Supreme Court considers the costs to be taken into account in assessing whether a vessel is a CTL

In Sveriges Angfartygs Assurans Forening (The Swedish Club) and Ors v Connect Shipping Inc and Anor [2019] WLUK 126, the Supreme Court considered what expenditure should be taken into account when determining whether a ship is a constructive total loss (CTL) under the Marine Insurance Act 1906.  The Court upheld the decisions of the lower courts in part, confirming that expenditure incurred prior to service of the notice of abandonment was to be taken into account. However, overturning the decision of the courts below, the Supreme Court held that the CTL calculation should not include sums payable to salvors for measures taken while performing the salvage services to prevent or minimise damage to the environment.


The M V Renos (the Vessel) sustained serious damage during an engine room fire on 23 August 2012 while off the coast of the Red Sea. The ship’s owners, Connect Shipping, appointed salvors on the same day under the Lloyd’s Open Form, a standard form salvage agreement which incorporated a Special Compensation, Protection and Indemnity Clause (SCOPIC). The Vessel was towed by the salvors to Adabiya, where her cargo was discharged, and then to Suez for either scrapping or repair.

Connect Supping had insured the Vessel for $12 million under a hull and machinery policy with The Swedish Club, amongst others. The policy incorporated the Institute Time Clauses (Hull) 1/10/83 (ITC). ITC Clause 19.2 provided that “no claim for constructive total loss based upon the cost of recovery and/or repair of [the Vessel] shall be recoverable hereunder unless such cost would exceed the insured value…”. In addition, The Swedish Club on its own issued further insurance covering the same risks under an increased value policy, up to a maximum of $3 million.

Both parties engaged surveyors to provide estimates as to the scope of the damage and cost of repair, in order to determine whether the Vessel was a CTL. The owners also designed a repair specification and obtained quotations from shipyards for carrying out these hypothetical repairs. Connect Shipping concluded that the cost of repairing the damage exceeded the insured value of the vessel and that it was therefore a CTL.  On 1 February 2013 Connect Shipping gave a Notice of Abandonment (NOA) of the Vessel to insurers and claimed limits under the policies.

The Swedish Club contested the claim on a number of grounds.  In particular, it denied that the Vessel was a CTL, and argued the owners were only entitled to be indemnified on a partial loss basis.

The Marine Insurance Act 1906

The rules on assessment of CTLs are set out in Section 60 of the Marine Insurance Act 1906 (the Act).  Section 60(2)(ii) of the Act provides that there will be a CTL “in the case of damage to a ship, where she is so damaged by a peril insured against that the cost of repairing the damage would exceed the value of the ship when repaired“.

Section 60 further provides that “In estimating the cost of repairs, no deduction is to be made in respect of general average contributions to those repairs payable by other interests, but account is to be taken of the expense of future salvage operations and of any future general average contributions to which the ship would be liable if repaired…

Where a vessel is a CTL, the insured party can elect either to treat its loss as a partial loss or to abandon the damaged property to insurers, and treat the loss as an actual loss. An insured can therefore recover for a total loss even if the insured property is not wholly destroyed or lost.

Where the insured elects to abandon the property, section 62(1) of the Act requires a NOA to be served on the insurers, save in certain circumstances.

Decision of the lower courts

The judge at first instance, Mr Justice Knowles, held that the Vessel was a CTL.  The Court of Appeal agreed.

Although a number of issues were dealt with by the lower courts, only two were addressed on appeal to the Supreme Court: namely, in calculating whether a vessel is a CTL, should one take into account:

  • sums already incurred by the insured before the service of the NOA; and
  • remuneration payable to the salvors under the SCOPIC clause for measures taken while performing salvage services in order to prevent or minimise environmental damage?

The Supreme Court Decision

Pre-notice of abandonment costs

Connect Shipping argued that “damage to a ship” under section 60(2)(ii) of the Act referred to all damage resulting from the casualty. The cost of repair and recovery was the entire cost, regardless of when the expenditure was incurred. The Swedish Club, in contrast, submitted that only the costs incurred before service of the NOA were to be included. Whether or not a ship was a CTL had to be assessed at the date of the NOA, on the facts as then existed. Since the parties’ rights regarding the treatment of the ship crystallised when the NOA was served, so too did the costs of repair.

