A Year in Insurance Law 2024

Beyond Covid BI disputes (which we consider below) there have been several 2024 decisions on questions of policy cover. We have summarised below the basic principles that the courts will apply when interpreting all contractual terms, including insurance contracts, before we look at their application:

• the English courts will, first, seek to ascertain the objective meaning of the language with which the parties have chosen to express their agreement (the textual interpretation), but then as necessary will consider the factual background and the rest of the contract (the contextual approach).
• The authorities admit that where there are two possible constructions, the court is “entitled to prefer the construction which is consistent with business common sense and to reject the other.” (Rainy Sky SA v Kookmin Bank).
• Generally speaking, evidence of pre-contractual negotiations will not be admissible an aid to construction, although in certain limited circumstances these may be looked at to explain the commercial or business object of a contract.

What news from 2024?

In Technip Saudi Arabia Ltd v The Mediterranean and Gulf Insurance and Reinsurance Co the Court of Appeal – having briefly outlined the proper approach to interpretation along well-established lines – construed contested words of an endorsement which “admit on their face at least two meanings”.

Technip was one of the insureds under a composite offshore construction insurance policy, and had chartered a vessel in order to perform construction works to offshore assets. Technip was claiming for sums for which it was liable in relation to damage caused by that vessel. Endorsement 2 to the policy excluded "any claim for damage to … any property …which the Principal Assured: 1) owns that is not otherwise provided for in this policy". The term "Principal Insureds" (not "Principal Assured") was defined in the policy.

Whilst the policy was not “a model of clear drafting”, mixing up as it does terminology as between Principal Assureds, Principal Insureds and the singular and plural, the court disagreed with arguments that the judge had failed to give adequate weight to the primacy of the policy language. The Court of Appeal, upholding the judge’s decision, read the defined term of “the Principal Insureds” into the endorsement in place of “the Principal Assured”. This, said the court, gave far greater weight to the language of the policy than the second meaning advanced by the claimant, which involved reading “the Principal Assured” as referring only to the one of the insureds making the claim under the policy.

In Premia Reinsurance Ltd and another company v Amtrust International Insurance Ltd, the court was asked to interpret a Reinsurance Framework Agreement (RFA) entered into by the parties. The parties disagreed as to the proper interpretation of a clause which imposed a £1 million threshold on responsibility for payment of relevant expenses. The court construed the clause and found that the threshold applied to expenses which had been incurred before as well as after conclusion of the RFA, preferring the claimant’s construction of the clause, both as a matter of language and from its inter-relationship with the other provisions of the RFA. The court also (obiter) found that a pre-contract letter of intent was inadmissible, being a letter that simply sets out the Claimants' negotiating position at a particular time in the negotiations. The letter was not evidence of the “genesis and aim of the transaction”, which is recognised as an exception to the rule that information or documents relating to pre-contract negotiations are generally inadmissible. The court found that, here, each party had their own commercial reasons for concluding the RFA, and the claimant’s construction was not so “so unbusinesslike or imprudent” that the court should reject it.

What does this mean for you?

There still seems to be ample room for disputes as to the meaning of policy wordings, particularly where policies comprise several documents with (arguably at least) conflicting or unclear terms. When a policy comprises multiple documents, insurers should review these together, to check points such as that that definitions and terms are used consistently, and that it is clear where one or other document is intended to take precedence in the event of any conflict. Scenario testing of wordings is always recommended.

Clear drafting is always key. The courts will still, first and foremost, look at the policy language and seek to find the ordinary meaning of the policy terms, looking at the words objectively from the perspective of a reasonable insured. Other factors will come into play if that textual approach doesn’t admit a satisfactorily clear answer; in Premia, the court also looked at arguments as to which interpretation made commercial common sense. It is well-established that the courts will not retrospectively undo what is essentially just a bad bargain for one of the parties, but as above, per Rainy Sky and other leading authorities, where there are "rival meanings" in a policy, the court can look at which most accords with "business common sense" as one of the factors in determining construction.

It is interesting to see the courts seek to reconcile the textual versus contextual approach in different cases, and it may be that the court’s views on the underlying merits sometimes plays a part in determining how far the court will move beyond the textual approach. This can make the outcome of coverage disputes difficult to predict at times.

Covid-19 BI cases continue to provide ample opportunity for clarification on questions of policy interpretation, and the run of Covid decisions covering the key legal principles and points of policy construction continued in 2024, building on those highlighted in our 2023 A Year in Insurance Law update and previously.

These will have implications beyond Covid-19 cases to reinsurance, property insurance and potentially other classes of business too.

What news from 2024?

Given the number of BI decisions handed down last year, we have only very briefly summarised the following Covid BI decisions from 2024, linking to our fuller analysis where available:

• Various Eateries Trading Ltd (Formerly Strada Trading Ltd) v Allianz Insurance Plc (16/01/2024): the Court of Appeal considered the correct approach to aggregation of business interruption losses to determine how many limits of indemnity should apply. In particular, whether a single limit of indemnity applied because all losses arose from “a single occurrence”. Our more detailed analysis of the decision is here, but, in short, the Court of Appeal largely upheld the decision of the judge below on aggregation; the relevant aggregating “occurrences” were the Government’s enforced closure of restaurants in March 2020, and early closure restrictions in September 2020, rather than, for example, the initial human Covid infections in Wuhan.

• Gatwick Investment Limited & Ors v Liberty Mutual Insurance Europe & Ors (26/01/2024): the court considered a range of issues in the context of Liberty and Allianz Non-Damage Denial of Access (“NDDA”) wording, finding that:

  • Policy Trigger – the requirement for an “Incident”: the word “incident” required more than just an occurrence or an event. The use of the term “incident” adds a further requirement such that a mere occurrence of the disease within the specified radius (whether known or not) would not be sufficient. An “Incident” requires that it had to be “apparent at the time” that a person had Covid-19.
  • Are UK Government ministers a “Police Authority” or a “Statutory Authority”? Neither the UK Government nor its ministers are a “police authority”, but the Government ministers making the Covid regulations were caught within the term “statutory authority”.
  • Policy Limits and Aggregation: for a limit to apply in the aggregate (i.e. irrespective of the number of occurrences or claimants), that needs to be defined in the policy. The market assumption had previously been that the wording “each and every claim in the aggregate” implicitly meant “and in the aggregate”. In addition, where the policies are composite policies, the limits apply separately per insured.
  • Furlough payments: The Liberty policies provided BI cover for reduction in turnover and additional increase cost of working less savings. The Court followed the previous first instance decision in Stonegate that furlough payments reduced the costs (or charges and expenses) of the business and therefore fell to be deducted under the savings clause.
  • Appeal: Note that appeal hearings for the group of “Gatwick claims” and related disputes began in the Court of Appeal on 21 January 2025; we await the outcome with interest and will provide further updates. This includes a pending appeal decision in relation to furlough payments in the Bath Racecourse dispute.

• Various Insureds under the Respondent’s Salon Gold Policy v Canopius Managing Agents Ltd: This 31/01/2024 arbitration decision of Sir Richard Aikens was published with the consent of the parties. Our more detailed analysis of the decision is here. The arbitrator considered the correct interpretation of “an emergency likely to endanger life… in the vicinity of the Premises” and found that: (i) an “emergency” can be anywhere (not necessarily in the vicinity of the Premises) but must endanger life in the vicinity of the Premises. Even if the emergency was required to have been located in the vicinity (as the Divisional Court in the FCA Test Case considered was required) there was no requirement to prove that a case of Covid-19 had been diagnosed or reported before the action/advice of the relevant authority; (ii) “likely” (in context) meant “a real possibility” of there being a danger to life (or property). It did not mean “more likely than not”; and (iii) “the vicinity” means the area around the Premises, which is, broadly speaking, within the neighbourhood of the Premises. Of course, decisions of arbitral tribunals are not binding on the English courts, although they can be persuasive.

