UK Supreme Court confirms bank named as loss payee under assignment of insurance policy not bound by exclusive English jurisdiction clause under the Brussels Regulation Recast 1215/2012

Aspen Underwriting Ltd & Ors v Credit Europe Bank NV [2020] UKSC 11

In Aspen Underwriting Ltd & Ors v Credit Europe Bank NV (full judgment available here), the Supreme Court recently held that the High Court of England and Wales did not have jurisdiction to hear claims of fraudulent misrepresentation and/or restitution made by Insurers against Credit Europe NV (the Bank) in respect of sums they allege were wrongfully paid to the Bank as the assigned loss payee of an insurance policy following the loss of an insured vessel. Continue reading


Endurance Corporate Capital Limited v Sartex Quilts & Textiles Limited [2020] EWCA Civ 308

The Court of Appeal recently dismissed the insurer’s appeal in Endurance Corporate Capital Ltd v Sartex Quilts and Textiles Ltd (click here for the full judgment). Upholding the first instance decision of David Railton QC sitting as a deputy High Court judge in the Commercial Court, the Court of Appeal’s decision confirmed that the reinstatement basis was the appropriate measure of indemnity for property severely damaged by fire which had not been reinstated. The Court of Appeal held that it was not necessary for an insured to show that it had a genuine, fixed and settled intention to reinstate in order to recover for damaged property on a reinstatement basis of indemnity. The relevant questions were simply what was the insured’s loss and what measure of indemnity fully and fairly indemnifies the insured for that loss?


Sartex Quilts & Textiles Limited (Sartex) occupied premises at Crossfield Works where it had manufactured bed linen and quilts. Sartex subsequently moved production to larger premises at Castle Mill in Rochdale and looked to convert its former premises at Crossfield Works for use as a manufacturing plant for ‘shoddy hard pads’ used in mattresses and insulation. Sartex took out a Property Loss or Damage Policy (the Policy) for the Crossfield Works site which provided cover for the buildings, plant and machinery, as well as business interruption cover. The insurer was Endurance Corporate Capital (Endurance).

On 25 May 2011, a fire at Crossfield Works severely damaged the buildings. The plant and machinery were a total loss. In November 2013 Endurance paid Sartex £2,141,527 based on their assessment of the market value of the buildings, plant and machinery. Following the fire, Sartex considered a number of options for the site and its business including: (i) reinstating the facility at Crossfield Works; (ii) re-siting the facility to Castle Mill; (iii) moving the manufacturing operation to Pakistan; and (iv) re-developing Crossfield Works as a banqueting/wedding venue. At the time of the trial, Sartex’s prevailing intention was to reinstate the facility for manufacturing shoddy hard pads and it had taken steps to secure planning permission and listed building consent to do so.

The Policy

The terms of the Policy were in a standard form used by the underwriting agent and divided into sections. Section A covered material damage to property with the Insuring Clause providing:

Subject to the general conditions and exclusions of this Policy, and the conditions and exclusions contained in this Section, we, the Underwriters, agree to the extent and in the manner provided herein to indemnify the Insured against loss or destruction of or damage to Property caused by or arising from the Perils shown as operative in the Schedule, occurring during the period of this Policy.” (emphasis added)

Condition 7 of Section A, headed ‘Reinstatement Basis’, provided:

In the event of loss or damage to or destruction of Buildings, Machinery and Plant or All Other Contents, the basis upon which the amount payable hereunder is to be calculated will be the Reinstatement of the Property lost, destroyed or damaged.

Special Conditions

  1. Underwriters’ liability for the repair or restoration of property damaged in part only, will not exceed the amount which would have been payable had such property been wholly destroyed.
  2. No payment beyond the amount which would have been payable in the absence of this condition will be made:
      1. unless Reinstatement commences and proceeds without unreasonable delay;
      2. until the cost of Reinstatement has actually been incurred;
      3. if the Property at the time of its loss, destruction or damage is insured by any other insurance effected by the Insured, or on its behalf, which is not upon the same basis of Reinstatement.”

As Sartex had not incurred reinstatement costs, it was common ground that Special Condition 2(b) was not satisfied and Condition 7 of Section A of the Policy did not apply. The amount payable was therefore as provided for under the Insuring Clause on an indemnity basis.

The issue in dispute was whether Sartex was in fact entitled to be indemnified on a reinstatement basis. The Judge at first instance found in favour of Sartex and awarded damages based on the cost of reinstating the buildings and to replace the plant and machinery that was destroyed. He considered that the relevant question of law was “what had the insured lost as a result of the insured peril?” In making this determination, he saw the primary focus as being on Sartex’s intentions in relation to the property immediately before and at the time of the fire but he also thought it relevant to consider subsequent events, including the intentions of Sartex after the loss, in order to decide what measure of indemnity would fairly and fully compensate Sartex for its loss (see our article on the first instance decision here).

Endurance appealed on the basis that the sum awarded should have been limited to the (much lower) market value of the buildings, plant and machinery. Endurance argued that the Judge was wrong in law to assess the indemnity payable under the Policy as the cost of reinstatement where the insured did not have a genuine, fixed and settled intention to reinstate the property.


The questions raised on appeal concerned the correct legal test for assessing the sum payable under a property damage policy when the policy does not contain a term which fixes the measure of loss. The main issue was whether, in order to recover the cost of reinstating damaged property under such a policy when this cost has not actually been incurred, the insured needs to show a genuine, fixed and settled intention to reinstate the property

Leggatt LJ gave the leading judgment with which McCombe and Dingemans LLJ concurred.

The Court of Appeal considered that, as a matter of general principle, where an insurer has agreed to indemnify the insured against loss or damage caused by an insured peril, the nature of the insurer’s promise is that the insured will not suffer the loss or damage. The general object of an award of damages is to put the claimant in the same position (so far as money can do) as if the breach had not occurred. There are two distinct ways to give effect to this principle: one is to award the cost of replacing or repairing the property; the other is to award the market value of the property in its condition immediately before the damage occurred (less any residual value). What measure is appropriate in the circumstances depends on the use to which the claimant was intending to put the property. Where the property is a building insured against damage or destruction which the owner was intending to use, or continue to use, as premises in which to live or from which to carry on business, the appropriate measure of damages will generally be the cost of repair, if the building is damaged, or the cost of reinstatement, if the building is destroyed. On the other hand, if at the time when the damage occurred the insured was intending to sell the building (and land on which it was built), the measure of loss is the amount by which the market value of the property has been reduced as a result of the damage.