On a linguistic evaluation of section 60 of the Act, Lord Sumption found little to assist in answering this question. Section 60 does not refer to the NOA and the words “would” in section 60 and “future” in subsection (2)(ii) did not suggest a point in time beyond which expenditure should be excluded from consideration.

Lord Sumption helpfully summarised the key principles of CTL as follows:

  • Under a hull and machinery policy, the general rule is that loss occurs at the time of the casualty. However, if the policy expires before the loss has developed this will not affect the insured’s right to recover under the policy in full.
  • CTL is a “legal device” to determine the measure of indemnity payable under such a policy. Where the reasonable cost of repairs exceeds the insured value of the ship, the ship is a financial total loss.
  • The damage referred to in section 60(2)(ii) of the Act is, as the owners submitted, the entire damage arising from the casualty, from the moment it occurs. The measure of that damage is therefore the entire cost of repair and recovery, regardless of when that cost is incurred.

An insured is entitled to be indemnified for its actual loss, albeit the indemnity will be reduced by any events after the damage which reduce the extent of the loss. This could include positive developments (such as the return of a captured vessel) which render the vessel no longer a CTL before the insured sues on the policy. Lord Sumption found that it necessarily follows that an owner’s expenditure on repairs or salvage does not reduce the cost of repair. Instead, that expenditure is part of the measure of loss for which the owner is entitled to be indemnified.

Costs incurred by the owners before the NOA had been served were therefore to be included when calculating the cost of repair under section 60(2)(ii) of the Act.

SCOPIC charges

Contrary to the conclusion reached by the lower courts, Lord Sumption was not prepared to accept that SCOPIC charges were either part of the cost of repair under the Act or the cost of recovery and/or repair under clause 19.2 of ITC.

Although it is well established that the cost of repair includes some costs which are preliminary to repair, these costs are objectively connected to the repair. Salvage charges, temporary repair costs and towage charges often fall into this category: salvage charges because a ship may need to be salvaged before it can be repaired, and temporary repair costs and towage charges because they may be required in order to bring a ship to the point where it is capable of being put right (TheMEDINA PRINCESS” [1965] 1 Lloyd’s Rep 361).

SCOPIC charges are, however, a different sort of cost. They are payable by shipowners to remunerate salvors for their efforts in minimising environmental damage when salvaging the vessel. They are connected with the owners’ potential environmental liabilities, which are insured separately under the shipowner’s protection and indemnity policy.  They are not connected with damage to insured property or its potential reinstatement. Lord Sumption therefore overturned the decision of the courts below on this point, concluding that SCOPIC charges were not part of the cost of repair.


The Supreme Court’s judgment provides a useful summary of the key principles relating to CTLs and the cost of repair under the Marine Insurance Act 1906 and clarity on the types of costs which may be taken into account in calculating a CTL. It is now clear that there is no difference in the application of section 60 of the Act as between costs incurred by shipowners prior to and following the service of a NOA. These costs must, however, have some objective connection to the damage suffered by the ship or to its hypothetical reinstatement if they are to be included in the CTL calculations.

As a consequence of the Supreme Court’s decision, the case was remitted to the trial judge, Knowles J, to determine whether on the facts the Vessel was a CTL.

Alexander Oddy
Alexander Oddy
Partner, London
+44 20 7466 2407
Fiona Treanor
Fiona Treanor
Senior Associate, London
+44 20 7466 2307

Australian decision takes opposite view to the English court on whether depreciation amounts to a saving in Business Interruption calculation

An Australian state Court of Appeal decision has expressly rejected the reasoning of Mr Justice Flaux (as he then was) in the English High Court case of Synergy Health (UK) Ltd v CGU Insurance Plc [2010] EWHC 2583 (Comm), finding that depreciation is not to be deducted as a “saving” when quantifying loss of Gross Profit under a business interruption policy.


A warehouse owned by the policyholder (Mobis Australia) collapsed during a severe storm, causing damage to plant and equipment. The policyholder claimed indemnity for losses arising from the collapse under its property damage and business interruption insurance policy: Mobis Parts Australia Pty Ltd v XL Insurance Company SE [2018] NSWCA 342.