• Bellini (N/E) Ltd v Brit UW Ltd (30/04/2024): the Court of Appeal upheld a decision that a business interruption clause in an insurance policy provided no cover in the absence of damage. The court construed the BI clause, reading the policy as a whole, and concluded that on its ordinary meaning it provided no cover in the absence of physical loss, damage or destruction. The court rejected arguments that corrections should be made to the wording; it was clear that the BI clause was not intended to provide non-damage cover.

• WRBC Corporate Member Ltd v AXA XL Syndicate Ltd & Ors (28/06/2024): the court declined to decide a “contingency event definition point” relating to the basis of aggregation of the claimed contingency losses as a preliminary issue - a 10 day trial is due to be fixed for January 2026.

• London International Exhibition Centre Plc v Allianz Insurance Plc and other companies; Hairlab Ltd and other companies v Ageas Insurance Ltd; Mayfair Banqueting Ltd v AXA Insurance UK PLC and other cases: the Court of Appeal held that national lockdowns during the Covid pandemic triggered “at the premises” clauses. Finding as a matter of fact (in line with the FCA Test Case decision on radius clauses) that each individual case of Covid (whether known or unknown to the authorities) was a separate and equally effective cause of government action, it was sufficient for policyholders to prove that the order or advice had been made in response to cases of Covid-19 which included at least one case at the premises. On the assumption that there were occurrences of Covid-19 at each of the policyholders' premises, those occurrences, together with all other cases of Covid-19 in the country, were a cause of the closure of those premises. In ordering the national lockdown, therefore, the government was responding to the fact of disease having occurred at each of these premises. It was not necessary to prove that the occurrence of the disease at the premises had been a "but for" cause of the restrictions imposed.

  The court also held that 'Public Authority' is not limited to local authorities and includes measures by the government or any public body; and 'Medical Officer of Health' includes the Chief Medical Officer, Deputy Chief Medical Officer and other medical officers advising such public bodies. As a matter of ordinary language, 'public authority' does not distinguish between those acting locally and those acting more remotely or nationally.

  In December 2024, the Supreme Court refused an application by Insurers for permission to appeal the decision.

• Unipolsai Assicurazioni SpA v Covea Insurance Plc (this Court of Appeal decision on 30/09/2024 followed the first instance decision on 09/02/24). Our more detailed analysis of the appeal decision is here.

  Here, in two joined appeals from arbitration decisions concerning issues under property catastrophe excess of loss reinsurance, the Court of Appeal decided that:

  (i) “the onset of the Covid-19 pandemic in March 2020 was a "catastrophe" for the purposes of property catastrophe excess of loss reinsurance covering business interruption losses paid by the respondent insurer; and

  (ii) on the proper interpretation of an "hours clause" in the reinsurance, an "individual loss", i.e. the loss suffered by the original insured, first occurred when an insured peril affected insured premises or property, but encompassed the entirety of the loss sustained by the original insured as a result of the relevant catastrophe affecting the premises.

• International Entertainment Holdings Ltd and others v Allianz Insurance PLC (28/10/2024): The Court of Appeal held that:

  (i) the Secretary of State for Health and Social Care is not a "policing authority" within the meaning of the particular policy;

  (ii) the word 'incident' in this case was being used synonymously with 'event' or 'occurrence', albeit that in ordinary usage it generally connotes something more. What more is required must depend on the context. To qualify as an incident, the event must be something which endangers human life or property so as to call for a response by a policing authority. Such an event is likely to be “inherently noteworthy”. The "incident" (in this case, a case of Covid-19) must occur within the one-mile radius specified in the clause; and

  (iii) the £500,000 limit under the clause applies separately to each insured premises rather than to each insured claimant. The wording cannot be corrected by construction; although something had obviously gone wrong with the wording, the solution is not clear.

What does this mean for you?

We will continue to see disputes in 2025 over the response of different policy wordings to Covid BI losses, including some in relation to reinsurance covers. That said, a number of disputes have settled, so we may not get a satisfactory degree of judicial clarity on some points.

The Covid 19 pandemic highlights the myriad issues faced by the market in trying to apply wordings to novel or unexpected situations, which by their very nature were not in the underwriter’s contemplation when writing cover. There may well be other unforeseen systemic risks ahead, and testing wordings in as wide a range of scenarios as can be anticipated is, of course, recommended.

Cover under many insurance policies - including property insurance, some business interruption policies (see the Bellini decision covered above), Contractors’ All Risks (CAR) and many liability policies - requires some form of “physical loss or damage” or “material damage” to the insured property to trigger cover.

The courts have, broadly, settled on the definition of damage as meaning some change in the physical state which makes the item or property in question less useful or valuable. Nonetheless, what actually constitutes damage in different contexts has led to a number of disputes, whether the word is defined in the policy or not. Difficult questions frequently arise – it may not be easy in fact to distinguish damage to other property from what might instead be a defect, for example.

What news from 2024?

The Court of Appeal, in Sky UK Ltd v Riverstone Managing Agency Ltd, was asked to construe a Construction All Risks (CAR) policy in relation to claims for the costs of carrying out remedial works to fix a leaking roof at Sky’s HQ. We looked at the first instance decision in this dispute in A Year in Insurance Law 2023.

The dispute primarily turned on the construction of the CAR Policy, but the court referred to the underlying construction contract to determine the intentions of the insurer and the insured and thereby the scope and extent of cover. The “Basis of Settlement” under the Insuring Clause in question was for “the full cost of repairing, reinstating or replacing property lost or damaged… “.

A key question was whether or not “development and deterioration damage” (in the form of swelling and deterioration which had continued to occur after the expiry of the Policy period) was covered. The court considered the meaning of 'damage' in the Insuring Clause, holding that there had been damage as a result of wetting which occurred prior to the expiry of the Policy period, on the natural and ordinary meaning of the word. Citing the online edition of the full Oxford English Dictionary, damage means: "Injury, harm; esp. physical injury to a thing, such as impairs its value or usefulness". The court also felt that its conclusion on this point "accords with business common sense": "…a business person in the shoes of the assured would reasonably expect to be compensated for the consequences of the insured damage deteriorating or developing, absent a contract term excluding such recovery."

As a contract of insurance against damage to property is a contract of indemnity, and a property insurance claim is a claim for unliquidated damages, the costs of remedying the foreseeable deterioration and development damage occurring after the Policy period, which resulted from insured damage occurring during the Policy period, is within the measure of recovery under the Policy. Indemnity for the "full cost of repairing [etc]" means the cost of repairs etc which are made necessary by the suffering of the insured damage, including any subsequent damage which occurs during what may be described as a reasonable mitigation period. However, new damage would not be covered.

In Mok Petro Energy FZX v Argo (No.604) Ltd & Others, the Court considered a fuel contamination claim under a cargo Policy. The fuel in question was a gasoline/methanol blend that had been contaminated with water, which in turn increased the risk of undesirable “phase separation” (the separation of the fuel into layers). Phase separation rendered the fuel off-specification and unmarketable.

The Court concluded that the fuel was already contaminated at the point the Policy period incepted and insurers came on risk. The Insured’s primary claim, that the contamination had happened after the Policy incepted, therefore failed.

