Insurance law today is heavily influenced by the English and Scottish Law Commissions’ review in the past decade, which led to the Insurance Act 2015.
In that review, no changes to the law on insurable interest was proposed. This requires for an insured to have some legitimate economic or other interest in the subject matter insured, to distinguish insurance from gambling and to protect insurers from specious claims. The Law Commissions did, however, recommend and promote a remedy for policyholders to sue an insurer for damages for the late payment of insurance monies. This eventually became section 13a of the 2015 act, implying in every insurance contract a right to be paid insurance monies within a reasonable time.
In Quadra Commodities SA v XL Insurance Company SE (2022), the English High Court reviewed both legal issues in a judgment. Specifically, it reviewed the basis for claiming damages pursuant to section 13a for the first time.
Quadra had contracted in late 2018/early 2019 with a Ukrainian business, Agroinvest, to purchase quantities of grain. However, Agroinvest perpetuated a fraud whereby it would obtain grain from local farmers and issue multiple warehouse receipts in respect of the same consignments to different buyers. Despite payment, Quadra received no grain consignments. It was defrauded.
Quadra notified a claim for its monetary losses under an all-risks/marine cargo policy. Quadra’s insurers refused to pay and Quadra sued.
Insurers argued there was no loss of physical property; alternatively, Quadra had no insurable interest in any goods that were lost. The judge held grain corresponding to cargo descriptions was physically present in warehouses. While there was no perfect precision from cases as to what might constitute an insurable interest, he affirmed if an insurance policy was issued to cover a particular subject matter risk then the courts would be reluctant to find a policy claim failed for lack of insurable interest.
He held Quadra, which had the burden of proof, had established it had an insurable interest because it had paid for the goods and had an immediate right to possession of those goods. It did not matter that Quadra never held any proprietary interest in the grain.
Quadra therefore was entitled to claim under the policy for the loss it suffered through acts of misappropriation, an insured peril.
Keeping separate whether there were reasonable grounds for disputing the claim, the judge ruled it was reasonable for insurers to properly investigate, evaluate and pay the claim within one year from notification
Quadra further claimed damages for late payment under section 13a of the act. This required Quadra establishing payment was not made within a reasonable time. If insurers could establish there were reasonable grounds for disputing the claim, bearing in mind their conduct, then there would be no breach of section 13a.
The judge ruled the fact insurers might be said to be too slow or lethargic in dealing with the claim did not of itself answer the question of what was a reasonable time to pay a claim. Relevant was the type of insurance involved, the fact larger, more complicated claims will usually take longer to assess than straightforward claims and a claim may be complicated by its location.
Keeping separate whether there were reasonable grounds for disputing the claim, the judge ruled it was reasonable for insurers to properly investigate, evaluate and pay the claim within one year from notification.
On the second issue, the fact insurers’ objections were found in court to be wrong did not necessarily mean those grounds were not reasonable. The judge did not agree insurers had carried out investigations that were unnecessary. He did see the force in Quadra’s complaints insurers were too slow in their investigations and these were unduly protracted. However, those matters complained of all occurred within the one-year period that was reasonable for insurers to pay the claim. Throughout there were reasonable grounds for disputing the claim but the insurer’s conduct did not cross the threshold of breaching the implied term.
The judge’s approach and conclusions on insurable interest validates the Law Commissions’ views that review and reform on the issue of insurable interest was not a priority, by comparison to other issues. However, by way of contrast, section 13a of the act, which arose out of the Law Commissions’ reform recommendations, did not deliver for Quadra.
Arguably the case did not deliver significant guidance on this particular claim issue. Insurers will bear in mind the one-year reasonable period stipulation, in what was clearly a complex case – less complex cases should produce swifter payments on this logic – yet the judge ruled erroneous claim rejection does not automatically provide the policyholder with a compensatory remedy.
More cases will be needed before the dynamic of establishing a section 13a claim is clearer and particularly how loss may be shown and proven, which the court declined to consider in Quadra because of the principle finding there was no breach of section 13a.
For more information, please contact Stephen Netherway.