November 27, 2018

(Re)Insurance Weekly Update 40 - 2018

A summary of recent developments in insurance, reinsurance and litigation law.

Aspen Underwriting v Credit Europe Bank: Court of Appeal considers jurisdiction for a claim by insurers against an assignee of an insurance policy

The earlier decisions in this case were reported in Weekly Updates 28/17 and 43/17. The claimant insurers had insured the owners of a vessel. The owners' bank was an assignee of the policy and named as a loss payee under the policy (but was not named as an insured). When the vessel was lost, the insurers paid out and entered into a settlement agreement with the owners. It was subsequently held by the Commercial Court that the vessel had been deliberately sunk by the master, at the request of the owners. The insurers sought recovery of the insurance proceeds and brought a claim against the owners and the bank in England. The bank argued that this claim against it should have been brought in its own country, the Netherlands. At first instance, it was held that the English court had jurisdiction to hear this claim, as well as the insurers' claim for damages under section 2(1) of the Misrepresentation Act 1967. The Court of Appeal has now rejected the appeal from those decisions. It held as follows:

  1. The decision in Brownlie v Four Seasons (see Weekly Update 45/17) had not changed the test for whether a claim falls within one of the jurisdictional gateways listed in PD6B. A claimant still has to demonstrate a "good arguable case" ie something more than a prima facie case and something less than a case satisfying a balance of probabilities test. It did not suffice to establish a gateway if there was a plausible, albeit contested, evidential basis for it.
  2. The bank was not bound by the exclusive jurisdiction clause in favour of England in the settlement agreement between the insurers and the owners. It was not named as a party, even though it was referred to in other parts of the agreement. The judge had been entitled to conclude that the bank had not conferred authority on the owners to enter into the agreement on its behalf.
  3. The bank was also not bound by the exclusive jurisdiction clause in favour of England in the insurance policy. The judge had been correct to hold that, although an assignee seeking to enforce the terms of a policy for its benefit is subject to the terms of the contract, that principle did not apply here as the bank was not asserting its right to payment under the policy. The Court of Appeal added that "a jurisdiction clause is, by its nature, concerned with proceedings. Had the Bank commenced proceedings against Underwriters to enforce its insurance claim it would, doubtless, have been required to do so in accordance with the English jurisdiction clause contained in the Policy. But it did not do so and that, by itself, is an end of the matter".
  4. The claims brought against the bank were torts and so fell within Article 7(2) of the recast Regulation 1215/2012. The harmful event occurred in England (for reasons discussed under (5) below), so that the English courts would have jurisdiction on that basis. 

    However, the Court of Appeal agreed with the judge that the claims were "matters relating to insurance" under the recast Regulation and, as a result, Article 14 of the recast Regulation would have applied. Although the settlement agreement was "interposed", "as a matter of reality and substance, the foundation of the Underwriters' claims lies in the Policy". Central to the insurers' claims is that it was not liable to indemnify the owners under the policy as the vessel was not lost by reason of an insured peril.

    Article 14 of the recast Regulation provides that an insurer can only sue an insured where the insured (or a beneficiary of the policy, and in this case the bank was clearly a beneficiary as it was an assignee and loss payee) is domiciled. There are carve-outs to this principle for, broadly, aviation and marine insurance and the insurance of "large risks" ( as defined in Directive 2009/138/EC). If those carve-outs apply, the parties are bound by an express jurisdiction clause in the policy. However, In Societe Peloux v Axa Belgium (Case C-112/03),the CJEU held that a jurisdiction clause falling within one of these carve-outs could not be relied upon against a beneficiary under the insurance contract who had not expressly subscribed to the clause).

    However, at first instance, the judge had held that Article 14 did not apply here as the bank could not be descried as "the weaker party". The Court of Appeal held that, although that view had "a strong common sense attraction" it could not be upheld in light of CJEU jurisdprudence, which does not permit a case-by-case factual assessment of whether a party is the "weaker party". However, the CJEU has held that the special protection of Article 14 is not warranted for "professionals in the insurance sector".

    Here, it was acknowledged that "ship finance typically involves a mortgage and it is an ordinary incident of the ship finance business that mortgagees of ships become assignees and loss payees of the owners’ hull (insurance) cover.  Again, as an ordinary incident of its ship finance business, the Bank must have been involved from time to time “in the commercial or…professional settlement of insurance-related claims” (Kabeg v Mutuelles Du Mans Assurances (Case C-340/16))". Thus, although not strictly an insurance professional, it was held that the bank's business was analogous to that of an insurance professional, and for that reason, the bank was not entitled to the protection of Article 14.
  5. The insurers' claims for damages for negligent misrepresentation under the Misrepresentation Act 1967 was a matter relating to tort within the meaning of article 7(2) of the recast Regulation and the harmful event occurred in England. That was because the settlement agreement was signed in London (and the insurers would not have entered into the agreement if the owners had not given them the bank's letter of authority). Had it been necessary to do so, the Court of Appeal would also have concluded that the harmful event occurred in England because the settlement proceeds were paid into the brokers' account in London.