The Insured advanced an alternative argument that it had sustained property damage because the third party supplier had supplied the fuel in a state where it was susceptible to phase separation as a result of its contamination. The Court rejected this case as well. The Court was prepared to assume that the deliberate mixing of the fuel by the third party supplier could be fortuitous from the insured’s perspective, but the insured could not demonstrate the “damage” required for the purposes of claiming under the Policy.

It was not clear whether the insured was arguing that it was the propensity for phase separation, or the actual fact of separation, that constituted physical damage:

• The actual phase separation did not constitute physical damage since there was no change at sub-molecular level to the fuel. The separation was capable of reversal simply by changing the temperature of the fuel. The issue was not the separation itself, but the propensity of the fuel to separate; and
• the propensity to separate could not be considered physical damage since it involved no change in physical state but was simply a characteristic or attribute of the blend and indeed the cargo never existed without this propensity. The cargo was not damaged. Rather it was, from creation, a defective product, and defective products are not covered under a physical damage triggered cargo policy.

What does this mean for you?

Obviously, both decisions turn on the particular wording and facts involved.

The Sky decision does, however, serve as a reminder that damage-based cover is likely to extend to losses arising after a period of insurance that can properly be attributed to damage that occurs within the period. In Sky, the Court of Appeal distinguished the decision in Wasa v Lexington on the basis that the court in Wasa was concerned with damage caused by a series of separate, fresh disposals or leaks, and not with deterioration or development damage of the kind which gives rise to the Sky dispute.

We note that the Court of Appeal also held that whether investigation costs are recoverable under the CAR policy does not depend on the damage which is revealed by the investigation. Where insured damage has occurred for which damages are recoverable under the policy of insurance, the costs of investigating the extent and nature of the damage, including any development and deterioration damage, are recoverable if they are reasonably incurred in order to determine how to remediate it.

The MOK decision addressed the vexed issue of admixture cases, and the question of whether the property was already tainted prior to inception of the policy. The issue of design defect versus physical damage is a common, and complicated, one in the insurance market, and beyond the scope of this note. In brief, liability for loss due to a defect in the product itself will not be sufficient for damage-based cover, and any physical loss or damage must be external to the product. We see this arise in numerous contexts, including product liability, property and CAR policies and energy policies, as well as cargo insurance. The dividing line is often not easy to discern, and the case law can be difficult to reconcile.

The doctrine of subrogation (over and above any rights expressly conferred by policy wordings) allows an insurer who has indemnified an insured then to take advantage of any means available to the insured to extinguish or diminish the loss for which the insurer has indemnified the insured. This includes bringing recovery claims against third parties. Insurers’ rights will, however, only be as good as those of the insured.

By reason of subrogation rights, any recoveries then received by the insured will inure to the benefit of the insurer, with a view to diminishing the loss which the insurer has paid and indemnified. It was held in Lord Napier and Ettrick v Hunter [1993] AC 713, however, that any losses recovered should be applied "top down”, starting first with uninsured losses.

The “top down” principle for recoveries in subrogated claims applies equally to aggregate and excess layer placements. The parties can agree to depart from this, however, so the policy terms are key.

What news from 2024?

In Royal & Sun Alliance Insurance PLC v Textainer Group Holdings Ltd the Court of Appeal held that Textainer's recoveries from a settlement fell to be applied top down under excess of loss policies, i.e. were to be applied first to uninsured losses, applying the approach in Lord Napier and Ettrick v Hunter. Our fuller analysis can be found here.

Textainer is a large container lessor, with a lessee default insurance programme comprising a US$5m retention, a primary policy of US$5m (in excess the US$5m retention) and then five excess of loss policies providing cover up to US$80m in excess of the US$5m retention. Insurers paid some US$75.1m to Textainer in settlement of a claim following the default of a major lessee, leaving Textainer with some $21m of uninsured losses. The defaulting lessee then agreed to pay a further sum in settlement of certain claims, and the dispute related to how that further sum which should be allocated.

It was held that the "top down" allocation of recoveries was the correct approach, rather than a proportionate approach as insurers contended. This meant that the recoveries would be allocated to pay off uninsured losses first, above the paid insurance cover, then paid down from the highest layer to the lowest layer of cover, before finally being allocated to reimburse the Insured's retention. The Court rejected the argument that recoveries should be pro-rated between the insured and uninsured amounts. It also rejected the suggestion that the recoveries could be allocated to individual containers or sets of containers and arguments on under-insurance and average; the concept of undervaluation is “simply not engaged in relation to layers of insurance”.

What does this mean for you?

This highlights the fact that it is worth both parties taking the time to consider, before inception of a policy, how recoveries are intended to be applied. Parties can depart from the top down principle, and choose another way to allocate recoveries as between insured and uninsured losses. Many Political Risk and credit insurance policies, for example, clearly set out how any recoveries are to be allocated. If that is the intention, however, this should be made very clear in the policy wording.

In essence, the Third Parties (Rights Against Insurers) Act 2010 (the 2010 Act) allows a third party to whom an insolvent insured owes a liability to step into the insured’s shoes for the purposes of exercising rights under its insurance policy. The third party, rather than pursuing the now insolvent insured, can pursue a claim directly against the insurer.

The third party will only be placed in the position that the insured would have been in. Insurers can rely on any defences against the third party that would have been available to the insured, and can also take coverage points.

Where the policy requires an insured to fulfil a policy condition, the third party can take steps to fulfil the condition instead, and those steps will be treated as if done by the insured.

What news from 2024?

In Riedweg v HCC International Insurance Plc, the court considered the contribution rights of an insurer with an insolvent insured, and the interplay of the 2010 Act with the Civil Liability (Contribution) Act 1978 (the Contribution Act). Our fuller article on the decision is here.

Section 1 of the Contribution Act allows “any person liable in respect of any damage suffered by another person [to] recover contribution from any other person liable in respect of the same damage”. For damage to be the "same damage", it must be suffered by the person to whom the party seeking contribution was liable (Birse Construction Ltd v Haiste Ltd [1996] 1 WLR 675), and the two parties must be subject to a common liability (Royal Brompton Hospital NHS Trust v Hammond).

In Riedwig, the court was asked to consider whether the professional indemnity insurer of an insolvent insured is to be treated in law as being liable in respect of the “same damage” as that for which its insured is liable, for the purpose of enabling the insurer to pursue a claim to recover a contribution pursuant to the Contribution Act. HCC were the professional indemnity insurers of an insolvent surveyor, who was accused by the claimant (pursuing a claim against the insurers under the 2010 Act) of negligently overvaluing a property that it had purchased. HCC were looking in turn to bring a contribution claim against the claimant’s own conveyancing solicitors. In that context, the court held that the professional indemnity insurer of an insolvent insured is not to be treated in law as being liable in respect of the “same damage” as that for which its insured is liable. The insured’s liability to a third party is not the same as liability under a policy of insurance. An insurer does not inflict damage on anyone; the only damage it is capable of inflicting is in refusing to meet its obligations under the policy of insurance.

When considering third party rights, it is also worth mentioning the 2024 decision in Wood v Desai. Here, the court was not looking at the rights of third parties to step into the insured’s shoes pursuant to the 2010 Act, but considering the rights of a third party over the proceeds of an insurance claim. Insurers had paid an insured, before any legal proceedings had been issued and prior to the insured entering into a creditors’ voluntary liquidation, the limit of indemnity "in connection with" a professional negligence claim against it by an aggrieved former client. It was held that those sums received from insurers belonged to the insolvent insured company beneficially, and were subject to the usual insolvency framework. Arguments that the claimant had a constructive trust over, or proprietary interest in, the defendant’s insurance monies were rejected.

