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Articles contributed by Debevoise & Plimpton LLP
Although the courts are often at pains to point out that insurance law is merely a subset of general contract law and should be applied without any concession or discrimination simply because the subject matter is insurance, there are, in fact, several aspects that are peculiar to insurance. An understanding of these anomalies will assist in penetrating the sometimes arcane depths of insurance law. They include:
Apart from specific requirements imposed to minimise the chance of loss, the insurer may also insist on more general obligations, such as a clause requiring the insured to take reasonable care to avoid liability, loss or damage.
When an event occurs that triggers a notification provision in an insurance contract, the terms should be complied with before quietly sitting back and waiting for the insurer to exercise its rights to adjust the loss or control any issues that arise, including litigation. It is clearly in the insurer’s interests to minimise the loss that it will eventually be paying. But an insurer is entitled to take some time to look into the problem, or it might make its mind up immediately to reserve all its rights, simply decline the claim or, in an extreme scenario, avoid the policy. What should an insured do in these circumstances before a settlement can be negotiated or its rights assessed by a court?
For over 100 years property and liability insurance law has largely been governed by the Marine Insurance Act 1906, a product of careful thought and drafting that codified the previous 200 years of case law. Times have changed, however, particularly in the speed of communications, the availability of information and the development of the law. The asymmetry of the parties’ positions, whereby the insured knew everything about its affairs and the insurer knew nothing, is today very different. This has resulted in a great deal of activity in the review by trade bodies and the Law Commissions (of England and Scotland) of insurance law over the past ten years, culminating in two recent bills, the Third Parties (Rights against Insurers) Bill (the Third Parties Bill) and the Consumer Insurance (Disclosure and Representations) Bill (the Consumer Insurance Bill).
The terms of any insurance contract can be categorised as conditions, conditions precedent, warranties, or terms delimiting the risk. The status of conditions and warranties in mainstream contract law is reversed in insurance law. Breach:
Contingent commissions were A lucrative feature of the London insurance market for many years, but the enquiries engendered by Eliot Spitzer, then New York State Attorney General, highlighted the methodology of brokerage in London and resulted in their reduced use.
In cases involving the lending of large sums of money, the use of the borrower’s insurance as a security asset is often viewed as the failsafe in the overall security package.1 In the event of a catastrophe giving rise not only to material damage but also to business interruption, or even the loss of a key member of the borrower’s management, there may be no other significant asset available for recourse by the lender. It is therefore surprising that so little attention is sometimes paid to the technical requirements that need to be met for the insurance policy to become an asset available to the lender. Indeed, the insurance is sometimes an afterthought. Getting the technicalities right is perhaps more important to the lender of the money, but a small mistake by the borrower can have unintended, and sometimes extreme, consequences.
Irrespective of the scope and quality of the usual due diligence in an acquisition transaction, the primary financial protection for the buyer of a company on either a share or asset deal is the scope and quality of the warranties and indemnities given on its purchase, which themselves depend on the security of the warrantors. If a buyer has any concern as to that security, and a suitable holdback or escrow of part of the purchase price is not available, one solution is to underwrite the financial risk under the warranties and indemnities by obtaining warranty and indemnity insurance. This generically splits into either a warrantor/seller policy or a buyer policy, but can also be a combination of the two, usually with the buyer policy sitting in excess of the seller policy.
One of the purposes of incorporation is to absorb and contain liability within the corporate shell: the so-called corporate veil, behind which directors used to feel reasonably safe. However, a director can in certain circumstances be personally liable to the company, its liquidator, its shareholders, third parties and any of its regulators, such as the Financial Services Authority (FSA), Health and Safety Executive, Information Commissioner, Pensions Regulator or Office of Fair Trading.