In the present case, it was not in dispute that before the fire Sartex intended to use the buildings (and the plant and equipment) at the Crossfield Works site as a facility for manufacturing shoddy hard pads. Prima facie, therefore, the appropriate measure of the insured’s loss was the cost of repairing the buildings and buying replacement plant and machinery.

Endurance argued, however, that in circumstances where the insured had not at the time of trial actually incurred the cost of reinstating the property at the Crossfield Works site and had not, in the period following the fire, demonstrated a genuine, fixed and settled intention to do so, this was not the appropriate measure of loss. Endurance relied on the Court of Appeal judgment in Great Lakes Reinsurance (UK) SE v Western Trading Ltd in which Christopher Clarke LJ said (at para 72) that:

“I doubt whether a claimant who has no intention of using the insurance money to reinstate, and whose property has increased in value on account of the fire, is entitled to claim the cost of reinstatement as the measure of indemnity unless the policy so provides. The true measure of indemnity is ‘a matter of fact and degree to be decided on the circumstances of each case’ per Forbes J in Reynolds v Phoenix; and is materially affected by the insured’s intentions in relation to the property.”

Leggatt LJ reasoned that the statement of Christopher Clarke relied upon by Endurance in the Great Lakes case was expressly limited to instances where the property damage had in fact increased the property value. Moreover, he considered that Christopher Clarke LJ’s observations were in any case made obiter dicta as the insured’s intention to reinstate was not an issue in dispute or on which the Court heard argument in the Great Lakes case.

In the absence of binding authority, therefore, it was necessary to consider the position in principle. The Court of Appeal considered that the relevance of intention only arises where, at the time when damages are assessed, the claimant has not taken any action to remedy or mitigate the effect of the defendant’s breach of contract. In the present case, it was found as a fact that the insured was intending to use the Crossfield Works site as a facility for manufacturing shoddy hard pads. Thus to put Sartex in a position materially equivalent to the position it would have been in had the fire not occurred, it was necessary to award the cost of re-establishing such a facility. It was not suggested by Endurance that any of the other options considered by Sartex after the fire (such as re-siting the plant at Castle Mill or moving production to Pakistan) were options which Sartex ought reasonably to have adopted instead to mitigate its loss. As such, the question of whether Sartex actually intended to reinstate the buildings was of no relevance to the measure of indemnity.

Leggatt LJ also noted that in circumstances where Sartex was not intending to sell the property (and had no right to do so as it was only a licensee) the reduction in market value of the property could not be the proper basis of assessment.


Endurance had an alternative ground of appeal, namely that the Judge was wrong to decline to make a deduction from the cost of reinstatement for betterment.

At first instance the Judge saw considerable force in the insured’s argument that, where an insured is claiming the cost of the most reasonable and least expensive option, any benefit derived from getting something new for old is an unavoidable consequence of the loss and so to make a deduction for betterment is to deprive the insured of part of the indemnity to which he is entitled. However, he did not consider that it was open to him to depart from the well-established principle of betterment in the law of insurance. That said, he did not consider that he had a sufficient evidential basis to make a deduction for betterment.

Endurance submitted on appeal that the Judge was wrong to regard the evidence as insufficient to make a deduction from the cost of reinstatement to allow for betterment and that he should have made an assessment taking a broad brush approach by reference to the material available to him.

On the relevant principles in considering whether a deduction should be made for ‘betterment’, the Court of Appeal rejected the insurer’s submission that a broader approach to betterment was justified in insurance cases than where damages are awarded for breach of contract. In particular, it is no more just where the defendant is an insurer than it is in any other breach of contract case to force the claimant to pay for a benefit which it did not choose to receive (as an incidental consequence of adopting a reasonable reinstatement scheme) and which does not save the claimant any money.

Moreover, in the present case, the insurer who had the burden of proving that damages should be reduced on the basis that the insured will save money as a result of reinstatement, had made no attempt to quantify the items of betterment for which an allowance should properly be made. In these circumstances, the Court of Appeal held that the Judge was justified in declining to make any deduction for betterment.

Accordingly, Endurance’s appeal failed on both counts.


This is the latest decision in a line of cases in which the English courts have grappled with the measure of indemnity in property damage cases where there is no term in the policy which fixes the measure of loss and no reinstatement has been carried out at the time when damages are assessed and thus no reinstatement costs incurred.

The Court of Appeal judgment which is based on general principles brings welcome clarification of the position confirming that an award based on the cost of replacing or repairing the damaged property can still be made even where reinstatement works have not been carried out. The relevant questions are simply what is the insured’s loss and what measure of indemnity fully and fairly indemnifies the insured for that loss? Both the reinstatement basis of indemnity and the reduction in market value of the property may fairly compensate the insured depending on the insured’s intention with regard to the property. However, where the property is a building which the insured was intending to use, or continue to use, as premises in which to live or from which to carry on business, the intention of the insured is only relevant where there is dispute about what action it would be reasonable for the insured to take to remedy or mitigate its loss. How the insured subsequently chooses to spend the damages and whether it actually attempts to reinstate the damaged property is irrelevant to the measure of indemnity.

Additional References

Sartex Quilts & Textiles Ltd v Endurance Corporate Capital Ltd [2019] EWHC 1103 (Comm)

Great Lakes Reinsurance (UK) SE v Western Trading Ltd [2016] EWCA Civ 1003

Castellain v Preston (1883) 11 QBD 380

Reynolds v Phoenix Assurance Co Ltd [1978] 2 Lloyd’s Rep 440

Anthony Dempster
Anthony Dempster
Partner, London
+44 20 7466 2340
Alison Morris
Alison Morris
Associate, London
+44 20 7466 2336

W&I Policy claims – shining a light on the Australian case of UDP Holdings v Ironshore

Now that W&I has been so widely used for a number of years, a body of notifications and claims is building. Most insurers and brokers prepare claims activity reports, with convergence of experience suggesting that there are notifications to around 20% of policies. Given that alternative dispute resolution or arbitration may be deployed there is still little by way of public information on specific claims, however.