What does this mean for you?

The purpose and legislative intent behind the 2010 Act was a clear factor in the court’s reasoning in the Riedwig decision.

In respect of contribution claims, the court noted in Riedwig that the purpose of the 2010 Act is to provide a mechanism for a claimant to pursue an insurer directly in respect of the liability of its insured, and for the claimant to stand in the insured's place for that purpose. The insurer's liability flows from its obligations to indemnify the insured against its liability to a third party. The insurer does not become liable to the third party for the damage caused or allegedly caused by its insured, which it did not inflict (subject to the question of subrogation, once an insured has been indemnified). We note that the position would likely be different had insurers indemnified the insured and subrogated to the insured’s rights.

It is always important for insurers to document carefully any payments made to insureds, and avoid exposing themselves to double indemnity. In Wood v Desai it was clear that there had been full settlement prior to the liquidation, but there is often a period of uncertainty leading up to full insolvency, during which particular care needs to be taken.

The Insurance Act 2015 (IA 2015) imposes a duty on an insured to make a fair presentation of the risk to the relevant insurer before the contract in question is entered into. This must include “disclosure of every material circumstance which the insured knows or ought to know.” (section 3(4) of IA 2015).

A circumstance is material “if it would influence the judgment of a prudent insurer in determining whether to take the risk and, if so, on what terms.” (Section 7(3) of IA 2015). The authorities indicate that allegations and criminal charges (see for example the Brotherton decision), are likely to be material.

For these purposes:

• knowledge for a corporate insured is attributed to “individuals who are (a) part of the insured’s senior management, or (b) responsible for the insured’s insurance” (Section 4(3) of IA 2015);
• Senior management means “those individuals who play significant roles in the making of decisions about how the insured’s activities are to be managed or organised.” (Section 4(8)(c) of IA 2015); and
• an insured “ought to know what should reasonably have been revealed by a reasonable search of information available to the insured ...” (Section 4(6) of IA 2015).

An insurer only has a remedy for breach of the duty of fair presentation if it can show inducement; that, but for the breach, it would either not have entered into the policy at all, or would only have done so on different terms (Section 8(1) of IA 2015).

What news from 2024?

In Delos Shipholding S.A & Ors v Allianz & Ors. the court considered, amongst other things, the insured’s duty of fair presentation under IA 2015, holding that there was no breach in the insured’s failure to disclose criminal charges against the insured’s sole nominee director.

The underlying claim concerned the total constructive loss of a vessel which had been detained by the Indonesian authorities. The vessel was insured against war and political risk. Mr Evangelos Bairactaris, a well-respected Greek maritime lawyer, was the sole nominee director of the insured, the vessel’s registered owner.

Prior to inception of the policy, Mr Bairactaris had been charged with criminal offences; he had not been found guilty of any offence, but the charges had not been disclosed by the insured before inception. Following discovery of the criminal charges, insurers sought to avoid the claim for material non-disclosure (i.e. a breach of the duty of fair presentation).

Ultimately, the court found that the insured didn’t have actual knowledge of the criminal charges against Mr Bairactaris, nor could such knowledge be attributed to it:

• The insured did not have actual knowledge before inception of the policy, as only Mr Bairactaris himself had that; and
• applying an objective test to attribute knowledge to the insured “by reference to a reasonable, prudent insured in that class.”, based on the substance of his role it was held that Mr Bairactaris was not part of the “senior management” of the insured for the purposes of s.4(8) IA2015. Despite being sole director, secretary and treasurer, his role was essentially administrative, and he was contractually obliged only to act on the instructions of the beneficial owners of the insured, who had agreed to indemnify and hold him harmless. He had no substantive involvement in the insurance programme of the insured, or its group.

Although obiter, given the findings on breach, the court did also consider the materiality and inducement requirements of the duty of fair presentation, observing that had the insured known of the charges against Mr Bairactaris then it should have disclosed them. The court found that insurers would have been prepared to write the risk on the same terms and for the same premium had they known, but with the imposition of a condition requiring replacement of Mr Bairactaris. Beyond this, insurers had not satisfied the court on a balance of probabilities that they were actually induced to write the Policy by the non-disclosure of the charges.

What does this mean for you?

This decision is an important reminder of the factual hurdles that an insurer must overcome in order to successfully decline a claim for breach of the duty of fair presentation. When it comes to assessing corporate knowledge of material circumstances, it is of critical importance to look at the substance rather than just the form of the role played by those individuals who may be perceived as having an operational role in the insured’s business.

It remains unclear, though, how knowledge might be attributed to a corporate vehicle of this type for the purposes of making a fair presentation of risk to insurers. The court in Delos didn’t address the question of who might have the relevant knowledge, in circumstances where the insured’s decision-makers were not the same as the person with charge of the day-to-day management and arranging the insurance. Insurers may need to be mindful – when dealing with SPVs and similar structures – that additional questions may need to be asked of the insured pre-inception.

Part 3 of the Insurance Act 2015 (IA 2015) provides in broad terms that:

• any attempt to convert a statement into a warranty, whether by way of the old “basis of contract clause” or otherwise, will be invalid (Section 9);

• to the extent that a breach can, lawfully, be remedied, and subject to questions of, for example, waiver, insurers have no liability in respect of losses occurring (or attributable to) the period between a breach of warranty occurring and its remedy. Once the breach is remedied, insurers’ liability resumes (Section 10); and

• insurers cannot rely on clauses which exclude, limit or discharge their liability in relation to losses for which any breach of that clause could not have increased the risk of the particular loss (Section 11).

Parties can contract out of the IA 2025, but subject to certain limitations. Transparency requirements (ss. 16 and 17 of IA2015) apply to any terms by which the insured would be placed in a worse position than under the Act. Disadvantageous terms will be of no effect unless they are clear and unambiguous, and drawn to the attention of the insured, taking into account the characteristics of the insured and the circumstances of the transaction.

What news from 2024?

In Scotbeef Ltd v D&S Storage Ltd (in Liquidation) & Anr the Court considered the application of IA 2015 to conditions precedent and warranties in a marine liability policy.

The defendant insured was a food distribution and storage company, and in liquidation. Accordingly, the claimant was seeking an indemnity from the second defendant insurers under the Third Parties (Rights Against Insurers) Act 2010 (the 2010 Act). Insurers declined cover on the basis of breach of conditions precedent in the policy.

Policy terms identified as being conditions precedent included “Duty of Assured” requirements that:

• The insured makes a full declaration of all current trading conditions at inception of the policy period (Condition (i)), and continuously trades under the conditions declared and approved by underwriters (Condition (ii)). The Policy identified the “trading” conditions as being the FSDF terms and conditions (one of the industry’s standard sets of terms) at £250 per tonne;
• Condition (iii): The insured was also to take all reasonable and practicable steps to ensure that these trading conditions are incorporated in all of its underlying contracts. The contract then stated that if a claim arises in respect of a contract into which the insured had failed to incorporate these conditions, the assured’s right to indemnity in respect of that claim shall not be prejudiced, provided the insured had taken all reasonable and practicable steps to incorporate them.

The policy also contained a section entitled “Important instructions in the event of a claim”. This section set out claim notification conditions precedent. It also included a clause that stated that the effect of a breach of condition precedent was that the insurers are entitled to “avoid the claim in its entirety”.