Under the policy, the policyholder was covered for loss of “Gross Profit” as a result of business interruption consequential upon loss of or damage to insured property. The policy provided for the assessment of loss of Gross Profit on the following basis:

“The insurance under this chapter is limited to loss of Gross Profit due to (a) Reduction in Turnover and (b) Increase in Costs of Working, and the amount payable as indemnity under this Policy shall be:

(a)   in respect of the reduction in Turnover: the sum produced by applying the Rate of Gross Profit to the amount by which the Turnover during the Indemnity Period shall in consequence of the Damage fall short of the Standard Turnover

less any sum saved during the Indemnity Period in consequence of the Damage in respect of such of the charges and expenses of the Business payable out of Gross Profit“.

(emphasis added)

The parties agreed that, in the 12 month period after the damage to the warehouse had occurred, the policyholder would have, but did not, make provisions totalling $1,449,509 for depreciation of plant and equipment destroyed in the collapse.


One of the issues in the case was whether a reduction on non-cash costs such as depreciation following insured damage amounts to a “saving” to the policyholder which is to be deducted from insured Gross Profit when calculating business interruption losses.

At first instance, the trial judge followed the decision of Flaux J in Synergy Health in the English High Court (in relation to a policy which had terms indistinguishable from those under consideration in this case), finding that the depreciation expense which was no longer recorded in the policyholder’s financial records because the assets in question were destroyed was an “expense…payable out of Gross Profit” which had been “saved” for the purpose of quantifying the indemnity under the policy. This meant that the depreciation expense was to be offset against any indemnity.

The NSW Court of Appeal unanimously reversed the trial judge’s decision and expressly rejected the reasoning of Flaux J in Synergy Health. The NSW Court of Appeal defined depreciation as:

“the systematic allocation of a tangible asset’s cost (less its anticipated scrap value) as a series of expenses over its expected useful life…Each depreciation expense appears in the income statement as an expense deducted from gross profit for the purpose of calculating net profit…but the process of depreciation has no direct impact on cash flows”.

The NSW Court of Appeal concluded that the use of the word “payable” in the phrase “payable out of Gross Profit” as opposed to the word “deducted” suggested the exclusion of charges and expenses that are not liable to be paid away, such as depreciation.

The different conclusions reached by the English High Court in Synergy Health (as followed by the trial judge) and the NSW Court of Appeal largely turned on a difference of opinion as to the weight to be placed on the indemnity principle of insurance in the face of the language of the policy contract.

Flaux J in Synergy Health found that the policyholder would “recover an indemnity for more than its actual loss in respect of business interruption” if depreciation was not deducted from Gross Profit and concluded that such an outcome should not be reached “unless no other conclusion is possible”. The result, as he has admitted, somewhat stretched the language in the policy. In effect, the English High Court determined that the indemnity principle coloured the meaning of the language of the provisions for the assessment of loss.

In contrast, the NSW Court of Appeal placed greater weight on the importance of upholding the bargain that was struck between the contracting parties, as expressed by the words of the insurance contract. It concluded that the formula for the assessment of insured loss of Gross Profit qualified the application of the indemnity principle insofar as it might be said to depart from perfect indemnification. The NSW Court of Appeal favourably cited Greer J in Henry Booth & Sons v The Commercial Union Assurance Co Ltd (1923) 14 Lloyds LR 114, stating:

“It is common practice in policies of this sort, in order to prevent lengthy disputes, that there should be an agreed method of ascertaining the loss. Sometimes the assessment of the loss is in favour of the assurance company and sometimes the assured…”

The NSW Court of Appeal also hinted at the fallacy of the assumption that, if depreciation was deducted as a saving, perfect indemnification would necessarily be achieved. For example, it noted that depreciation charges are often overstated in the early years of an asset’s life, meaning that if the equipment is destroyed during this period the “saving” on depreciation that is charged in the accounts of the business may not reflect the actual cost of depreciation. Similarly, although the policyholder may in one sense be over-indemnified if replacement property is in better condition than the destroyed property at the time of damage, this benefit may be offset by adjusted depreciation costs into the future.

