Disputes Yearbook 2024:
Insurance disputes

Aviation claims arising from Ukraine-Russia conflict

The Russian invasion of Ukraine in February 2022 is the backdrop to around 100 actions concerning insurance claims in the Commercial Court. The Russian aircraft "mega trial" of six actions commenced before Mr Justice Butcher in October 2024. This firm is acting for the lead claimant, Aercap, the global leader in aircraft leasing, whose claim (together with other aviation lessors' claims) is being case managed together by the Commercial Court. AerCap and the other lessors are seeking to recover losses totalling over $4 billion from insurers over aircraft stranded in Russia following its invasion of Ukraine. These proceedings relate to claims under the lessors' own Contingent and Possessed (or Lessor) policies.

There are other parallel claims on foot in the Commercial Court involving aircraft in Russia under reinsurance policies taken out by lessees (Operator Policies). These are also being case managed together before Mr Justices Henshaw and Picken. These claims were subject to jurisdiction challenges by the defendant reinsurers on the basis that the reinsurance policies contained exclusive Russian jurisdiction clauses. Aercap (and the other claimants) were successful in dismissing those challenges with the result that the claims will proceed in the English courts. The Commercial Court held that it was unlikely that the claimants would receive a fair trial in Russia and that this was a strong reason for declining to stay the proceedings. The Court also considered the multiplicity of proceedings and the risk of inconsistent judgments as other factors supporting its decision (Zephyrus Capital Aviation Partners 1d Ltd v Fidelis Underwriting Ltd [2024] EWHC 734 (Comm))

Insurance Act 2015 decisions

Despite being in force for several years, the Insurance Act 2015 (the Act) has had little scrutiny in the courts but two decisions this year have added to the small body of English case law on this legislation.

In Scotbeef Ltd v D&S Storage Ltd (In Liquidation) [2024] EWHC 341 (TCC), the court considered the treatment of pre-contractual representations. The court found that a misrepresentation by the insured, which put the insured in breach of a condition precedent, could not be relied on by the insurer because of the application of the Act. The court determined that pre-contractual representations made by an insured should be assessed by reference to the duty of fair presentation and the remedies for breach of that duty as set out in the Act. If an insurer wishes to contract out of this regime, there are strict transparency requirements which apply (and which had not been met in this case): Court finds breach of condition precedent relating to pre-contract misrepresentation unenforceable under Insurance Act 2015

The second decision concerned section 11 of the Act and its impact on a breach of warranty. Section 11 of the Act was introduced to make clear that insurers cannot rely on breach of certain terms (including conditions precedent and warranties) if the insured can show that breach of the clause could not have increased the risk of loss in the circumstances in which that loss occurred. The case of MOK Petro Energy v. Argo (No. 604) Limited [2024] EWHC 1935 (Comm) concerned a claim relating to damage to a cargo of gasoline and methanol. The policy contained a warranty which required inspection and certification of the cargo at the load port. Although there had been an inspection of the cargo, there was no contemporaneous evidence of certification and insurers argued this was a breach of warranty and denied liability. The claimant sought to rely on section 11 and argued that its failure to comply with the certification element of the warranty could not be relied on by insurers because compliance would not have reduced the risk of loss that occurred. In obiter comments, the court disagreed and said that section 11 requires a broad enquiry such that both aspects of the warranty must be looked at together, ie, although only the certification element was breached, the court was entitled to consider whether a breach of the clause as a whole could have increased the risk of the loss occurring (which the court said it would). The comments were obiter – non-binding remarks for illustration without force as precedent – and it will be interesting to see how arguments relating to section 11 are made in other cases.

Covid-19 business interruption cases continue

Insurance disputes relating to lost revenue suffered by businesses during the Covid-19 pandemic have continued to keep the English courts busy this year. This series of cases started with the Supreme Court's judgment in the Covid-19 business interruption test case in 2020 in which this firm acted for the UK regulator, the FCA, on behalf of policyholders (the FCA Test Case): Supreme Court hands down judgment in FCA’s Covid-19 Business Interruption Test Case.

This year, a number of cases have reached the Court of Appeal on various issues, including:

• The approach to causation in relation to "at the premises" clauses. The Court of Appeal in London International Exhibition Centre Plc v Allianz Insurance plc and others [2024] EWCA Civ 1026 confirmed that the causation reasoning applied by the Supreme Court in the FCA Test Case to a different type of clause – disease clauses – should apply to "at the premises" clauses: The next phase in the Covid-19 BI cases: appeal on "at the premises".
• Whether the restrictions brought in by the UK Government were those of a "policing authority".  In International Entertainment Holdings Ltd v Allianz Insurance Plc [2024] EWCA Civ 1281, the Court of Appeal held they were not and there was therefore no cover.
• Whether the pandemic was a "catastrophe" in the first reinsurance Covid-19 business interruption case heard by the Court of Appeal. The court held that it was in Unipolsai Assicurazioni S.p.A. v Covéa Insurance Plc [2024] EWHC 253 (Comm).

More Warranty & Indemnity disputes in the courts

The Court of Appeal has considered the operation of a Warranty & Indemnity (W&I) policy for the first time in Project Angel Bidco Ltd (in Administration) v Axis Managing Agency Ltd [2024] EWCA Civ 446. W&I insurance is a popular M&A deal tool designed to transfer the risk and financial consequences of warranties given in the context of corporate transactions from the transaction parties into the insurance market. We have seen a growing body of case law regarding the operation of W&I policies and claims made against such policies (see our articles on previous cases: Finsbury Food v Axis [2023] and Ageas (UK) Ltd v Kwik-Fit [2014]).

In Project Angel Bidco, the dispute concerned a claim for loss in value of the shares in a target company on the basis that certain warranties given by the seller of the shares in the context of the transaction were alleged to be untrue. These warranties were to the effect that the company was not involved in legal proceedings or under investigation and had not committed any breach of contract or acts of bribery or corruption. The key issue before the Court of Appeal was whether liability of the insurers under the policy for breach of those warranties was nevertheless excluded by an exclusion found within the general terms and conditions of the policy. The insured (the buyer) sought to argue that there was an obvious mistake in the drafting of the exclusion as it contradicted another part of the policy. While accepting that there was an obvious contradiction, the court held that the insured’s proposed correction to the exclusion clause should not be permitted. The principal reason for this was that the court found that there was a clear commercial rationale for the broad effect of the exclusion, at least in so far as the insurers were concerned. This decision illustrates the high test for mistake. It also shows the highly nuanced wording of W&I insurance policies, which were acknowledged by the judges to be a specialised form of insurance product with a number of unique features not seen in other types of insurance policies or commercial contracts generally: Warranty and Indemnity insurance: mistake not established again (but only just).