The Court concluded that the Duty of Assured terms needed to be read together, and that Condition (iii) was a disadvantageous term. Condition (i) was a representation, and could not could not be considered a condition precedent or warranty because it fell foul of the restrictions in s.9(2) of IA 2015. Neither of Conditions (ii) and (iii) satisfied the “transparency requirements” of ss. 16 and 17 IA 2025. As a result, the Conditions were of no effect. Insurers were obliged to indemnify the insured, and in turn the third party claimant under the 2010 Act.

We also note that breach of warranty arguments were raised in the Mok Petro Energy FZX v Argo (No.604) Ltd & Others decision which we cover above, in relation to damage-based cover. The dispute related to cover under a cargo policy, and alleged contamination of storage tanks in a vessel. The court considered arguments as to breach of warranty and found, obiter given its other findings, that MOK had been in breach of a survey warranty in the policy. The court observed that the claim would have ultimately failed for breach of warranty in any event; there was no serious dispute that MOK’s non-compliance with the survey warranty raised the risk of water contamination in the vessel’s tanks.

What does this mean for you?

The Scotbeef decision is challenging in several respects, and the Court of Appeal heard an appeal in December 2024. We hope therefore that we will get greater clarity in the appeal judgment, which we expect during the first half of 2025. Clarity will be welcome on, for example, the Court’s conclusion that Condition (iii) could be breached even if the FSDF terms were in fact incorporated, if the insured failed to take reasonable steps to ensure that they were incorporated. This isn’t an obvious construction. The judgment also seems to conflate a term being disadvantageous to an insured with a term which disadvantageously seeks to vary or exclude the requirements under IA 2015. The second of these is covered by the transparency requirements. The first is not. There is no obligation in general terms to draw conditions precedent or warranties to the express attention of the insured.

Whatever the outcome of the Scotbeef appeal, however, the decision does highlight the need for insurers to tread carefully and draft as clearly as possible any conditions precedent or warranties, to minimise the risk that they are construed in a surprising and/or unusual way. The requirement for careful drafting is even starker where an attempt is being made to tighten insurer’s rights compared to those set out in IA 2015. If in any doubt, it is probably prudent to spell out both the requirement(s) and the consequences of breach, and to draw any relevant clause to the insured’s attention.

The regulatory and litigation risk for both insureds and insurers arising from environmental issues has risen, as we continue to see increasing political and regulatory focus on ESG (on both sides of the divide), and ever-rising numbers of environmental and climate-related class actions in multiple jurisdictions around the world. Even as geopolitics makes the ESG landscape an even more difficult one to navigate, many insurers are seeking to move away from underwriting fossil fuel assets and infrastructure, excluding cover for companies who are identified as “transition laggards" (as described in Generali’s October 2024 Climate Change Strategy note).

What news from 2024?

Our article here summarises key insurance issues arising from environmental liability risks. This includes a look at:

• Environmental issues that are giving rise to claims and class actions in multiple jurisdictions, including from the use and effects of per and polyfluoroalkyl substances (PFAs), or "forever chemicals";
• the tort of nuisance, on which many English law environmental actions are based. In the important 2024 decision in Manchester Ship Canal Company Ltd v United Utilities Water Ltd No 2 it was decided that a canal owner’s private law claim in trespass and nuisance could continue against the respondent sewerage undertaker for unauthorised discharges of untreated foul water into the canal; and
• liability and coverage concerns for insurers.

The applicability and scope of pollution exclusions in insurance policies are inevitably a key focus in the context of environmental claims. Courts around the world are grappling with disputes in this context. Our article here looks at the 2023 decision in Brian Leighton (Garages) Ltd v Allianz Insurance Plc, in which the English Court of Appeal construed a pollution exclusion to hold that it did not apply where damage to a pipe had caused contamination which forced the closure of a business. In the US there have been a number of disputes in relation to pollution exclusions, including to determine their application to PFAS claims as well as climate damage.

In 2024, the Supreme Court of Hawaii became the first US state court to classify greenhouse gases (GHGs) as “pollutants” in determining the applicability of pollution exclusions in a policy. In Aloha Petroleum Ltd v National Union Fire Insurance Company of Pittsburgh PA the court considered pollution exclusions in policies covering an “occurrence”, defined in the policies as an “accident”, and decided that an “accident” includes an insured's reckless conduct in knowing about climate risk but emitting GHG’s nonetheless. It was held that this accords with the court’s precedents, with the plain meaning of “accident”, and with the principle of fortuity. Further, GHGs including carbon dioxide, produce “traditional” environmental pollution; climate-heating gases are an example of the “traditional environmental pollution” that the pollution exclusion was designed to exclude, and the pollution exclusion in question is not ambiguous.

Although not an insurance decision, but an example of how parties and the courts are having to adapt to changing environmental risks, the English court also found itself grappling with the impact of storm events on contract costs in Pevensey Coastal Defence Ltd v Environment Agency. Construing a 25-year private finance initiative agreement for the provision of services for the delivery of sea defences, it was held that the service provider could retrospectively make a claim for additional costs that it had incurred as a result of a material increase in the frequency of storm events in the second decade of the agreement compared with the first.

What does this mean for you?

Insurers are working hard to stay ahead of changing and increasing environmental risks, and to reflect and anticipate those risks in their underwriting strategy and wordings.

Assessing an insured’s business activities and exposure prior to inception of the policy term is not always easy. As above, the insured has a duty to give insurers a fair presentation of risk, but (particularly in relation to potentially long tail exposures such as claims relating to PFAS or GHGs, both of which are fast developing areas of risk) insurers should ask appropriate questions to assess the exposure, and adapt wordings or pricing accordingly. Any claims-made cover (e.g. many D&O and product policies) could be called upon many years hence. We are also likely to see increasing numbers of nuisance claims, particularly involving water companies, following the Manchester Ship Canal decision. Pollution exclusions will be a focus, and many liability policies now contain specific PFAS exclusions, for example.

As the global political landscape changes, we watch with interest the impact of changes in political focus on ESG and net zero strategic plans.

Warranties and indemnities (W&I) in SPAs are provided by sellers of a target company to the buyers as comfort that they have properly represented the state of the target prior to its sale. Warranty and indemnity (W&I) policies are designed to insure against breaches of the representations and warranties provided by sellers in contracts for the sale of businesses.

The starting point for claims under SPAs and W&I insurance claims is to identify a representation or warranty in the SPA that has been breached. We looked at some key W&I decisions in our 2023 article here and, in our A Year in Insurance Law 2023 piece.

What news from 2024?

In Project Angel Bidco Ltd (In Administration) v Axis Managing Agency Ltd, upholding the 2023 first instance decision, the Court of Appeal applied the well-established principles of contractual interpretation to interpret a W&I policy.

As a reminder, the warranties and indemnities in the relevant SPA included (in summary) that there were no pending or threatened legal proceedings, no investigations or enquiries underway (or circumstances which may give rise to investigation or enquiry), and that no offences had been committed under the Bribery Act 2010 involving the company’s directors, officers or employees.

The policy comprised two documents. The court was asked to analyse the interaction between (1) a warranty cover appendix to the policy (the Appendix); and (2) an exclusion clause in the main body of the policy (the Exclusion Clause). The Appendix indicated that various bribery and corruption related warranties in the SPA were covered. The Exclusion excluded loss arising out of all ABC Liability, defined as being “any liability or actual or alleged non-compliance by any member of the Target Group or any agent, affiliate or other third party in respect of Anti-Bribery and Anti-Corruption Laws.”

