(Re)Insurance Weekly Update 09- 2017

This Week's Caselaw

Denso Manufacturing v Great Lakes Reinsurance: Judge considers whether terms are conditions precedent and whether they have been breached

http://www.bailii.org/ew/cases/EWHC/Comm/2017/391.html

A company insured under an After the Event insurance policy ("the insured") pursued litigation against a third party, the claimant in this action. The bulk of the claims were dismissed but the insured won on one claim. However, it was ordered to pay the claimant's costs from the date of the expiry of the claimant's Part 36 offer (which the insured had rejected). The Part 36 offer was only notified to the ATE insurer (the defendant to this action) after it had been rejected.

After the insured went into liquidation, the claimant sought to recover the amount of the costs order in its favour from the ATE insurer under the Third Parties (Rights against Insurers) Act 1930. The insurer argued that it had no liability to indemnify the claimant because the insured had breached various conditions precedent in the policy. Various issues fell to be considered by the judge, Cockerill QC, including the following:

(1) Where the relevant clauses in the policy really conditions precedent?

The policy contained the following clause: "Due Observance: The due observance of and compliance with the terms provisions and conditions of the Policy in so far as they relate to anything to be done or complied with by the Insured ... shall be conditions precedent to any liability of the Insurer to make any payment hereunder. In addition the Insured ... is required to cooperate with Us and give Us the information We require at any stage in the case" (Clause 7).

The judge held that recent caselaw has indicated that "the hostility to conditions precedent manifested in Re Bradley has been somewhat moderated over the years". She also held that there was ample authority that general clauses such as Clause 7 could create conditions precedent.

Nor was there any doubt that claims cooperation conditions and conditions requiring the provision of information were capable of being conditions precedent, especially here, where there would be little incentive otherwise for the insured to cooperate once a case was lost: "The policy cannot work without the input of the insured because the insurer is not a party to the litigation, and is entirely reliant on the insured cooperating with it and giving it information. Once the litigation is over there are still important steps to be taken in minimising the quantum of recovery, which the assured may feel little incentive to do once the case is lost without such firm requirements. This is not a case like Bradley where the commercial purpose of making the clauses conditions precedent is non-existent (in that case the wages book was simply used for premium calculation); here the commercial purpose of the conditions is obvious".

Nor were the issues of subjective knowledge considered in the recent case of Maccaferri v Zurich (see Weekly Updates 02/17 and 23/15) relevant here: the conditions precedent here related to a liability which had already arisen, they did not relate to whether there was liability in the first place.

(2) Had there been a breach of the policy's conditions precedent?

The judge held that there had been no breach of the requirement to provide information under Clause 7 on the facts, because no request for information had ever been made by the insurer. However, there had been breaches of other conditions precedent which required the provision of "all" bills or communications. This did not require a prior request from the insurer and also was not limited to only material items (although the withheld information had, in any event, been material).

The conditions precedent required the information to be passed on "without delay". The judge said that: "This is a form of wording which would denote passing on within days or at most well under a month (14 days used to be considered an acceptable turnaround time for business correspondence, but even this may be regarded as unacceptably slow in the modern world). Quite where one draws the line is not of any moment as regards this item, as I consider that it would certainly be drawn earlier than two months". A further breach took place following a delay of 20 days during August, notwithstanding normal holiday periods during this time. (However, any delay caused by sending to the insurer's old address - the insurer having moved address and the solicitors for the insured's liquidators being unaware of this - was said to be the fault of the insurer).

Accordingly, the insurer was discharged from liability because of these breaches of conditions precedent.

Although not required to decide these issues, the judge commented on further arguments raised by the insurer, including:

(1) Whether the insured had breached a condition precedent to pay premium. This in turn depended on whether...