UDP gives us some helpful insights because it was taken through to final trial in the Supreme Court of Victoria.

Our Australian colleagues have prepared a briefing on the case, which you can find on page 13 of our Policyholder Insurance Highlights 2019 here.


UDP, the Insured, purchased the issued shares in 5 Star Foods from the Sellers and obtained a W&I policy from Ironshore. In a broadly familiar way the Sellers were released from liability for breach of the warranties save for fraud, but the Buyer was able to recover under the W&I Policy up to $25m, the policy limit.

The SPA provided for arbitration and the Policy for court resolution.

Claim by the Sellers

UDP only had to pay to the Sellers a portion of the price on completion. The balance was to be paid over the following year. The Sellers claimed in arbitration for the balance of the price. UDP and its guarantor defended the claim and claimed damages on the basis that the Seller should have informed UDP of the pre-completion breach as required under the SPA, and if it had done so UDP would not have proceeded with the purchase at all.


The facts surrounding the breach were as follows. The Group supplied milk and other dairy products on a cost plus margin basis to its most important customer (Lion). The prices depended on the purchase price from farmers. Lion said they had been overcharged, initially stating by around $3m annually. This meant that the financial position was worse than that shown in the accounts and UDP’s position is that it would not have proceeded with the sale if it had known about this. 5 Star Foods was ultimately sold at a significant loss.

Start of parallel proceedings

While the arbitration process was underway UDP made a claim for breach of warranty to W&I Insurers. Proceedings were started and Insurers successfully sought to stay the claim against them pending the Insured’s arbitration with the Sellers given the overlap in issues.

Resolution of the Sellers’ claim

The arbitration claim was resolved with the Sellers having to pay the Buyers damages of over $50m, none of which had (as yet) been recovered. The award was on the basis that UDP suffered a loss of opportunity to avoid the transaction.

Resumption of insurance claim

The stay against Insurers was lifted and the Buyer sought to argue that the Insurers were bound by the findings as to breach of warranty and damages. UDP sought a full policy limit payment. Insurers denied they were bound by the findings notwithstanding they had sought the stay and disputed the quantification of the claim.

Insurers not bound by findings legally – but practically persuasive

The Court determined that the Insurers could not be bound by the findings by the arbitrator because the issues in the two sets of proceedings were not identical and the amount of loss awarded by the arbitrator did not instantly translate to loss for breach of warranty. Further, the underwriters were not part of the arbitration or bound by it, and they had not become bound by it by referring to in their pleadings. The most interesting of the arguments was that as the Insurers sought the stay to allow the arbitration to be the lead matter, it was an abuse of process to then contest the matters decided, but this also failed.

However, as a matter of practicality, the Court held that the extensive evidence in the arbitration could be used to significantly reduce the areas of dispute and short circuit the issues of quantum.

Equally, under English law, you would not generally expect an entity that was not a party to an arbitration to be legally bound by the findings in it, but you would also expect that the second tribunal would (as here) show some pragmatism in avoiding unnecessary duplication.

That this issue was contentious, however, provides food for thought at the transaction stage in relation to the potential for multiple claims and how separate dispute resolution processes can be avoided or managed. The multiplicity of claims arose on unusual facts here but it is not unusual to have complex recourse structures whereby sellers and W&I insurers could both face claims for potentially similar issues.


The warranties in issue were those you would expect, including that the accounts presented an accurate view and were prepared according to relevant accounting standards, there has been no material adverse change since the accounts date, and that the records did not contain material inaccuracies. The Court had no difficulty finding breach based on the evidence in the Court book and expert evidence.

Various methodologies were considered (and rejected) when it came to quantum. The first of these was the methodology adopted by the Buyers in calculating the purchase price. In calculating the price, UDP had multiplied an adjusted EBITDA by an earnings multiple of 4. UDP did not assert this methodology should be used for calculating loss, the experts did not support it and it was rejected. The second was a methodology based on the assertion UDP would not have made the acquisition at all if it had known the true position (i.e. “no transaction” damages to English lawyers). This was the basis of loss assessed by the arbitrator, but for breach of a different term which expressly permitted the Buyer to terminate, and was not appropriate for assessing damages for breach of warranty.

The approach applied by the Court was the difference between the price actually paid and the real or fair value. This was approached on the basis of capitalisation of future maintainable earnings because (a) there were no comparable transactions for a market based approach; and (b) cost of asset based approach was not appropriate for a going concern.

Much of the judgment is concerned with explaining the competing approaches on the facts to quantification, emphasising the complexity inherent in these claims.  In particular, whilst the experts agreed on a multiple of 11 as the starting point, the Court ruled on the competing views as to what discounts should be made to that figure for particular factors. Of most interest, the Court accepted the higher discount attributable to the loss of integrity and reputation resulting from the overcharging, noting (amongst other points) that any intending purchaser would regard deliberate and repeated overcharging as a very serious issue that could impact upon many aspects of the business.

Two points that regularly arise are worth noting in this context under English law. The first is that, while the starting point for “warranty true” value will be what the buyer paid, this is not determinative if the “warranty true” value is considered different, as discussed here. On the facts here using this alternative value this would have made no difference, as the Court acknowledged. The second is that the valuation methodology adopted by the purchaser is likely in the normal course to be highly probative to the approach a reasonable buyer would have taken.

Policy was first response

The final issue is perhaps the most interesting. The Policy provided that the Loss as defined was what would have been recovered from the Sellers absent the liability limitation and that there was no requirement to seek recovery from the Sellers before a claim could be made under the Policy against Insurers, but that the Insured must give credit for Recovered amounts. All of this would be entirely as expected and would expressly support the position that the Policy was first response.

Insurers argued, however, that there was no loss, or it could not be ascertained, while recovery against the Seller remained open. These arguments were based on the asserted duty to mitigate, the argument that there were no Recovered amounts because the necessary steps had not been taken, the assertion that the loss owed could not be calculated without knowing the Recovered amounts and the fact that Insurers could not sue the Seller themselves.

The Insurers’ argument got very short shrift from the Court: “[t]he conditions of the policy are clear and unambiguous and do not support the underwriters’ submissions”. It was stated that it was “plain” that the loss is recoverable even though not all potentially recoverable amounts have been collected and arguments to the contrary would create an “uncertain, uncommercial and unworkable situation”. The full policy limit was recoverable.  If the Insured subsequently recovered from the Seller more than its uninsured loss above the policy limit, it would account to the Insurers.