The court assessed the policy wording textually and contextually (see above on the principles of policy interpretation), and construed the policy as excluding ABC Liability. The Appendix contained an express provision to the effect that, whether or not a particular obligation was identified within it as being included within the policy cover, the terms of the main policy wording took precedence. It held that it was not obvious that the parties had made a mistake in the drafting of the policy that needed to be corrected, nor was the “cure” for any mistake obvious. Our more detailed analysis of the decision can be found here.

Contractual notices can be a particularly tricky area, and are often the subject of SPA disputes. In Drax v Scottish Power, the Court of Appeal took a more pragmatic approach than has been seen in some previous decisions, and held that a notice of claim had satisfied relevant contractual requirements despite the warranty claim being quantified on an incorrect basis in the notice. The Court considered that the notice was formulated in good faith - an attempt had been made to quantify the warranty claims, albeit they were wrong. The Court of Appeal noted that the “initial purpose” of a claim notification clause in an SPA is to provide a contractual limitation period. These clauses allow the parties to close their books on a transaction if notification is not given within the time period specified. As they are essentially exclusion clauses, the parties are not to be taken to have given up valuable rights without making it clear that they intend to do so, and here the Seller had been provided with the information required to challenge the Buyer’s claim. Our article on that decision is here.

In Adie & Anor v Ingenuity Digital Ltd the court construed an SPA in a dispute over calculation of deferred consideration payable. There was no proper legal basis for denying the defendant the right to rely on clauses allowing the defendant both to adjust EBITDA in the event of writing off customer invoices after a customer dispute and to make an indemnity (or warranty) claim in relation to that customer dispute. The clauses were not necessarily going to produce double recovery in every case such that it can’t be said that it would have been clear and obvious to the parties as reasonable contracting parties at the time of entry into the SPA.

What does this mean for you?

SPA breach of warranty claims continue to be a feature of the English disputes landscape, with the role of W&I insurance a key component in hedging transactional risk.

It is common in the market to use an Appendix to set out the scope of cover in a particular case, with the main policy terms being contained in a separate agreement. In the absence of an express provision as to which terms will take precedence in the event of a conflict, this can lead to uncertainty, and in turn costly and prolonged disputes. Insurers should take care to ensure that clear wording is included.

Although historically (for example in Decision Holdings - see our article) the English court has frequently taken a strict approach when considering compliance with contractual notice requirements (particularly in relation to time limits) in the Drax decision the court took a more pragmatic view. The court showed a willingness to permit claims to proceed if sufficient information has been provided in time to allow the notified matter to be assessed, even if some of the detail turns out to have been incorrect. This contrasts with the Decision Holdings decision, where the Court of Appeal held that the notice was defective because the Seller had not separately quantified each individual breach of warranty. Whether this signals a change of course remains to be seen – it still remains prudent to stop and consider the notice provisions in any contract extremely carefully before sending any notice.

We continue to see active regulatory scrutiny of the professions, particularly legal professionals, and 2024 produced a number of decisions examining professionals’ duties in contract and tort. We consider a selection of those decisions below, along with a decision looking at condonation in a dispute over the scope of solicitors PII cover in the event of fraud.

What news from 2024?

In Axis Specialty Europe Se v Discovery Land Company LLC and other companies the court considered a dispute as to the scope of cover under a solicitors’ PII policy, in circumstances where third party claims against the law firm arose from dishonest and fraudulent acts by one partner of the firm, and questions arose as to the role of a second employee. Under the SRA minimum terms and conditions (MTCs), for claims to aggregate they must arise from “one series of related acts or omissions”, or amount to “similar acts or omissions” (with “a real or substantial degree of similarity”). For acts and omissions giving rise to claims to be “in a series of matters or transactions which were related” those transactions must ‘fit together’. The court considered aggregation wording in the policy, holding that the fraudulent acts in question did not constitute one claim, as they were not sufficiently “similar”, nor a series of “related” acts or omissions. Separately, the court also considered what it means to “condone” the acts and omissions of a fellow practitioner; the PII policy excluded dishonest acts that were committed or “condoned” by the insured. Our fuller analysis of the decision is here, but, in short, the court took the ordinary meaning of the word “condone” as conveying acceptance or approval, and found on the facts that the second employee had not had sufficient knowledge (including blind-eye knowledge) to allow the operation of the exclusion clause.

Turning then to a series of decisions in relation to professional negligence claims:

• Assumption of responsibility: The court in Miller v Irwin Mitchell LLP considered the scope of solicitors’ duties in the context of preliminary advice given via Irwin Mitchell’s "Legal Helpline" in May 2014, with a retainer not then arising until January 2016. As summarised in the 2022 Spire Property Development LLP v Withers LLP decision, there are three key principles in relation to assumption of responsibility as the basis of a tortious duty. These are that: (i) advice provided gratuitously is not a bar to a finding of a duty of care; (ii) a solicitor is taken to have voluntarily assumed a legal responsibility when they “undertake responsibility for a task”; and (iii) whether responsibility has been assumed, and the scope of any resulting duty, is to be judged objectively in context and without the benefit of hindsight, and a fact-sensitive enquiry is necessarily required. The court considered in the Irwin Mitchell case that the firm had had assumed a duty to take reasonable care in and about the advice they gave callers, who were entitled to rely on such advice as they were given on the helpline, but that this was only the provision of preliminary advice of a limited and general "high level" nature to a prospective client.

• Broker’s duties: The standard insurance broker's contractual (and common law) duty is to use "reasonable skill and care" in obtaining insurance on the client's behalf. In Hamsard One Thousand and Forty-Three Ltd v AE Insurance Brokers Ltd the court dismissed a claim against an insurance broker, holding that there had been no duty upon the brokers or the insured to provide information to insurers about a director’s association with three previous insolvencies or administrations. The court observed that the scope of duties owed by brokers is well established – they include to identify and advise the client about the type and scope of cover which the client needs, ensuring that the cover then arranged meets those needs. The brokers here were alleged to have breached their duties in several respects, including in failing to make a fair presentation to insurers, and in failing to place loss or rent and accidental damage cover. Ultimately, it was held that the insured business had failed to establish either liability or causation, however. On the question of avoidance for non-disclosure, although the brokers were aware of the directors’ association with insolvent entities, their failure to disclose that association to insurers had not caused any loss, because on analysis the proposal form had only asked about the insolvency of named insureds, such that insurers had waived disclosure of any further material information beyond that requested, and had not been entitled to avoid the policy on that basis.

• Causation – both legal causation and factual causation need to be established before a professional will be found liable, even where relevant duties and breach have been established. As in the Hamsard claim above, many professional negligence claims ultimately fail on causation grounds. In the decision of Ickenham Travel Group Ltd v Tiffin Green Ltd it was held that the auditor had owed contractual and common law duties to conduct audits with the skill to be expected of a reasonably competent auditor, and had fallen short of the standard of a reasonably competent auditor, but the claimant travel group had not proven that the auditors’ breaches were the cause of the reduced price that the claimant ultimately accepted for the sale of part of its business.

  Obiter on legal causation, the court considered whether the nature of the client meant that the auditor’s duties went further than usual. The auditor in this case was expressly required to be CAA accredited, as it was auditing a travel business. The court considered the Manchester Building Society “purpose” test (and the critical question of what the “foreseeable consequences of those matters to which the advisers responsibility is limited" are) in this context. Noting that the auditors’ retainer letter expressly acknowledged the need for the travel company to maintain CAA approval, the court observed that where the need to maintain certain regulatory licences and accreditations was an accepted purpose it would be reasonably foreseeable that any breaches would impact on approval. To the extent that auditing failures meant that the travel company then then had to take loss-generating or costly steps to maintain approval, then the auditor might be liable at law for those losses.

