CILA SPECIAL INTEREST GROUP CONFERENCE

1. CILA SPECIAL INTEREST GROUP CONFERENCE Tuesday 23rd September 2008 “Recent legal developments affecting the insurance industry” Richard Evans Partner Beachcroft LLP 30 Eastcheap London EC3M 1HD

2. RESERVATION OF RIGHTS • Why? • Waiver, affirmation, election • Kosmar Villa Holidays v Syndicate 1243 • 1st instance (Mr Justice Gross – 2007) • Court of Appeal [2008] WLR (D) 71

3. Per Rix L.J in Kosmar “It would not be good practice for insurers to rush to repudiate a claim for late notification, or even to destabilise their relationship with their insured by immediately reserving their position – at a time when they were in any event asking pertinent questions about a claim arising out of an occurrence about which they had long been ignorant in absence of prompt notification”

4. AIRMIC INITIATIVE • Survey June 2008 – 29% say experience of reservation of rights having been used inappropriately. • Voluntary agreement proposed whereby 90 day moratorium between notification of claim and any reservation of rights. • Detailed wording of agreement expected by end of the summer.

5. LAW COMMISSION REVIEW OF INSURANCE CONTRACT LAW • Jan 2006 Scoping Paper • Sep 2006 1st Issues Paper on Non Disclosure and Misrepresentation • Nov 2006 2nd Issues Paper on Warranties • March 2007 3rd Issues Paper on Intermediaries and Pre Contract Information • July 2007 1st Consultation Paper • Feb 2008 Issues Paper on Insurable Interest • May 2008 Summary of responses to Consultation Paper

6. Timetable Going Forward • Autumn/Winter 2008 anticipated issues paper on post contractual good faith, damages for late payment. • 2009 Second Consultation Process • Summer 2009 Bill for reforming consumers insurance law • 2010/2011 ? Bill to reform remaining areas covered by Issues/Consultation Papers

7. SUMMARY OF KEY LAW COMMISSION PROPOSALS TO DATE • Where Insured is consumer follow FOS approach • non-disclosure replaced by need for insurer to ask question • for misrepresentation “reasonable insured” test to replace “prudent insurer” • basis of contract clauses to be outlawed • remedy of “proportionality”

8. DAMAGES FOR LATE PAYMENT • Law Commission likely to propose reform to bring insurance contracts more in line with insurance contracts. • To what extent have Ventouris v Mountain (1993) and Sprung v Royal Insurance been affected already by the recent decision in Sempra Metal v IRC (2007).

9. ELECTRONIC DISCLOSURE • 36 billion emails are sent daily on a world wide basis (rising 20% each year). • 93% information held in digital format (70% never printed). • From March 2009 new FSA regulations regarding the recording and storing of telephone conversations and electronic communications relating to client orders come into effect. • April 2009 – Proposed Technology Questionnaire in Litigation.

10. Civil Procedural Rules define “documents” to include • “email and other electronic communications…” • “stored on server and back up systems and electronic documents that have been deleted” • “metadata” See Micro Design Group v Norwich Union (2005)

11. CAUSATION • Policy cover • Recovery prospects • What evidence/standard of proof is required

12. Drake v Harbour [2008] EWCA Civ 28 (Court of Appeal) • Sufficient even if cannot establish precise mechanism if cause was of a kind attributable to the defendant’s negligence.

13. Lexus Financial Services t/a Toyota Financial Services v Sandra Russell [2008] EWCA Civ 424 • 3 possible causes • Arson • Defect in wiring in Defendant’s garage • Defect in car electrics • Held by Court of Appeal that judge was entitled to conclude on the evidence that the probable cause was the defect in the electrics.

14. BAILMENT WHAT IS BAILMENT? • Voluntary taking into custody of goods which are the property of another. • With or without reward to the bailee. • Bailee only takes possession of the property not ownership of it. • Bailor reclaims ownership.

15. NORTH BRITISH MERCANTILE INSURANCE CO V THE LONDON LIVERPOOL & GLOBE INSURANCE CO (1877) • B&Co paid in full by LLG and they paid R&Co. • LLG wanted a contribution from North British but court held otherwise “double insurance only where same property insured AND interests are the same…contribution exists where the thing is done by the same person against the same loss…B cannot say to R somebody else has been insuring the goods you go and sue that somebody else.” B&Co R&Co Stored grain owned by “Wharfingers policy” With LLG Merchant Policy (North British)

16. Ramco Ltd & Resource Industries Ltd v Weller Russell & Laws Insurance Brokers Ltd (2008) LTL 17/6/2008 RAMCO trade in army surplus stock Holds stock for MOD If R liable for loss then market value calculation If not liable then R had to pay 2 % base price for stock Murray • R merely obliged to insure for £2million

17. POLICY WORDING IN RAMCO COVERED: “stock…the property of the Insured or held by the Insured in trust for which the Insured is responsible” • North British & Mercantile Insurance Co v Moffatt (1871) • seller retained possession but no longer owner. As they were not responsible for them no cover. • Hepburn v Tomlinson (Hauliers) Ltd (1966) • wording “property of the Insured or held by them in trust or on commission” would have given cover. But, beware the loophole provided by Lord Justice Waller In Ramco. • does failure to arrange full cover create a “responsibility”?

18. BEACHCROFT LLP Sponsorship of CILA Property Special Interest Group Case law updates on CILA website at www.cila.co.uk