This case provides some insight into the issues that may arise if there are multiple resolution processes, the extent of points which may be taken by Insurers and how a court may approach them. It also supports the concept of the policies as first response, provides a useful reminder of some of the conceptual issues which can arise and confirms the complexity that can arise on quantification – the judgment here ran to over 150 pages. Insureds would be well advised to make sure that they are fully prepared for the legal and accountancy arguments if they want to achieve the correct return on their premium.


Sarah McNally
Sarah McNally
Partner, London
+44 20 7466 2872
Gary Milner-Moore
Gary Milner-Moore
Partner, London
+44 20 7466 2454
Joanna Giza
Joanna Giza
Associate, London
+44 20 7466 2668

Another recycling plant fire, another non-disclosure case


In Niramax Group Ltd v Zurich Insurance Plc [2020] EWHC 535 (Comm) the High Court held it was material to the assessment of a risk under an all risks contactors’ mobile plant policy (the “Policy”) that the insured had failed to disclose the fact that risk requirements concerning a separate buildings policy remained outstanding and that special terms had been imposed.

But for the non-disclosure, the risk would have been referred to a more senior underwriter who would have demanded a higher premium on renewal of the Policy and would have refused an extension which had been granted for additional plant. Mrs Justice Cockerill held that the insurer was entitled to avoid the extension of the Policy in relation to the additional plant.

This is a decision under the “old law”, prior to the Insurance Act 2015 coming into force, but the Court’s careful scrutiny of materiality and inducement are instructive for any analysis of an alleged breach of the duty of fair presentation under a post-2015 Act policy. Further, difficulties faced by insureds in complying with policy terms or insurers’ risk requirements under the current COVID-19 restrictions may themselves be material circumstances for disclosure under the duty of fair presentation.


Niramax, a recycling company, purchased from Zurich, in December 2014, a suite of policies for the 2014/15 policy period designed to cover its mobile plant and machinery, which included the Policy.

Niramax separately purchased buildings insurance with Millennium Insurance for the 2014/15 policy period. Millenium’s buildings insurance quote was subject to a survey, following which a report was prepared in February 2014. The report highlighted a number of risk requirements Niramax had to comply with, which Millenium stated were condition precedents to their liability, including the fitting of a fire suppression system at one of Niramax’s sites by March 2014. This requirement was imprecise and although Niramax made some attempts to fit one, it failed to move it forward. As Millenium did not receive confirmation that the risk requirements had been complied with, in October 2014 it imposed special terms on the buildings insurance policy increasing the deductible per claim and requiring Niramax to self-insure for 35% of the balance of any loss.

In mid-2015, Niramax purchased a multi-million pound machine (the “Eggersman plant”). Zurich declined to extend the Policy to the Eggersman plant because the type of machinery was not suitable for insurance under the Policy which was designed for contractors’ mobile plants.  Rather, Zurich said the Eggersman plant was a large fixed machine and instead suited to being insured under Niramax’s property policy. Eventually, despite agreeing the risk was not appropriate, Zurich agreed to extend the Policy to insure the Eggersman plant at least until expiry of the Policy, as a gesture of goodwill towards Niramax as a longstanding insured client.

In December 2015 a fire started and spread which caused damage to the Eggersman plant and other plant items to a value of over £4.5 million.

Zurich initially declined cover based on a series of alleged non-disclosures some which ultimately formed part of the defence at trial. The alleged non-disclosure which appears to have carried significant weight until shortly before trial, but which was ultimately not pursued, concerned the alleged failure to disclose a conviction for a serious offence of a shadow director, which was perceived as representing a serious moral hazard.

On being sued by Niramax, Zurich avoided the Policy. The key arguments maintained at trial by Zurich included that Niramax failed to disclose: (a) its own failure to comply with the Millennium risk requirements imposed in February 2014; and (b) the Millennium special terms imposed in October 2014 on the buildings policy. The non-disclosures were alleged both in respect of the Policy renewal in December 2014 and in mid-2015 on the addition of the Eggersman plant. Zurich argued that had it been aware of these facts it would have referred the matter to a more senior underwriter, who would have declined cover or charged a much higher premium.


In a long and detailed judgment on the facts, the judge summarised the law briefly which “barely requires to be stated” given its familiarity. By section 18 of the Marine Insurance Act 1906 an assured must:

“disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured, and the assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known to him.”

A fact is material if it “would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk”, which rests on the Court’s own appraisal. An insurer can only avoid the contract if (s)he was actually induced by the misrepresentation or non-disclosure to write the precise contract which was written. The burden of proof was on Zurich to make out the avoidance.

Cockerill J held that despite the lack of clarity around Millenium’s requirements for the fire suppression system on the buildings insurance, Niramax had demonstrated a lackadaisical approach and did not comply with a number of other requirements that were clear. The lack of active engagement with Millenium’s requirements was a material circumstance because it manifested a poor attitude to compliance with risk management imposed by insurers.

The Court then considered whether the non-disclosures induced Zurich to enter into the Policy and grant the extension, which but for the non-disclosures Zurich would not have done. The Court highlighted that it is important to keep in mind that an individual underwriter’s evidence as to what he or she would have done had the material circumstance been disclosed is necessarily hypothetical. For that reason such evidence needs to be tested vigorously, especially where the relationship with the insured is long-standing (such that the underwriter might be reluctant to refuse cover to an established insured client).

In this case the Court scrutinised the underwriting process carefully and broke the question down to: (a) whether the risk would have been referred by a more junior underwriter to a more senior underwriter; and (b) whether that senior underwriter would have declined the risk in light of the information that should have been disclosed. In answering these questions, the Court considered in detail the character and experience of the underwriter witnesses, the processes they adopted as well as the nature of the non-disclosures. This was a searching exercise, particularly where the senior underwriter’s evidence acknowledged the effect on his views of the moral hazard argument which was not ultimately pursued at trial.

Weighing up all these factors, on the first question, the Court held that the risk would have been referred to a more senior underwriter both at renewal stage and on addition of the Eggersman plant. On the second question, it held that on the balance of probabilities the more senior underwriter would have offered renewal terms in December 2014 but would have refused the extension to cover the Eggersman plant in mid-2015 on the basis that the plant was higher risk and inconsistent with underwriting policies established by that individual. The Court also held that the premium imposed would have been higher.