• Valuers’ negligence: in Bratt v Jones, a claim against an expert valuer was dismissed because, on the evidence, the valuation was within the reasonable range of a non-negligent valuation. The court summarised the approach to be taken based on the authorities as being: (i) The court must form its own view of the correct value as at the valuation date; (ii) the court then has to consider what the appropriate margin of error applicable to the valuation judgment should be, in order to determine the bracket within which a non-negligent valuation would have fallen; (iii) if (as here) the impugned valuation is within the relevant margin of error of the court's valuation then that’s the end of it, but …(iv) if the valuation is beyond the margin of error in relation to the court's valuation and therefore outside the bracket, then the valuer's competence and the care used in his or her valuation is called into question. The court will then examine whether, in reaching a valuation outside the accepted bracket, the valuer’s methodology accorded with practices which are regarded as acceptable by a respectable body of opinion in his profession. For a valuer, like any other professional, to be found liable for professional negligence it is a fundamental "Bolam" requirement that they be found to have acted otherwise than in accordance with practices which are regarded as acceptable by a respectable body of opinion in the profession, recognising that there is scope for differences of reasonable professional opinion, and that the process of professional valuation is an art as much as a science.

• Illegality defence - The surveyor’s negligence decision of Melia & Anor v Tamlyn And Son Ltd turned largely on its facts, but is worth noting in particular that the defendant surveying firm attempted to rely on a defence of illegality, based on allegations that the clients had colluded with the negligent surveyor on a sham planning application. This was rejected. Moral turpitude is a question of fact and degree, however, and the claimants’ partial role in advancing an dishonest case to the planning authorities was reflected in costs.

What does this mean for you?

The decisions above relate to multiple professions, and highlight a diverse range of issues. As ever though, all professionals need to ensure that they are aware of the terms of their retainer and the extent of their professional duties.

The circumstances - including the nature of an instruction or of a client - may create additional duties either to a client or to third parties which need to be anticipated and addressed. The professional needs to anticipate where duties may extend beyond the initial anticipated scope of an engagement – whether because the scope has been extended to additional matters for which that professional has assumed responsibility, or because the nature and purpose of the retainer extend what reasonably foreseeable losses fall within the ambit of the professional’s legal liability.

The decisions also show that, early in any dispute, both parties should look very carefully at the existence and nature of any loss, and whether or not that loss is caused (in fact or in law) by any breaches of duty by the impugned professional; irrespective of the establishment of relevant duties and breach, many professional negligence claims later founder on questions of either factual or legal causation, often after a lengthy dispute.

Political Violence cover is designed to cover losses arising from terrorism, war and related geopolitical issues.

What news from 2024?

In Hamilton Corporate Member Ltd & Others v Afghan Global Insurance Ltd & Others, the High Court construed a political violence reinsurance policy, under which the a claim had been made following the seizure of the insured’s warehouse in Afghanistan by the Taliban during the withdrawal of US forces from the country in 2021.

In construing the reinsurance Policy and deciding on the extent to which it responded, the court was asked to answer two questions:

1. did an exclusion in the Policy - which excluded amongst other things “2. Loss or damage directly or indirectly caused by seizure, confiscation, nationalisation, requisition, expropriation, detention, legal or illegal occupation of any property…” - apply to all seizure, or only where seizure was by a “governing authority”?; and

2. Did the policy only provide cover for property damage and not for deprivation loss consequent upon the seizure? The reinsurance policy only covered loss to the extent that it fell within the terms of the underlying policy, which stated that it would indemnify the Insured for losses “against… Physical loss or physical damage to the Buildings and Contents which belong to the Insured or for which the Insured is legally responsible, directly caused by one or more of the following perils… 1. Acts of Terrorism…3. Malicious Damage… 7. War and/or Civil War… [etc]…”. The interest reinsured was: “In respect of Property Damage only as a result of Direct physical loss of or damage to the interest insured caused by or arising from Riots and/or Strikes and/or Civil Commotions… and/or Malicious Damage, Insurrection, Revolution, Rebellion, Mutiny and/or Coup d’Etat, War and/or Civil War (including Terrorism and Sabotage) to the Insured’s Physical Assets…”

Applying well-established principles of construction to the Policy, the Court accepted that the loss was caused by seizure, and that the insurance/reinsurance was unambiguous in excluding loss caused by that peril. In doing so, it rejected the argument that the seizure had to be by a governing authority to qualify. Seizure would be given its ordinary and natural meaning, which is “all acts of taking forcible possession either by a lawful authority or by overpowering force…”. It is not limited to acts of a legitimate government or sovereign power.

This was consistent with the wording, which limited cover to property damage, to physical loss and damage, and to damage to the Insured’s “Physical assets”.

Finally, the Court concluded that even if the Insured’s losses were caused by an insured peril, where the loss is also caused by a seizure, the exclusion will apply. This follows the well-established principle that where a loss is caused by both a covered and an excluded peril, the exclusion applies.

What does this mean for you?

The court made clear in Hamilton that the difference between political violence and political risks cover turns not on who causes the loss (government v/s non-government) but rather the type of damage or loss that is covered. Violence is not a definitional element of political risk perils. Specifically, for example, whilst seizure may be by overwhelming force, it may also be by lawful authority and actual force is not required. Political risk perils do not naturally give rise to property damage (although they may do). Rather, the natural and foreseeable loss to which they give rise is deprivation of possession. This echoed the analysis in the Kuwait Airways case, in which capture, seizure etc were terms pointing towards “matters which affect the title to or possession of property…”. Political violence, on the other hand, typically involves damage to or destruction of the property.

The Policy here covered property damage by reason of direct physical loss of (total loss) or damage to (partial loss) the insured property. As above, damage refers to some change in the physical state of the insured asset. There is no such change when a deprivation loss occurs. Whilst therefore loss can include deprivation, deprivation does not fall within physical loss or physical damage.

Despite overlaps with the general insurance law, the law as it applies to marine insurance does differ in some respects, as highlighted by several English court decisions in 2024.

What news from 2024?

A particular feature of many marine insurance policies is a “sue and labour” clause, i.e. a duty on the insured to take such measures as may be reasonable for the purpose of averting or minimising a loss (see s.78(4) of the Marine Insurance Act 1906).

In the Delos Shipholding S.A. & Ors v Allianz Global Corporate and Speciality Se & Ors decision which we mention above, in addition to questions of fair presentation the court also considered a number of issues in dispute on liability, including questions of “sue and labour”: the policy terms expressly incorporated the American Institute Hull War Risks and Strikes Clauses which impose an express duty to sue and labour (i.e. to mitigate). In Delos, the insured’s attempts to engage in "commercial settlement" discussions with the Indonesian authorities regarding the release of the Vessel, which then failed when it became clear that a bribe was being requested, were held not to be a breach. There was no breach of the duty, nor proof that any delays had been caused by the insured’s conduct in seeking to negotiate with the Indonesian authorities.

Another common feature of marine cover is a “pay first” provision, frequently used by P&I clubs in particular. Section 9(5) of the Third Parties (Rights Against Insurers) Act 2010 (the 2010 Act) states that the third party exercising an insured’s transferred rights will not be “subject to a condition requiring the prior discharge by the insured of the insured's liability to the third party”, i.e. a “pay first” provision. This, however, is qualified by s.9(6), where for marine insurance a so-called “pay-first” clause will only be disapplied for third parties in respect of liability for death or personal injury.