As the NSW Court of Appeal highlighted, inquiries as to whether a policyholder has been over or under indemnified (which could easily manifest in a dispute), are intended to be prevented by the application of a formula for the assessment of the loss.


The decision of the NSW Court of Appeal which appears based on sound reasoning may well open up the debate again about the treatment of depreciation charges in business interruption policies and in particular whether “charges and expenses of the Business” that are “payable out of Gross Profit” mean only cash reductions or include all expenses in the accounts deducted from gross profit for the purpose of calculating the net profit of the business.

The Insurance Institue of London in collaboration with the Chartered Institute of Loss Adjusters published a report in October 2012 titled ‘Business Interruption Policy Wordings – Challenges Highlighted by the Claims Experience‘. On the topic of depreciation savings, the report recommended that insurers revised policy wordings to make it clear whether savings were inclusive or exclusive of depreciation. Clarity in the policy wording would enable insurers to charge a premium that properly reflected the risk assumed, while brokers and policyholders would gain clarity on the scope of cover. Despite the report’s recommendation and the publicity this topic has received in recent years, the majority of policies remain silent on the issue. We are only anecdotally aware of a handful of policies that explicitly state that depreciation is not a saving.

Anthony Dempster
Anthony Dempster
Partner, London
+44 20 7466 2340
Leah Munk
Leah Munk
Associate, London
+44 20 7466 2972

High Court awards indemnity on a reinstatement basis for damaged property which had not been reinstated

In Sartex Quilts & Textiles Limited v Endurance Corporate Capital Limited [2019] EWHC 1103 (Comm), David Railton QC sitting as a Deputy High Court Judge in the Commercial Court decided that the reinstatement basis was the appropriate measure of indemnity for a property severely damaged by fire which had not been reinstated. The Judge found that the question of whether an insured was entitled to be indemnified on the reinstatement basis required consideration of all the circumstances, including the position before the loss and up to and including trial; and that the insured’s intentions regarding reinstatement were relevant on a continuing basis.


Sartex Quilts & Textiles Limited (Sartex) occupied premises at Crossfield Works and manufactured home textiles, bed linen and quilts. In 1995, Sartex signed an agreement allowing it to use Crossfield Works rent-free, as long as it insured the buildings and contents and ensured that the premises were kept in a good state of repair (the 1995 Agreement). By 1999, the business was so profitable that Sartex moved its production line to larger premises at Castle Mill in Rochdale, and Crossfield Works were used to store and re-pack imported linens.

By late-2010, Sartex was converting Crossfield Works for use as a manufacturing plant for ‘shoddy hard pads’, used in mattresses and insulation. At this point, Sartex took out a Property Loss or Damage Policy (the Policy), which provided cover for the buildings, plant and machinery, as well as business interruption. The buildings were insured for £2,020,000 and the plant and machinery for £2,500,000. The insurer, Endurance Corporate Capital (Endurance), was the sole member of the Lloyd’s syndicate with which the insurance was placed. The Policy incepted on 11 November 2010.

On 25 May 2011, a serious fire at Crossfield Works severely damaged the buildings. The plant and machinery were a total loss. Sartex and Endurance settled the business interruption claim in May 2013, and in November 2013 Endurance paid Sartex £2,141,527 based on their assessment of the market value of the buildings, plant and machinery. Endurance refused to indemnify Sartex on the reinstatement basis.

This case followed the recent decision of the Court of Appeal in Great Lakes Reinsurance (UK) SE v Western Trading Limited [2016] EWCA Civ 1003 in which a property severely damaged by fire increased in value, as it was de-listed and became suitable for development. The property had not been reinstated. The Court of Appeal held that it had been open to the judge at first instance to award a declaration that, if Western Trading reinstated the property, it was entitled to be indemnified by the insurer on the reinstatement basis. In obiter comments, Christopher Clarke LJ said that it seemed to him that the insured’s intention needed to be “not only genuine, but fixed and settled,” and there had to be at least a reasonable prospect of the insured bringing about what he intended. Where there was a real risk that reinstatement would not take place, it was open to the Court to decline a monetary award and to give declaratory relief.

