Plucking hell for insurers

On 26 October 2017 several members of the Ince insurance team attended a mock trial which centred upon issues arising under the Insurance Act 2015. The event was hosted by the BILA (British Insurance Law Association) U35s group, whose committee includes Ince’s Carrie Radford (Managing Associate) and Franco D’Andrea (Senior Associate). It was a fun event, with Committee members putting in stellar performances as counsel, solicitors and gruff witnesses.

The case followed a colourful tale, the claimant in the trial having sold his bird-plucking business after a break-in. Animal rights activists had destroyed his most valuable piece of equipment, a Speedipluck 500, following which the claimant had found himself unable to keep up with his customers’ demands. The insurers had initially refused to pay out the claimant’s insurance claim on the basis that he had been in breach of warranty at the time of the break-in. However, upon agreeing that the non-compliance with that warranty, which required the insured always to have a working sprinkler system, did not increase the risk of the loss which actually occurred, the insurers did make a belated payment for the destroyed equipment. The hearing then centred around whether the claimant had a claim for damages for late payment of the claim (under s.13A Insurance Act 2015).

Given that the English Courts have not yet decided a case under the new law, the trial was a good opportunity to gain insight into the meaning and significance of this particular provision. Under s.13A(4) of the Act, an insurer may have a defence to a suit for damages for failure to pay a claim in a reasonable time if it had “reasonable grounds for disputing the claim”. Here, the claimant insured argued that the insurer had no such reasonable grounds, as demonstrated by its belated abandonment of the breach of warranty defence. The insurers disputed this, submitting that the insured’s breach of warranty amounted to the requisite “reasonable grounds”. The judge, Peter MacDonald Eggers QC (who sits as a Deputy High Court Judge), found for the defendant insurers on this point, agreeing that because of the breach of warranty it was at least properly arguable that s.11 would not protect the insured. (S.11 provides that an insurer cannot rely on the non-compliance with a warranty to discharge its liability if the insured can show that this non-compliance could not have increased the risk of the loss which actually occurred). The fact that the insurer’s defence might not have passed the test of being “more likely than not” to succeed did not mean that their initial disputation of liability amounted to unreasonable conduct. The ex-business owner could therefore not recover for losses allegedly suffered as a result of the late payment.

This trial also engaged in the difficult question as to what amounts to a fraudulent claim, considering both the wording of the new Act and the controversial Supreme Court decision in Versloot Dredging BV v HDI Gerling Industrie Versicherung AG. In this mock scenario, the claimant business owner had been unable to find the receipt for his Speedipluck 500 and so had created a false document with a forged signature for an amount that he guessed to be what he paid, which was £100,000. Although it came out in trial that the claimant suspected that he could have paid only £90,000, it transpired that he had in fact paid £110,000. The judge found that, following Versloot Dredging, this forgery was merely a “collateral lie” which supported a justified claim. The claimant was not seeking any more than he was entitled to and the false receipt had no relevance to his right to recover. He therefore succeeded in his claim for the loss of his plucking machine. This decision proved to be the biggest talking point after the conclusion of the trial, proving that insurers’ displeasure with the Supreme Court’s judgment, which seemingly allows claimants to tell lies without impunity, is unlikely to abate any time soon.

Clare Birchenhough