Niramax’s claim succeeded in part in relation to the non-Eggersmann plant equipment but Zurich avoided the extension to the Policy validly such that the extra premium charged by the insurer for the extension to that plant was to be repaid. As a result the insured failed to recover for the majority of its loss.


This decision emphasises the need for full disclosure of all material circumstances surrounding a risk upon placement and highlights the perils for insureds who fail to comply with insurer requirements relative to one policy which shortcomings may need to be disclosed to insurers on other policies. Although the Policy was written under the law prior to the Insurance Act 2015, the Court’s approach to scrutinising the conduct and decision-making of individual underwriters is instructive in terms of the analysis likely to apply where an insurer seeks to avoid a policy or rely on proportionate remedies under the Insurance Act 2015.

One of the key points for policyholders to take away during the current period of disruption due to COVID-19 is that it may be difficult to comply with some policy terms or requirements on existing coverages. Where this occurs it will be necessary to consider whether such difficulties, or other changes to their businesses, are themselves material circumstances to be disclosed at renewals or mid-term alterations and adjustments as part of discharging their duty of fair presentation.


Alexander Oddy
Alexander Oddy
Partner, London
+44 20 7466 2407
Nikita Davé
Nikita Davé
Associate, London
+44 20 7466 2766

COVID-19: Governance: PRA and FCA confirm expectations for regulated firms under SMCR (UK)

The PRA and FCA have set out their expectations for UK-regulated firms under the Senior Managers and Certification Regime (“SMCR“) in the light of the COVID-19 outbreak.

A joint statement from the PRA and FCA applies to dual-regulated firms (the “Joint Statement“), while the FCA has published a separate statement for solo-regulated firms (the “FCA Statement“).

Some differences in expectations as between solo and dual-regulated firms are highlighted below.

Next steps

Firms should:

  • Ensure responsibility for the response to COVID-19 disruption is clearly allocated to one or more appropriate Senior Managers.
  • Document internally all decisions relating to the interim re-allocation of Senior Management Functions (“SMFs“) and Prescribed Responsibilities (“PRs“) as a result of temporary absences during this period. Firms should be prepared to share these internal documents with the regulators on request.
  • Communicate material temporary changes to the appropriate regulator promptly (this may not need to be by way of usual SMCR notification forms).
  • Keep contingency plans under review to ensure they remain up-to-date.
  • Take reasonable steps to complete any annual certifications that are due to expire while restrictions are in place.

Key expectations

Allocating responsibility for COVID-19 response

  • Firms are not required to allocate responsibility for their response to the disruption caused by COVID-19 to a single Senior Manager. No “one size fits all” approach is being mandated (with the exception of requiring the responsibility of identifying key workers to be allocated to SMF1 (Chief Executive Officer) – see the FCA and PRA statements for more information).
  • In the Joint Statement, the PRA also recommends that dual-regulated firms consider how they respond to unexpected changes to contingency plans, given the possibility of Senior Managers becoming temporarily absent. Solo-regulated firms should consider doing the same.

Temporary arrangements for SMFs and PRs


  • Where a Senior Manager is unexpectedly absent due to illness (or other COVID-19 related circumstances), firms may choose to allocate SMFs to existing Senior Managers. In addition, under the existing ‘12-week rule’, firms may permit an unapproved individual to perform an SMF role where such arrangements are temporary.
  • For solo regulated firms, the FCA intends to issue a Modification by Consent to the 12-week rule to support firms using temporary arrangements for up to 36 weeks. This extended period is not currently available for dual-regulated firms (although this position remains under review).


  • The FCA and PRA expect PRs (for both solo and dual-regulated firms) to be allocated to existing approved Senior Managers wherever possible. Where this is not possible (for example due to other Senior Manager absences), the PR can be allocated to an unapproved individual performing an SMF’s role on an interim basis.
  • All temporary changes to SMFs or PRs throughout this period should be clearly documented on internal records, including in Statements of Responsibilities (SoRs) and Responsibilities Maps (where appropriate). These records will need to be available to the FCA and/or PRA on request.

Furloughing staff

  • Both statements confirm that furloughed Senior Managers will retain their approved status during their temporary absence and will not need to seek re-approval.
  • Certain ‘required’ functions (such as Compliance Oversight and MLRO) and/or ‘mandatory’ functions (such as the CEO, CFO and Chair of the Governing Body for Solvency II insurers) should only be furloughed “as a last resort”. Firms must arrange cover for those SMFs during the individual’s absence.
  • Firms have greater flexibility in furloughing Senior Managers whose functions are not mandatory. However, in the Joint Statement, dual regulated firms are cautioned to think carefully about the implications of furloughing non-mandatory SMFs (such as SMFs responsible for business continuity). Solo-regulated firms should also consider the implications of furloughing key senior staff.

Notification requirements during this period

All firms

All firms should update the FCA (and, where relevant, the PRA) by email or by telephone where:

  • unapproved individuals are acting as SMFs under the ‘12-week rule’; and/or
  • Senior Managers have been furloughed.

Firms are not required to submit Forms C, D or J in connection with these temporary absences.

Solo-regulated firms

  • Solo-regulated firms will not be required to submit an updated SoR for approved Senior Managers if a temporary change is made to their responsibilities. However, solo-regulated firms will still need to notify the FCA of the detail of any changes (by email or by telephone) that would normally be included in updated SoRs.

Dual-regulated firms

  • Dual-regulated firms are still required to update and submit SoRs if there are significant changes “as soon as reasonably practical”. It is acknowledged that this may take longer than usual due to current operational challenges.

No change to the obligation to certify staff as fit and proper

  • Dual-regulated firms should take reasonable steps to complete annual certifications due to expire during this period. What might constitute reasonable steps may be altered given the current situation, and certification policies and procedures may need to be adapted.
  • While not specifically addressed in the FCA Statement, in the absence of any new regulatory guidance, the FCA’s expectation appears to be that solo-regulated firms should also take reasonable steps to continue with annual certifications during this period.

Our blog post on the PRA and FCA’s guidance on key workers in financial services is available here, and our general briefing on COVID-19 – Key Issues for Employers is available here.