The Policy

The Policy in the present case was preceded by an insurance proposal sent to Sartex in October 2010. This proposal expressly noted that the basis of cover for the buildings, plant and machinery was ‘reinstatement’ and that the proposal was to be the basis of the Policy and incorporated into it.

The Insuring Clause provided:

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.

Underwriters shall not be liable for more than the Sum Insured stated in the Schedule or in the Policy in respect of each loss or series of losses arising out of one event at each location as stated in the Schedule.”

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:

a) unless Reinstatement commences and proceeds without unreasonable delay;

b) until the cost of Reinstatement has actually been incurred;

c) 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 Reinsurance.

The basis of the assessment of the indemnity

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: insurers agreed to indemnify Sartex “against loss or destruction of or damage to Property caused by or arising from” the fire. Both parties accepted that this provision permitted an indemnity on either the market value basis or the reinstatement basis. The parties disagreed on the applicable basis and on the criteria for determining the basis.


Sartex’s primary position was that it was entitled to be indemnified on the reinstatement basis. This reflected the value of the buildings, plant and machinery to it at the time of the loss and reflected the terms of the 1995 Agreement.

Sartex accepted that the intentions of an insured at the time of the loss were relevant in determining the correct measure of indemnity but only in so far as these revealed what the insured intended to do with the property, assuming the loss had never happened. The insured’s intentions after the loss were only relevant in exceptional cases, which this was not.

The manufacture of the shoddy hard pads was a “valuable opportunity, which [Sartex] was about to exploit.” The loss, Sartex submitted, was the sum that enabled it to reinstate the buildings, plant and machinery at the date of the fire, although it was not bound to use the proceeds for reinstatement. Sartex submitted it was entitled to use the proceeds as it chose, provided any material changes or improvements made to Crossfield Works did not increase Endurance’s liability.

In the alternative, if events after the fire were relevant to determining the measure of indemnity (which Sartex denied) and if there were doubts as to Sartex’s intention to reinstate the buildings, plant and machinery, Sartex submitted that the correct course would be a declaration from the court that if it carried out the reinstatement, it was entitled to be paid the reinstatement costs.


Endurance’s position was that it was necessary to look at all the circumstances to determine the insured’s actual loss and the reinstatement basis only applied if Sartex intended to reinstate at Crossfield Works. Sartex had to show a genuine, fixed and settled intention to reinstate.

It was submitted that Sartex’s intentions regarding reinstatement at the time of the fire were relevant, and so were its intentions on a continuing basis. Endurance pointed to several factors to show that there was certainly no fixed or settled intention to reinstate:

  • no reinstatement works had taken place in the 8 years since the fire;
  • Sartex had explored plans to buy other premises, to buy a fibre processing business in Pakistan, and to use Crossfield Works for other purposes, including a function venue or supermarket;
  • Sartex had approached Rochdale Council with a redevelopment plan but failed to follow up with the additional procedural steps and documents required for the planning application, showing there was no genuine intention to reinstate; and
  • the costs of reinstatement were likely to exceed the final value of the property, such that from a commercial standpoint, “no-one in their right mind would reinstate.”


The Judge concluded that Sartex was entitled to indemnification on the reinstatement basis.

He began by reviewing the authorities on the relevant criteria in assessing the basis of indemnity in the context of property damage. The underlying principle that an insured is entitled to recover his actual loss but no more, as outlined in Castellain v Preston (1883) 11 QBD 380, required an examination of what the insured had lost and the value of the property to the insured. Events before and after the loss could be relevant in establishing the proper measure of indemnity but this was a “matter of fact and degree to be decided on the circumstances of each case,” as stated by Forbes J in Reynolds v Phoenix Assurance Co Ltd [1978] 2 LLR 440.

He did not read Christopher Clarke LJ’s comments in Great Lakes as suggesting there could be no indemnity on the reinstatement basis if remedial works were not carried out. Instead, Great Lakes was authority for the proposition that all circumstances had to be considered when determining the measure of indemnity, which could include the position up to the date of trial.

