Court Of Appeal Decides Whether There Was Double Insurance And Whether There Was An Implied Waiver Of Subrogation

The claimant in this case was a consultant in a company ("R") within a group carrying out trust business. R (as well as the parent company of the group) entered into indemnity agreements with him, in respect of his provision of any services to R. PI insurance was also taken out by the parent company (R and the claimant being co-insureds), and the excess layer insurers are the defendants to this action. At first instance, Burton J held that the claimant was an insured person under the PI excess policy and that there was no double insurance here (arising from either the indemnity or a separate D&O policy). The judge did, however, hold that the excess insurers had a right of subrogation against the parent company. The Court of Appeal has now allowed the appeal from that decision, holding as follows:

1) The judge had been correct to hold that the claimant was an "insured person" under the terms of the PI excess policy.

2) A clause in the policy stated that: "Insurance provided by this policy applies excess over insurance and indemnification available from any other source" (emphasis added). Burton J had held that this clause did not apply to indemnification from a policyholder or co-insured. The Court of Appeal agreed (and also confirmed that the heading of the clause ("Other insurance") "cannot be used to cut back on the clear language used in the clause"). Although there is no general rule that indemnities from one co-insured to another should not be included, clear wording had been used here to require that the non-insured indemnification come from some external source (ie a source independent from R or the parent company).

3) The Court of Appeal also agreed that there was no cover for the loss in question under the D&O policy. Nor could it be said that the D&O policy covered defence costs (which would amount to "other insurance"): "Liability policies will not habitually give a free-standing coverage for defence costs even where the liability itself is not insured, and in my view there would need to be very clear provision in the policy to that effect in order for the argument to succeed". In support of this view, the judge cited the decision in Astrazeneca Insurance Co Ltd v XL Insurance (Bermuda) Ltd [2013] EWCA Civ 1660 where Christopher Clarke LJ observed that, in respect of non-marine liability insurance at least, the right to recover defence costs must, absent clear wording to the contrary, depend on some free-standing entitlement...