Clive Cunningham
Clive Cunningham
Partner, London
+44 20 7466 2278
Alison Matthews
Alison Matthews
Consultant, London
+44 20 7466 2765
Mark Staley
Mark Staley
Senior Associate, London
+44 20 7466 7621
Emma Reid
Emma Reid
Associate, London
+44 20 7466 2633

COVID-19: Webinar series: Legal perspectives for business

We are pleased to invite you to our weekly webinar series discussing the business challenges presented by the COVID-19 outbreak.

The third webinar, entitled, ‘People: the challenges being faced’, will be broadcast on 7 April 2020 and will focus on a number of the key issues currently being faced by UK employers, as well as the government support that may be available. The webinar will be chaired by James Palmer, Chair and Senior Partner of Herbert Smith Freehills, who will be joined by expert colleagues who will share their experience and views on these issues.

To register for upcoming webinars and to access earlier webinars in this series, please click here.

If you are unable to attend, once registered you will automatically be sent a link to the recording of the webinar as soon as it is ready.

COVID-19 Governance: Regulatory impact for insurers

The COVID-19 pandemic is creating significant health, social and economic challenges world-wide, forcing governments and businesses to assess the impact on their people, operations and governance.

Our latest “at a glance guide” considers some of the announcements made to date by EIOPA, the PRA and the FCA.  These cover a range of issues including actions that insurers should be taking to protect customers and employees, encouragement to firms to preserve capital and the extension of reporting deadlines.

Our COVID-19 crisis hub aims to help our clients navigate their way through the many legal and regulatory issues that COVID-19 creates for their businesses.

For regular insurance sector updates, please also subscribe to HSF Insurance Notes.

If you would like to discuss arrangements for support on any of the issues raised by COVID-19, please ask your regular Herbert Smith Freehills relationship contacts, or one of the following members of our insurance team.

Geoffrey Maddock
Geoffrey Maddock
Partner, London
+44 20 7466 2607
Barnaby Hinnigan
Barnaby Hinnigan
Partner, London
+44 20 7466 2816
Alison Matthews
Alison Matthews
Consultant, London
+44 20 7466 2765
Grant Murtagh
Grant Murtagh
Of Counsel, London
+44 20 7466 2158

COVID 19 – PRA and FCA guidance on key workers in financial services

The UK Government has published guidance requesting that schools and other educational institutions provide limited care for children whose parents have roles that are critical to the COVID-19 response. This includes parents working in certain financial services roles, including in the insurance sector, that are essential to the functioning of the economy (referred to as “key financial workers” or “KFWs“).

The PRA and FCA have now published their own guidance, setting out the steps that firms should take.

Identifying KFWs

  • A KFW is any individual who fulfils a role which is necessary for the firm to continue to provide (i) essential daily financial services to consumers, or (ii) ensure the continued functioning of markets.  The guidance provides a list of example KFWs (PRA) (FCA).
  • KFWs could work for any categorisation of financial institution, including insurance companies and intermediaries
  • Firms are best placed to identify their KFWs; they should start by identifying the firm’s activities, services or operations which are essential to services in the real economy or financial stability and then identify the individuals essential to support those functions.
  • In the insurance sector, KFWs are likely to include individuals essential to the processing of claims and renewal of insurance policies.

Outsourced functions

  • When considering KFWs, firms should also identify any critical outsource partners that are essential to the continued provision of services, even if these are not financial services firms.


  • The PRA/FCA recommend that the individual designated as Chief Executive Officer under the Senior Managers and Certification Regime (SMF1) (or, if not applicable, an equivalent senior member of the management team) should be accountable for ensuring an adequate process so that only roles meeting the KFW definition are designated.
  • Firms should consider issuing letters to all individuals identified as KFWs as evidence of their status.

Our general briefing on COVID-19 – Key Issues for Employers is available here.


Clive Cunningham
Clive Cunningham
Partner, London
+44 20 7466 2278
Alison Matthews
Alison Matthews
Consultant, London
+44 20 7466 2765
Mark Staley
Mark Staley
Senior Associate, London
+44 20 7466 7621

Sporting Event Cancellation Insurance: Will it play ball or be kicked into touch?


This article was first published by 4 New Square here.

Many events, including music, theatre, conferences and exhibitions have been cancelled or postponed in the wake of COVID-19 and more will follow.

Sporting events at grassroots and professional level have also been hit hard.  The most recent casualty are the Tokyo 2020 Olympic and Paralympic Games, which have been postponed until 2021, and is an event which has reportedly already cost the Japanese government at least £10 billion[1].  The IOC’s decision to postpone followed hot on the heels of Japan’s Prime Minister’s (Shinzo Abe) proposal to postpone for one year and Australia and Canada having confirmed that they would not be competing in Japan (with the chairman of the British Olympic Association saying that Great Britain was likely to follow suit).  Torsten Jeworrek of the German insurer Munich Re told Reuters in February that his firm had provided event cancellation insurance for the Tokyo games “in the hundreds of millions of euros”[2]. Swiss Re has recently said it has 15% global market share of event cancellation cover and would face a $250 million loss if the Olympics are cancelled[3].

Other high-profile events have also suffered: for example, the Grand National has been called off; the World Snooker Championship at the Crucible has just been postponed; Six Nations’ games have been postponed; many Grand Prix have been cancelled, including the Australian Grand Prix; UEFA Euro 2020 is postponed until 2021; and all football in England is currently suspended.  Although it is hoped that many events can be rescheduled and competitions (such as the Premier League) completed before the next season is due to begin, there must be a real risk that this will not be possible.

The cancellation or postponement of events will have an obvious and material economic impact, particularly for those businesses whose principal source of income derives from the successful running of these events.

The question is whether insurance will come to the rescue?  The answer is that it depends on the nature of any insurance cover obtained and on the applicable policy wordings.  For those businesses that hold event cancellation insurance, now is the time to consider with your brokers and/or legal team precisely what cover has been obtained, whether it could have a role to play and what steps need to be taken to improve the chances of the insurer confirming cover.  For insurers, careful consideration will of course need to be given to the policy wording and any extensions of cover and whether (for example) the notification conditions under the policy have been met.

