Global liability settlements - Lumberman’s revisited

On 26 January 2006 the Commercial Court handed down an important decision in relation to what an insured must prove in order to recover from its liability insurers in relation to settlements. In the decision of Enterprise Oil Limited v. Strand Insurance Co Ltd Aikens J confirmed that an insured must prove the following:

• Actual liability to a third party

• The settlement must not be for more than the amount for which the insured would have been liable.

In common with Colman J’s decision in Lumberman’s Mutual Casualty v Bovis Lease Lend Limited, the insured’s contribution to the settlement did not apportion particular sums to particular causes of action or heads of damage. As such, the lack of structure in the agreement potentially gave rise to difficult legal issues as a result of the Lumberman’s decision. The judgment contains an important appraisal of the Lumberman’s decision which will serve as a useful point of reference for insureds and reinsureds in structuring