"Reasonableness" Of Late Payment And "Insurable Interest": The Court Clarifies A Couple Of Bugbears

• Published date: 13 April 2022
• Subject Matter: Insurance, Insurance Laws and Products
• Law Firm: Holman Fenwick Willan LLP
• Author: Jonathan Bruce and Alex Walley

The first reported judgment considering whether insurers are liable to pay damages for late payment of an indemnity was handed down recently. The case of Quadra Commodities S.A. v XL Insurance and others [2022] EWHC 431 (Comm) considered key issues relating to both insurable interest, and the application of S.13A Insurance Act 2015. The judgment provides some clarity on what constitutes a 'reasonable time' for insurers to pay a claim under S.13A(1), and considers when insurers can rely on S.13A(4) to negate their liability for delayed payment.

Facts

The background to this matter was the "Agroinvestgroup Fraud" which was uncovered in Ukraine in 2019. The details of the fraud are still coming to light, but essentially, the Agroinvestgroup sold the same parcels of the same grain many times over to multiple parties, including the claimant.

The claimant, a commodities trader, entered into various contracts with entities in the Agroinvestgroup for the purchase of grain. In accordance with the purchase contracts, warehouse receipts were provided to the claimant confirming that the relevant quantities of grain were held in common bulk in stipulated warehouses, or "Elevators". It transpired that many of the warehouse receipts were fraudulent as they were issued with respect to the same grain that had been sold to multiple buyers.

The fraud unravelled when buyers sought to execute physical deliveries against the fraudulent warehouse receipts, and it became apparent that there was insufficient grain to go around.

The claimant sought to recover its losses under its Marine Cargo policy. Insurers denied the claim on the basis that there had been no physical loss of grain, and that the claimant had, instead, suffered a purely financial loss on the basis of fraudulent warehouse receipts.

Insurable interest

Insurable interest is a key requirement of an insurance policy, the origin of which was to distinguish between insurance and what is in substance a wager.

Mr Justice Butcher confirmed that the burden of proving an insurable interest rests on the insured, but that the courts will be reluctant to find that, where insurance has been taken out and a premium accepted, that no such interest exists.

As a first hurdle, the claimant succeeded in showing that grain, which was the subject of its warehouse receipts, was physically present at the time the warehouse receipts were issued. Physical presence of the goods was demonstrated by, inter alia, warehouse receipts; inspection...