In MS Amlin Marine NV v King Trader Ltd & Ors insurers successfully argued that a "pay first" clause in a charterers' liability insurance policy was a condition precedent to the insured’s right of recovery, meaning that the insured had first to pay any liabilities before claiming indemnity. Although it was common ground that the third parties here seeking indemnity were both "relevant persons" under the 2010 Act, and that the insured’s liability to third parties had been "established" in an arbitration, it was also common ground that this was a policy of marine insurance. Construing the policy, the court found no compelling reason to disregard or limit the clear and unambiguous language of the pay first clause, and rejected attempts to argue that the clause was inconsistent or repugnant. There is no inherent inconsistency between an insurer's promise to provide liability cover and a clause making enforcement of the obligation to pay the indemnity conditional on prior discharge of that liability by the insured. P&I Clubs have “for very many years” included provisions in their rules which limit a member's right to indemnity for liability risks to circumstances in which the member has first discharged the relevant liability, and it is clear from authority that "pay first" clauses can co-exist with the main purpose of liability insurance. As a postscript, the court did observe that “the state of English law on this issue in the light of the 2010 Act is not particularly satisfactory”, leaving as it does the possibility of a third party being unable to claim on the insurance as the result of a “pay first” clause, where maritime risks can be substantial.

What does this mean for you?

Marine risks are likely to increase, affected by both climate-related and geopolitical events.

The duty to sue and labour is essentially a duty to mitigate, and marine insureds will need to be very mindful of this when dealing with potential claims. As highlighted by Delos, there is a risk of breach even when an insured is seeking to manage an event, and insurers should be kept informed and involved as far as possible. That said, the insured will not have any obligation to pay a bribe as part of efforts to any mitigate – on the contrary, payment of a bribe is likely to vitiate cover.

Operational resilience and consumer protection remained at the heart of regulatory activity last year. Our high-level summary of some of 2024’s key regulatory developments is below.

Fair value

Under the Consumer Duty, firms must provide fair value to customers, ensure that products and services meet their needs, and provide good customer service. The FCA’s findings following its multi-firm review of outcomes under the Consumer Duty were published in June 2024, and a summary of good and bad practices in relation to implementation of the price and value outcome in autumn 2024. Our December 2024 review of the FCA’s insights a year into the implementation of the Consumer Duty is here.

Insurers have received their fair share of attention from the financial regulators. Following its general insurance and pure protection product governance review TR24/2 the FCA called on insurers to ensure that they can demonstrate fair value and good customer outcomes. The results of the review included that many manufacturers and distributors of general insurance and pure protection products are falling short; many are not adequately assessing and evidencing that their products deliver fair value and good outcomes, which means that firms are not identifying any instances where their products are not delivering fair value for customers.

The FCA began and ended the year with announcements in relation to the guaranteed asset protection (GAP) insurance market, where the regulator had concerns that these products did not give the consumer fair value. A number of insurers paused their sale of GAP insurance products early in 2024, with a number then able to resume sales in May 2024 following discussions with the FCA, and with “materially lower levels of commission”.

Operational Resilience

The Crowdstrike incident in July 2024 caused widespread disruption, and gave many businesses pause for thought about their exposure to cyber incidents. Our webinar, Lessons from the CrowdStrike outage looked at the potential claims and insurance issues that arose.

The FCA announced new rules in November 2024 for entities identified as “critical third parties” (CTP) to the UK financial sector, to manage systemic risks and strengthen the resilience of UK’s financial sector. The FCA’s expectations are laid out in PS16/24 and its accompanying Supervisory Statement (SS6/24), to be read with the determinative final rules as set out in the new CTP sourcebook and related enforcement rules.

The FCA’s expectations in relation to Outsourcing and operational resilience were updated in December 2024 to add proposed new requirements for operational incident and third party reporting.

Conduct

The focus on conduct – including non-financial misconduct – did not abate in 2024. The House of Commons Treasury Committee report on the findings from its "Sexism in the City" inquiry was published in March 2024, along with the FCA response.

At the beginning of the year the FCA carried out a survey of wholesale banks and wholesale insurers, to look at numbers and statistics of non-financial misconduct cases in that part of financial services, methods of detection and methods of resolution. The results of that survey were published in October 2024.

A Lloyd’s consultation on a proposed New Conduct Framework for Lloyd's, including Enforcement Byelaw amendments, was announced via Lloyd’s market bulletin Y5443 in September 2024, with responses requested by 16 December 2024. The proposed changes will modernise the framework for dealing with poor conduct and behaviours (both financial and non-financial misconduct).

FCA jurisdiction

In FCA v BlueCrest Capital Management the Court of Appeal upheld the FCA’s power to require redress from firms. This was followed in Markou v Financial Conduct Authority, in which it was held that the Upper Tribunal had been wrong to find that it had no jurisdiction to hear certain allegations, including that the mortgage broker had recklessly misled the FCA’s Regulatory Decision Committee and the Upper Tribunal in relation to his knowledge of trading without PII.

Secret commissions

The Court of Appeal judgment in Johnson & Wrench v Firstrand; Hopcraft v Close Brothers has implications for insurers. This related to commission payments received by motor dealerships for arranging finance to help buyers fund the purchase of cars. In many cases the buyer was not aware that any commission was being paid to the dealer, or didn’t know the amount. Our fuller analysis can be found here.

The court held that the finance companies (the lenders) who paid the commissions to the dealers were liable to pay to the buyers the amount of the commission retained by the dealers. The court’s reasoning was that the dealers were acting as credit brokers as well as the vendors of the cars, and owed the buyers what was called the “disinterested” duty unless the dealer had made it clear to the buyer that they could not act impartially. The relationship was also, on the facts, a fiduciary one. In all cases, the dealers had a conflict of interest and the buyers had not given informed consent to the payment of the commission.

In terms of the lender’s knowledge, it is sufficient to show that lender knew that the dealer was acting in a fiduciary capacity and was receiving a commission. The lender cannot assume that there was full disclosure of the commission, and cannot simply include a term in its agreement with the dealer requiring the dealer to make full disclosure of the commission and then rely on that term as a defence to a claim that it was an accessory to a breach of fiduciary duty.

What does this mean for you?

Insurers will need to remain aware of their expanding regulatory obligations, and to identify those areas that may be caught by consumer protection legislation and/or regulatory action. The FCA set out which classes of business are likely to come under scrutiny in its 2023 Dear CEO Letter on Insurance Market Priorities 2023-2025, and we expect, for example, to see (or continue to see) a focus on cyber, business interruption insurance and add-on policies. Following the FCA’s autumn 2024 market study into the provision of premium finance for motor and home insurance, engagement with firms, industry groups and stakeholders is expected. In addition, the FCA has made clear that it will continue to focus on multi-occupancy building insurance, and on ensuring that the insurance sector delivers fair outcomes for all leaseholders.

The Firstrand decision does not, on the face of it, apply to commissions retained by brokers in a traditional broking chain, but does, however, give rise to potential issues where premium finance is concerned. Where policies are sold through non-broker agents (such as motor policies by dealers or travel insurance sold by travel agents), and commission is paid, that is more likely to be in scope, however. Leave to appeal to the Supreme Court has been granted. In the meantime, where an insurer insures either (or both) intermediaries or lenders or other exposed principals, this decision increases the potential exposure under FI and PI/E&O policies, under which there will undoubtedly be claims as a consequence of this decision.