Insurance: Limiting Indemnity Rights When An Insured Is Insolvent

In a recent case, the court held that a party to a settlement agreement (in this case a broker) cannot restrict the indemnity it is providing so that the indemnity is not payable if the insured goes into administration, or liquidation, or undergoes some other insolvency event. The decision is important on its own facts. But it does also raise questions about the legitimacy of other clauses in insurance contracts which depend on whether or not the insured or reinsured has entered into any kind of insolvency event.

A company was insured by the respondent insurer and brought a claim against that insurer for personal injury following an accident involving the company and a third party. The claim was denied on the grounds of an exception in the policy. The company claimed in negligence against its broker, and the parties entered into a settlement agreement under which the broker agreed to indemnify the company for sums payable in respect of the underlying claim. Payment to