In this short article, Sarah McNally[4] (a partner in Herbert Smith Freehills) and Richard Liddell QC[5] (a barrister at 4 New Square) address some of the issues that policyholders/insureds who took out sporting event cancellation insurance and insurers are likely to be grappling with and which may well end up being played out in the courts or in arbitration.  Although the focus in this article is on sporting events, the same or similar principles are likely to apply across the board for any cancelled or postponed event.

Event Cancellation Insurance

Event cancellation insurance differs from many other forms of insurance in that it is not a pre-requisite for cover that the business losses are consequent on some form of physical damage.  There have been many articles on the scope of business interruption cover in the context of COVID-19, but less has been said about event cancellation insurance.

However, given that last week an article estimated that the market could be exposed to around $8 billion of losses in relation to event cancellation alone, this form of insurance is likely to move towards centre stage.

Broadly speaking, and subject to various exclusions and limitations, an event cancellation policy is designed to cover the cancellation, postponement or curtailment of the event because of circumstances that are unavoidable and due to reasons beyond the insured’s control.

Where cover does apply there may be cover (up to the sum insured and subject to any deductibles) for irrecoverable costs and expenses and loss of net profit and/or additional expenses.  All of this will, in turn, give rise to complex issues of quantification not least given the likely web of contracts with suppliers and customers affected.  Early consideration of these issues is critical not least because the insured will almost inevitably be required to prove to the insurer’s satisfaction that the losses were suffered, including that the net profit would have been earned had the event taken place.

Policy Wording – overview

Event cancellation insurance is generally bespoke and each policyholder will need to examine the contents of their policy schedule and the particular policy wording to see what is covered and what is not, albeit we have seen a degree of commonality in various policies when it comes to conditions and exclusions.

For example:

  • it will likely be a pre-requisite to cover that the cancellation or postponement of the event was due to reasons “beyond the insured’s control” (or similar wording); and
  • many policies will expressly exclude any losses arising out of or resulting from certain communicable diseases such as swine flu or avian flu[6]. However, some policyholders may have write back cover for losses arising out of the cancellation or postponement of events resulting from communicable diseases (perhaps all, or perhaps only some, categories of communicable diseases)[7].   Whether and when it became a pandemic may also be relevant.

Certainly there is the potential for recovery – Chubb’s “Event Cancellation” factsheet sets out some “case studies”, one of which is that “a conference due to be held in Hong Kong had to be cancelled due to an outbreak of a communicable disease” – and Chubb “paid the irrecoverable costs and expenses incurred in rescheduling the event for another time”[8].  So it is all about the specific facts and policy wording negotiated.

We also note in passing that in the USA it is reported that event cancellation coverage may not exclude communicable disease in a standard event cancellation policy form[9].

Policy Wording – “beyond the insured’s control”

The timing and cause of the event’s cancellation or postponement are bound to feature prominently in analysing whether the insurance policy is likely to bite.

As noted above, event cancellation policies will likely require the event to have been unavoidably cancelled, abandoned or postponed. The wording may refer to the cancellation etc. being as “as a sole and direct result” of a cause “entirely beyond your [the policyholder’s] control”.

If the relevant government has prohibited such events or gatherings (and such prohibitions are increasing almost daily) then there should be no room for debate. If, however, a policyholder cancels or postpones a tournament or competition without being specifically required to do so by the relevant government because (for example) there were health and safety or liability concerns and/or players were signalling that they would not be participating, the insurer may argue that the cancellation or postponement was not unavoidable or beyond the insured’s control.  However, whether they would succeed in such an argument is certainly not clear cut in light of these extraordinary circumstances – by way of example only, without paramedic staff available it is hard to see how such events could practically and legally be run; further is a policyholder “able” to run an event if by doing so it is opened up to potential legal liability? The comments by the Chancellor in the Budget Select Committee last week indicated some acceptance that requiring people to stay at home is comparable to requiring premises to close  could be relevant here[10].

In the circumstances, policyholders and insurers will need carefully to consider the:

  • timing of the cancellation or postponement relative to dates when, for example, COVID-19 became notifiable and/or the UK government’s announcement on 16 March 2020 that everyone should avoid gatherings and crowded places.[11]
  • the cause of the cancellation or postponement (e.g. was it unavoidable because of the restrictive measures, guidance or governmental orders in place or because it could not be legally and safely continued).

It will be interesting in due course to see how insurers respond to claims under event cancellation insurance policies and how (if litigation ensues) the Court or Arbitrator will apply the words “beyond the Insured’s control” in practice.  Policyholders may be seeking some degree of commercial pragmatism and purposive construction given the purpose for which such polices are taken out. The UK’s government’s major shift in strategy in the last weeks and the escalation of restrictions imposed may support this approach.  Indeed, in light of recent emergency legislation giving the government wide-ranging powers to close premises and ban gatherings, many event organisers will now feel constrained to cancel or postpone a sporting event (on the basis it would be banned in any event if they tried to hold the event) and will say that this is unavoidable and beyond their control.

Anecdotally, in the context of a wedding cancellation policies, the Guardian has reported that claims made under these policies are being refused despite customers having paid for policies stating that cover will be provided if “the booked venue for the wedding or wedding reception being unable to hold your wedding due to an outbreak of infectious or contagious disease”[12].  One provider is reported in the press to have said that it would only consider a wedding venue “unable” to hold a wedding due to the virus if the company closes its doors, either through self-closure or due to government legal measures. This may signpost that for the period until the government required wedding venues to shut or made mass gatherings illegal, at least some insurers are likely to seek to decline cover for decisions made by couples to cancel their wedding events in light of COVID-19. Whether they will succeed remains to be seen. Even on this analysis, however, those arguments may have been overtaken by very recent events, including the UK government ordering a lockdown and cancellation of all weddings.

Insurers may well seek to deploy similar arguments when faced with a claim by a policyholder for losses arising from or resulting from a cancelled or postponed sporting event, although each claim will turn on its own facts and the scope of insurance cover.  Moreover, a policyholder is likely to hope that it will in any event have the sympathetic ear of the Court or Arbitration.  But watch this space.

Policy Wording – exclusions and write back

In addition to satisfying the insurer that the cancellation or postponement was unavoidable and beyond the policyholder’s control, the policyholder will need to consider whether it has to navigate through one or more exclusions and whether it has qualifying write back cover.

Like most event cancellation policies, sporting event cancellation policies will generally contain exclusions relating to communicable diseases, subject to write back cover.

