Welcome to HFW’s Insurance Bulletin, which is a summary of the key insurance and reinsurance regulatory announcements, market developments, court cases and legislative developments of the week.
1. Market developments
After its decision two years ago to invite applications for new insurance licences by Myanmar’s regulator, the country’s government has indicated that it will open its doors to foreign direct investment (FDI) in the insurance industry. However, this is likely to be a slow process since no time scale has been offered for doing so.
Foreign insurers have been initially welcomed for the purposes of providing training and research-based activities with the aim of developing the local sector before exposing it to competition. Having issued licences to domestic insurers last year, observers believe foreign insurance companies will be permitted to enter the market via joint ventures, subsidiaries or branch offices.
Although a government representative has called for foreign insurers to be patient and has asked for co-operation between participants in order to develop the local market, he has, however, foreshadowed the issue of licences to domestic and foreign insurers in joint venture partnerships.
We will look out for any future developments in this area. Please contact your usual HFW contact if you would like to discuss this in more detail.
The “Our Body” exhibition, created in 1995, in which real plasticised human corpses were exhibited, and which had toured the world for several years, was to come to France in 2009. Shortly before the scheduled opening date, the exhibition was declared illegal in France, and the opening in Paris had to be cancelled at the very last minute.
The organisers of the exhibition had taken out an insurance policy covering the risk of cancellation; they therefore notified a loss to their insurers. The insurers denied cover, arguing that the policy was null and void since its purpose was to cover an event that was itself illegal.
On 29 October 2014, the French Supreme Court confirmed that the risk covered by the policy was contrary to the public policy principle according to which the human body must be respected (as the subject matter of the policy was the cancellation of an exhibition, in which human bodies and organs were used for a commercial purpose). The Court therefore confirmed that the policy was null and void.
However, the French Supreme Court also held that the insurers had failed properly to warn the insured, prior to the inception of the policy, of the risk that the exhibition might be cancelled on the grounds of it being illegal, and that the policy might thus not be valid. The Court found in this respect that the insurers had breached their obligation properly to advise the insured. The Supreme Court’s decision differed on that point from that of the Court of Appeal, which had considered that the insured was perfectly aware of the risks associated with the exhibition and ought to have anticipated that the insurance policy itself might be annulled.
Compliance with claims cooperation condition entitles insurers to decline claim
In Ted Baker Plc (T) v Axa Insurance UK Plc (A)  EWHC 3548 (Comm) the Court dismissed a claim brought by T for business interruption (BI) losses arising from employee theft between 2003 and 2008. In an earlier hearing on preliminary issues, the Court had held that the BI policies covered employee theft, however, the claim was dismissed for T’s breach of special claims conditions in the policy which were a conditionprecedent to recovery. The case demonstrates that a clause which specifies a time within which a claim is to be presented and which is expressed to be a condition precedent to the insurer’s liability, will be complied with strictly.
This appellate judgment of the Full Federal Court of Australia confirms that a credit rating agency could owe a duty of care and be liable to investors where the agency had no reasonable grounds for the opinion expressed in its rating.
At first instance, Standard & Poor’s (S&P) was found liable to investor local councils for their losses in complex financial products called “Rembrandt Notes” rated AAA by S&P. On appeal, S&P did not contest that their credit rating was unreasonable, but disputed that it owed a duty of care to investors with whom it had no contractual relationship.
In confirming S&P’s tortious duty of care, the Full Court held:
It was not necessary that S&P have any contractual relationship with the investors, or even know the identity of the investors. It was sufficient that S&P knew the class to whom the duty was owed (potential investors). Crucially, the specific characteristics of the Rembrandt Notes ensured that this class was finite and identifiable.
The nature of the loss was reasonably foreseeable. S&P knew if their rating was careless, it could result in loss for investors. It was unnecessary to foresee the amounts lost with any precision.
The investors were wholly reliant on S&P’s rating and were vulnerable as a result of the rating. S&P’s function was specialised and could not be “second guessed” by investors to protect themselves from losses.
The decision is a sober warning for participants in Australian financial services who provide information on which investors rely. Will other common law jurisdictions follow Australia’s lead?
3. HFW publications and events
HFW hosts seminar on preparing for the Insurance Bill
On Tuesday 4 November, HFW hosted a seminar which analysed the reforms that the Insurance Bill proposes to make to English marine and non-marine insurance law. The seminar was hosted by HFW Partner Richard Spiller, who was joined by HFW Consultant Peter Schwartz and David Hertzell, the Law Commissioner who led the process resulting in the Bill.
The speakers expressed their views on many of the new provisions contained in the Bill and on the practical impact that the Bill may have on the placing of insurance and reinsurance business and the conduct of disputes:
In the context of the duty of fair presentation, it was expected that policyholders will need to put in place systems to ensure that material information held by the policyholder and its broker is disclosed to the insurer.
As an insurer will be deemed to know information which is “readily available” to it, the speakers considered that insurers will need to improve their IT systems to ensure, for example, that information held by the Claims department is made available to the relevant underwriters. It was also suggested that it will be increasingly difficult for an insurer to argue successfully that poor IT systems are a valid reason for relevant information not being made available across its business.
The speakers believed that the introduction of proportionate remedies for a breach of the duty of fair presentation may require insurers to retain more detailed records, or potentially even disclose their pricing models, to enable them to demonstrate that the receipt of additional information at the placement stage would have caused an increase in the premium or a change to the terms on which the risk was accepted.
The seminar was very well-attended and clients commented that they found the presentation both useful and informative.
HFW have also published a briefing on the Bill which explains some of the Insurance Bill’s proposals in more detail. The Briefing can be found here. In view of the significant changes that the Insurance Bill will bring in, HFW will be running a regular series of briefings on how these issues are dealt with in other jurisdictions around the world and the operating and evidential issues that arise.
Whilst every care has been taken to ensure the accuracy of this information at the time of publication, the information is intended as guidance only. It should not be considered as legal advice.
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