Sartex’s intentions regarding Crossfield Works, both immediately before, at the time of the fire and afterwards, were therefore relevant. The Judge accordingly rejected Sartex’s submission that an insured’s intentions after and as a result of the loss were only relevant in exceptional cases (including the case in Great Lakes where the property had increased in value as a result of the fire). The Judge also rejected Endurance’s submission that Sartex was required to demonstrate a genuine, fixed and settled intention to reinstate, although he found that Sartex had at all times since the fire genuinely intended to reinstate the plant and machinery at an appropriate site. Indemnification on the reinstatement basis would therefore most fully indemnify Sartex for its loss:

  • the terms of the 1995 Agreement required Sartex to keep Crossfield Works in a state of good repair;
  • immediately before the fire, Sartex had clearly intended to use Crossfield Works to manufacture shoddy hard pads and so the value of the buildings, plant and machinery was that they provided the location and means of carrying out this profitable new venture;
  • although Sartex had looked elsewhere for premises and seriously considered reinstating in Pakistan, going as far as to sign an agreement to purchase a fibre manufacturing business there, by 2017 it was considering its options with Crossfield Works. These included rebuilding it as a manufacturing site and Sartex had employed surveyors to make the necessary planning application; and
  • Sartex’s key director submitted that his intention at all times since the fire had been to reinstate the destroyed plant and machinery at an appropriate site.
  • If, as Endurance submitted, Sartex was required to demonstrate a genuine, fixed and settled intention to reinstate, the Judge was prepared to find that it had done so. Sartex’s argument in the alternative, that it was entitled to a declaration if not to indemnification, was irrelevant given the Judge’s findings, but he held that if he were wrong as to the indemnity, he would have awarded a declaration akin to Great Lakes, given the risk that reinstatement would not happen.


There was a subsidiary argument on betterment if the reinstatement basis applied under the Insuring Clause (cf. the specific reinstatement provisions in Condition 7 of Section A of the Policy which addressed betterment by providing for Reinstatement on a “new for old basis”).

Endurance argued that there should be a deduction from the agreed reinstatement costs on account of betterment, to which Sartex objected on a number of grounds. The Judge did not consider that it was open to him to depart from the well-established principles of betterment which apply in this area of insurance law. In particular, he did not accept that betterment should be approached in the same way as it is in the assessment of damages in other areas of the law.

However, he did not consider that he had a sufficient evidential basis on which to make any reduction for betterment in this case. Accordingly, he did not consider the notional reduction proposed by Endurance of a third or a quarter was appropriate or warranted.


This is the latest in a line of cases in which the English Courts have had to consider the basis of assessment of the indemnity under a property damage insurance policy in circumstances in which no reinstatement had actually begun and no costs of reinstatement had been incurred.

The judgment provides further guidance on the relevant criteria following the recent decision of the Court of Appeal in Great Lakes. An indemnity on the reinstatement basis can still be given even if the reinstatement works have not been carried out. The relevant question is what has the insured lost as a result of the insured peril. This requires consideration of the value of the property to the insured at the date of the damage. The insured’s intentions in relation to the property immediately before and at the time of the loss are important factors in determining the value to the insured at that date but the insured’s intentions after the loss, and as a result of it, may also be relevant.

Anthony Dempster
Anthony Dempster
Partner, London
+44 20 7466 2340
Fiona Treanor
Fiona Treanor
Senior Associate, London
+44 20 7466 2307

Coverage for ‘Doomsday or Armageddon’ data breach class actions: insurance implications of the Court of Appeal’s decision to confirm Morrisons’ vicarious liability for employee’s deliberate actions

In the recent judgment in Wm Morrisons Supermarkets Plc v Various Claimants [2018] EWCA Civ 233 the Court of Appeal has dismissed an appeal against the High Court’s decision that Morrisons was vicariously liable for its employee’s misuse of data, despite: (i) Morrisons having done as much as it reasonably could to prevent the misuse; and (ii) the employee’s intention being to cause reputational or financial damage to Morrisons itself. It is understood that Morrisons intends to appeal to the Supreme Court. Our full analysis of the Court of Appeal’s decision can be found here.

Companies now find themselves exposed to potential UK data breach class action claims, including for distress-based damages, based on vicarious liability, even if they have appropriate safeguards in place and even if they are the intended victim of the breach. Day by day businesses find themselves responsible for higher volumes of personal data; and the risk of data breach claims is exacerbated by the legislative changes made by the GDPR, increasing public awareness of data protection issues and the publicity that this case has attracted. In addition, the facts of Morrisons were such that the company had been found not to be in breach of data protection laws. Future class action claims may be even easier to launch in circumstances where a company has been found to breach the GDPR, for example, by not having appropriate security measures in place. It is understood that Morrisons intends to appeal to the Supreme Court.

