First Case On The Implied Term To Pay Claims Within A Reasonable Time ' Section 13A Insurance Act 2015

• Published date: 22 July 2022
• Subject Matter: Insurance, Insurance Laws and Products
• Law Firm: Herbert Smith Freehills
• Author: Mr Paul Lewis, Max Eshraghi and Sarah Irons

The judgment in Quadra Commodities S.A. v XL Insurance Company SE and Others [2022] EWHC 431 (Comm) is notable as the first to consider the application of s.13A Insurance Act 2015 relating to the implied term that insurance claims must be paid within a reasonable time. The judgment also provides some clarity as to what constitutes an insurable interest.

Background

The Claimant is a commodities trading and logistics company, specialising in the trade of agricultural commodities. Under a series of purchase contracts, it acquired cargoes of grain from Agroinvestgroup, an association of companies involved in the production, storage and processing of agricultural products.

The Claimant dealt with two entities in the Agroinvestgroup - Agri Finance SA (Agri Finance) and Linepuzzle Ltd (Linepuzzle). The Claimant would buy grain from Linepuzzle and then sell it to Agri Finance to assist those entities with the financing of commodities under purchase contracts.

By January 2019, the Claimant had entered into purchase contracts under which it had paid 80 per cent of the price towards a number of the cargoes stored at various warehouses in Ukraine.

The case concerned a claim by the Claimant under its Marine Cargo insurance underwritten by the Defendant insurers (the Policy). The Claimant's claim arose as it was an innocent victim of the 'Agroinvest Group Fraud' (the Fraud). The Fraud involved multiple fraudulent warehouse receipts being issued in respect of the same goods to different buyers, including the Claimant. When the time came physically to deliver the goods against the warehouse receipts, the quantities in the warehouses were insufficient.

The Policy covered declared shipments and storage operations attaching during the relevant policy period. The Policy was an All Risks cover and included cover, amongst other things, for all physical loss directly caused to the insured goods by misappropriation (under the Misappropriation clause) and cover for physical loss of or damage to goods insured through acceptance of fraudulent shipping documents (under the Fraudulent Documents clause).

The Claimant claimed under the Policy for the lost cargoes on the basis that "the subject matter of the insurance was the adventure consisting of the successful storage, transportation and delivery of goods which it purchased", or alternatively that the subject matter insured was goods. In short, the Claimant argued it was entitled to recover the goods it had lost either because they had been misappropriated (and the claims fell within the Misappropriation clause) or because the loss was covered under the Fraudulent Documents clause.

The Defendants denied liability on a number of grounds:

• There was no loss of physical property. The Claimant's loss, they contended, was a purely financial loss, in respect of which it was not insured;
• Insofar as any property was lost, the Claimant had no insurable interest in the property. Specifically, it was denied that certain of the cargoes had existed because, at the time those cargoes were said to have been delivered to two of the warehouses, those particular warehouses were either storing goods equivalent to their maximum capacity or very near to that maximum capacity;
• There was no Misappropriation of any goods which were covered by the Policy, and the Fraudulent Documents Clause was...