For example, some wordings we have reviewed provide that the cancellation and abandonment insurance does not cover “losses arising out of, contributed to by, or resulting from “any communicable disease” which leads to, among other things, “any travel advisory or warning being issued by a national or international body or agency” and “any fear or thereat thereof (whether actual or perceived).”

In the absence of any write back extending cover to losses resulting from or relating to a communicable/notifiable disease, any claim made by a policyholder under the terms of this wide exclusion clause for losses caused by the cancellation or postponement of an event as a result of COVID-19 looks difficult, albeit the exclusion is not for any communicable disease but only for those where the criteria are met, so the criteria would need to be carefully reviewed.

Critically, there may well be write back cover, either generally or for specific communicable diseases, which would prevail over any general exclusion for communicable diseases and allow the policyholder to recover. From what we have seen so far, this is the heart of the cover which is likely to assist policyholders with claims relating to COVID-19.

Either way, some wordings refer more specifically to communicable diseases and a virus or other which is “related to” diseases such as avian flu or swine flu or similar. Whether or not COVID-19 is genetically related to any of those diseases will be a matter of expert evidence.  According to some online reports, COVID-19 is genetically related to the coronavirus responsible for the SARS outbreak in 2003 (albeit the viruses differ in various respects); and on 11 February 2020 the WHO announced “COVID-19” as the name of the disease caused by the virus SARS-CoV-2.

However, even if COVID-19 is genetically related to any of the named diseases, what any such term means as used in the policy may be a different question. Insurance policies are not scientific documents and, as a matter of English law, the objective intention of the parties, as reflected by the actual words used, will be what is critical. It may be argued, for example, that the policy, properly construed, was intended to exclude only known viruses related to bird flu or swine flu but not an unknown virus like COVID-19. The courts have confirmed recently that any construction of a policy which means that the policy has little practical application is unlikely to be one that a court will find persuasive, so that concept may also feature in any reasoning. [13] Whatever the rights or wrongs of these arguments, such concepts may be ripe for debates and disputes between the policyholder and insurer.

Other policy wordings that we have seen seek to exclude “[c]ircumstances arising through, or because of restrictions imposed by the local authorities, or regulatory bodies”.  This may well be invoked by insurers, but also batted back by policyholders as being inapplicable depending upon the reason for cancellation or postponement of the event.

It goes without saying that the policy schedule and policy wording will repay careful reading as the risk appetite of one insurer might well be very different to another insurer.

Going forward, it is extremely unlikely that a business will be able to buy specific cover (at least not at this stage) to protect against cancellations or postponements resulting from COVID-19.

Policy Wordings – notification conditions

While it is of course important to consider the nature of the cover, any write back (add-ons) and whether the policy schedule and applicable policy wording mean that cover will or will not be provided, it is vital not to overlook the conditions of the policy applicable to the claims process itself.

It will almost certainly be a condition of the policy and any liability provided by the insurers that they are immediately notified by the policyholder of any incident which could or is likely to result in a claim under the policy (the precise wording will differ depending upon the particular policy) and that notification of any claim be given within a usually short time-scale.

Careful consideration will need to be given, therefore, by policyholders and insurers alike that those conditions have been met.


The prime concern of policyholders holding event cancellation insurance will of course be the health of their employees, family and friends and the general sporting community. However, the financial health of the business will remain a significant concern.  Accordingly, the role that insurance has to play cannot be overlooked if the right return for premium paid is to be obtained.

Business with sporting event cancellation insurance will need to navigate a number of requirements to recover their losses arising from the cancellation or postponement of events.  However, given the scale of some of the losses that are likely to result from the cancellation or postponement of events, it is vital not to delay in considering the nature and extent of any insurance cover.  It is likely that such consideration will require the input from insurance brokers and/or your lawyers.

Insurers that have provided event cancellation insurance will doubtless be reviewing the terms of their policyholders’ policies to work out their potential exposures.

It would appear from press reports that the general view of the insurance industry (at least a few weeks ago) is that the COVID-19 virus was unlikely to result in a multitude of expensive pay-outs.  However, event cancellation insurance contracts are generally bespoke and some policyholders might well find that their event cancellation insurance policy is very much in play.

With so many major sporting events having already been cancelled or postponed and with more inevitably to follow, insurers are likely to be faced with substantial claims under event cancellation policies.  The scale of losses means that many policyholders are very unlikely to take no for an answer from insurers unless the position is absolutely clear; and insurers are unlikely to be swayed by arguments from policyholders that their refusal to provide cover is “just not cricket”.

We wish all the best to our readers.  Keep safe and well.

This article is for reference purposes only.  It does not constitute legal advice and should not be relied upon as such.  No warranty, express or implied, is given as to its accuracy and we do not accept any liability for error or omission. Specific legal advice about your specific circumstances should always be sought separately before taking any action.

© Herbert Smith Freehills 2020 and Richard Liddell QC




[4] Sarah is a partner who advises clients on contentious and non-contentious insurance matters:

[5] Richard is a barrister who frequently advises on policy interpretation and coverage issues.  He is also recommended as a leading practitioner in the legal Directories for Sports law:

[6] A communicable disease, like COVID-19, is an illness caused by viruses or bacteria that are spread from one person to another through contact with contaminated surfaces, bodily fluids, blood products, insect bites or through the air.

[7] Some policies may include an option where the insurer will “write-back” (i.e. add-back in) some cover for liability which would otherwise be excluded under the standard form of the insurance contract.




[11] In Scotland, the First Minister announced on 12 March 2020 that, from 16 March, mass events should not take place and advised that organisers should cancel or postpone all mass events of 500 people or more (indoors or outdoors).  Restrictive measures have of course moved on since then.

[12]   (21 March 2020).

[13] Zurich v Manchikalapati [2019] EWCA Civ 2163 (

FCA review of outsourcing by life insurers

This post was first published on our Digital TMT and Sourcing Notes blog.

On 4 March 2020, the FCA published a short set of findings from its review of outsourcing in the UK life insurance sector. Despite the review’s narrow scope, the FCA’s findings are readily applicable to other outsourcing contexts, so regulated firms outside the life insurance sector should be aware of these. The FCA has tied in this review with its current focus on the operational resilience of regulated firms and the customer impacts caused by disruptions. Continue reading