The decision by the Court of Appeal that the bank in this case fell within the meaning of "professionals in the insurance sector" is noteworthy. Prior CJEU caselaw has defined this phrase as including assignees who are professionals in the insurance sector or are entities "regularly involved in the commercial or otherwise professional settlement of insurance-related claims who voluntarily assumed the realisation of the claim as part of its commercial or otherwise professional activity". The Court of Appeal said that if any extension is required to that class, such extension in this case "is an extension of the most incremental kind – and, in substance, certainly does not enlarge or blur the subject-matter of the exclusions". However, no investigation was undertaken as to whether the bank in this case had in fact regularly been involved in the settlement of insurance claims in the past (because the CJEU has rejected a "case-by-case assessment").

Winter v Hockley Mint: Court of Appeal considers whether principal vicariously liable for fraud of its agent

The appellant appealed against a decision that he was vicariously liable for the fraudulent misrepresentations made by his agent to the respondent. The Court of Appeal has now held that the judge had applied the wrong legal test when deciding this issue.

The judge had held that the test was whether: 1) it was just for the employer/principal to bear the loss and 2) whether there was a sufficiently close connection between the employee's or agent's wrongdoing and the acts he was employed to perform. The Court of Appeal held that that approach was wrong because it did not address the essential ingredients of vicarious liability of a principal for the deceit of his agent as set out in Armagas Ltd v Mundogas SA [1986]: "a holding out or representation by the principal to the claimant, intended to be and in fact acted upon by the claimant, that the agent had authority to do what he or she did, including acts falling within the usual scope of the agent's ostensible authority". The "sufficiently close connection" test was not the appropriate test for this sort of case.

Nor was there any gloss on the test set out in Armagas to the effect that a principal will always be liable for the dishonesty of his or her agent where the agent has acted with the intention of benefiting the principal.

The Court of Appeal held that, on the facts, there was material capable of supporting a case of vicarious liability based on ostensible authority. However, as the judge had not dealt with the point because he had applied the wrong test, it was held that the fair and proper course would be to remit the issue for a re-hearing.

Carr v Formation Group: Expert evidence and dishonesty

One of the issues in this case was whether permission should be granted by the court allowing the defendants to call expert evidence in relation to the issue of whether they had been dishonest. The expert evidence which they sought to rely on would go to the market practice relating to disclosure of shared commission.

The Supreme Court held in Ivey v Genting Casino (see Weekly Update 38/17) that in criminal law an allegation of dishonesty is to be judged by applying the objective standard and there is no need for an inquiry into the defendant's appreciation of whether his conduct fell below that objective standard. Accordingly, Morgan J held that "the suggested expert evidence as to market practice is not admissible in relation to any argument as to the appropriate objective standard as to honesty, which is assessed by reference to the standards of honest and reasonable people and determined by the court, nor is it admissible in relation to any question as to whether a defendant has failed to comply with that standard".

In Secretary of State for Justice v Topland Group [2011], market practice was held to be relevant to the issue of whether the claimant knew about the undisclosed payment of commission (and whether the defendant honestly believed the claimant had that knowledge). In this case, Morgan J held that market practice was not "woven into the pleadings" in the same way and Topland did not "open the door to evidence of alleged market practice as a kind of general justification in response to the allegation of dishonesty".

Brent LBC v Davies: Court considers discretionary interest issue

The court has a discretion as to the date from which interest will run up to judgment. Usually it will be from the date that the cause of action arose, but the court might decide not to award interest for periods when the claimant delayed bringing or pursuing his/her claim - see Kuwait Airways Corp v Kuwait Insurance Co (2000) (although in Hackney Empire v Aviva (see Weekly Update 29/13) the judge said that the delay has to be "truly exceptional and inexcusable").

In this case, the claimant had delayed bringing a claim between April 2009 (when it discovered it had a cause of action) and July 2014 (when proceedings commenced). Zacaroli J accepted that this was a significant period of delay and that the claimant should have been in a position to commence its claim by late 2010. Nor could it be said that the entire delay was justified because the civil claim would have had to have been stayed pending determination of related criminal proceedings. The judge concluded that there had been unreasonable delay of about two years here.

However, he refused to exercise his discretion regarding the date from which interest runs in relation to some of the defendants because: (a) the claimant was seeking a relatively modest rate of interest (1% above base); (b) the defendants had had use of the money which they had been overpaid); and (c) the delay had worked to their advantage as certain claims against them had become time-barred. (Other defendants, who had not been overpaid but were liable to account for payments made by others, and who did not benefit from limitation arguments, were entitled to an exclusion of interest for the 2 year period of unreasonable delay).