Continue reading

Brexit Continuity Clauses: what policyholders need to know

We have assisted Airmic to produce a guide for policyholders on Continuity Clauses, which some in the insurance market are using to prepare for the impact of Brexit.

The clauses aim to provide a level of contract continuity in the event that the UK leaves the EU without suitable transitional arrangements being put in place or without an agreement allowing UK insurers to perform cross-border business into the EEA.

The guide explains those Brexit issues of particular relevance to policyholders and explains what Continuity Clauses aim to do. Policyholders are encouraged to discuss the implications of Brexit for their insurance programme with their broker and this guide should assist policyholders in those discussions. Click here to access the guide.

Herbert Smith Freehills is Airmic’s Preferred Service Provider on insurance law issues and has assisted Airmic in producing a number of its technical guides over the past few years.

Paul Lewis
Paul Lewis
Partner, London
+44 20 7466 2138
Geoffrey Maddock
Geoffrey Maddock
Partner, London
+44 20 7466 2067
Sarah Irons
Sarah Irons
Professional Support Lawyer, London
+44 20 7466 2060
Alison Matthews
Alison Matthews
Consultant, London
+44 20 7466 2765


In Allianz Insurance and Sirius International Insurance Corporation v Tonicstar Limited [2018] EWCA Civ 434, the Court of Appeal has reversed the decision of the High Court on whether a party-appointed arbitrator met the contractual requirements as to requisite experience. The dispute arose under a reinsurance contract that incorporated the “Excess Loss Clauses” of the Joint Excess Loss Committee. The arbitration clause required the arbitrators to have “experience of insurance and reinsurance”. The Court of Appeal held that that an English QC with experience of insurance and reinsurance law was sufficient to comply with this requirement.

This decision is of particular interest as such challenges to arbitrators rarely come before the courts. It highlights the importance of drafting arbitration clauses clearly, particularly where parties require their arbitrators to possess certain qualifications or experience. If insurance parties want a tribunal convened of one or more market practitioners, as opposed to lawyers with sector experience, this should be clearly expressed.

For more on this decision, see our arbitration team’s blog post here.


In Crowden and Crowden v QBE Insurance (Europe) Ltd [2017] EWHC 2597 (Comm) the Commercial Court found in favour of the Defendant insurer on the disputed construction of an “insolvency” exclusion in a professional indemnity insurance policy.  The case is a useful reminder of the approach which the English Courts take to the construction of exclusions in insurance contracts. Continue reading

Non-disclosure clauses: when is a non-disclosure “deliberate or fraudulent”?

In Mutual Energy Ltd v Starr Underwriting Agents Ltd [2016] EWHC 590 (TCC), Mr Justice Coulson considered the proper construction of a clause which prevented insurers from avoiding the policy for non-disclosure unless that non-disclosure was "deliberate or fraudulent".  The Judge held that a non-disclosure would only be "deliberate or fraudulent" if the insured deliberately withheld information knowing that it was required to be disclosed.  Insurers were not entitled to avoid the policy where the insured withheld information in the honest but mistaken belief that the information did not need to be disclosed.

Continue reading

High Court construes “in any way involving” in liability policy

The High Court has held that the words "in any way involving any act, error or omission" before a certain date in an exclusion clause in a professional indemnity policy meant "indirectly caused by".  The act, error or omission must be part of the chain of causation leading to the insured's liability for the underlying claim, not merely part of the historical context or background, for the exclusion to bite.  The policy in question also included (a) a notification clause providing that notification as soon as practicable was a condition precedent to recovery; and (b) a continuity of cover clause.  On the facts the insured had given notice under the 2013/2014 policy in accordance with the notification clause.  The Court stated, obiter dicta, that even if the insured should have notified the claim under the 2012/2013 policy, it would have been entitled to cover under the 2013/2014 policy by virtue of the continuity of cover clause.

Continue reading