Statutory Regime: An Overview

In England and Wales, insurance contracts are regarded as private contracts. Insurance disputes are accordingly subject to the general rules on contract law. These rules are derived from a mixture of common law and statute. There is also sector-specific legislation that applies to insurance contracts, with different legislative regimes for consumer and business contracts.

Statutory Regime: Consumer Contracts

The statutory framework governing consumer insurance contracts is largely set out in the Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA), which came into force on 6 April 2013.

CIDRA defines a consumer as “an individual who enters into a contract of insurance wholly or mainly for purposes unrelated to the individual’s trade, business or profession”. CIDRA contains detailed provisions about the information that consumers must provide to insurers when applying for insurance and insurers’ remedies for pre-contractual misrepresentations as well as contractual breaches. General consumer protection laws, such as the Consumer Protection Act 2015, also apply to consumer contracts.

Statutory Regime: Business Contracts

The regime relating to business insurance contracts (and reinsurance contracts) is contained within the Insurance Act 2015 (IA 2015), which came into force on 12 August 2016. The IA 2015 applies to contracts entered into on or before 12 August 2016, as well as to variations to contracts of insurance agreed after that date. The IA 2015 reformed the law in relation to pre-contractual misrepresentation and non-disclosure in business contracts. It also updated the law in relation to warranties and fraudulent claims in both business and consumer contracts.

Statutory Regime: Sector-Specific Legislation

Other sector-specific legislation includes the Third Parties (Rights against Insurers) Act 2010 (which allows third parties to enforce a term of an insurance contract in the event that it purports to confer a benefit on the third party); the Enterprise Act 2016 (which creates a legal right to enforce prompt payment of insurance claims); and risk-specific legislation, such as the Life Assurance Act 1774 and the Fire Insurance Duty Act 1782.

Procedural Regime

As insurance contracts are private contracts, they may provide specific mechanisms for resolution of disputes. For example, arbitration is particularly prevalent in many business insurance and re-insurance contracts. Where no specific dispute resolution mechanism is included in the contract, insurance disputes are typically heard in the civil courts. However, consumers or small business owners may also make complaints to the Financial Ombudsman Service.

Financial Ombudsman Service

The Financial Ombudsman Service (FOS) may review complaints for consumers or small businesses against insurers in the UK after the internal complaints process within the insurance company has failed to resolve an issue. The FOS is an independent body which seeks to resolve disputes, without involving the courts, based on what is fair and reasonable in all the circumstances (the FOS is not strictly bound to follow legal precedent). If a matter is referred to the FOS, it will first be reviewed by a case handler who will assess the parties’ respective positions before recommending how a dispute should be resolved. If the parties are unsatisfied with the recommendations, the dispute can be referred to an ombudsman. Decisions of the ombudsman are binding on insurers, and can therefore only be challenged by judicial review.

Civil litigation

The Civil Procedural Rules (CPR) make up the procedural code governing litigation and specify the rules to be followed at each stage of court proceedings. Specific guides may also apply in certain courts, such as the Commercial Court.

For low-value personal injury claims in road traffic accidents, or employers’ liability (EL) and public liability (PL) claims, proceedings can be issued through the Electronic Claims Portal. Claims pursued via the Electronic Claims Portal are subject to strict procedural rules and fixed fees to keep costs low and speed up the process to resolve disputes.

Other disputes involving insurance are addressed through the court system. Disputes are allocated to a court based on the value of the claim. For disputes valued at less than GBP100,000, the claim will generally be allocated to the county court, while disputes worth more than GBP100,000 will generally be addressed in the High Court. Particularly complex cases of high value may be heard in the Commercial Court, a subdivision of the High Court. Further details about the court procedure can be found in the sections that follow.

Rules on Limitation

In England and Wales, the limitation period varies depending on the type of claim. Insurance disputes are typically regarded as claims for breach of contract. The Limitation Act 1980 (as amended) provides that an action founded on a simple contract, such as an insurance contract, must be brought within six years of the date on which the cause of action accrues.

For ordinary claims in contract, the cause of action typically accrues six years from the date of the breach of contract. However, the position is more complicated in relation to insurance contracts. For liability policies (ie, policies covering third-party losses), the cause of action normally accrues when the liability of the insured is ascertained. This may be in the form of an agreement, an arbitral award or a judgment. In other forms of insurance (such as marine, property and life insurance), the cause of action will usually be deemed to accrue when the relevant insured event occurs.

The limitation period for other types of claims against insurers will differ. For claims brought by policyholders against insurers for late payment of insurance claims, the limitation period is one year from the date on which the insurer has paid all sums due in respect of the insurance claim. In relation to claims for contribution commenced by one insurer against another, the limitation period is two years from the date on which the right of recovery accrued.

The Litigation Process

Overview

As noted in 1.1 Statutory and Procedural Regime, the procedural rules to be followed at each stage of court proceedings are set out in the CPR.

Typically, insurance contract disputes with a value greater than GBP100,000 will be heard in the High Court, and particularly complex cases will be heard in the Commercial Court, a subdivision of the Business & Property Courts (part of the High Court). Claims of lesser value will usually be heard in the county courts.

The litigation process in England and Wales is adversarial (as opposed to inquisitorial) in nature, with each party trying to prove their case on the “balance of probabilities”. Litigation in England and Wales can be expensive, but the legal system in the jurisdiction is thorough, fair and well regarded internationally.

The English legal system operates on the principle of open justice, which in practice means that, save in exceptional circumstances, the public can access key court documents and attend hearings and trials.

A final overarching point of note is that, in litigation in England and Wales, the presumption is that the losing party will pay the winning party’s costs (subject to the court’s discretion and certain specific costs-protection legislation, such as qualified one-way costs shifting (QOCS) – see 2.3 Unique Features of Litigation Procedure).

Pre-action conduct

There are specific procedural rules relating to pre-action conduct. These rules are contained in the CPR Practice Direction (PD) on Pre-action Conduct and the associated pre-action protocols that apply to particular types of civil claims, such as the Pre-action Protocol for Personal Injury Claims and the Pre-action Protocol for Construction and Engineering Disputes.

The PD and pre-action protocols set out the steps the court expects parties to take prior to commencing proceedings. The purpose of these rules is to encourage parties to exchange sufficient information so as to be able to:

• understand each other’s position;
• make decisions about how to proceed;
• try to settle the issues without proceedings;
• consider a form of alternative dispute resolution (ADR) to assist with settlement; and
• reduce the costs of resolving the dispute.

Parties that have failed to comply with the relevant pre-action provisions may face costs sanctions in any subsequent litigation.

Commencing proceedings

In the event that the parties are unable to resolve a dispute pre-action, a claim may be commenced by a claimant issuing a claim form and serving a copy on the defendant. The claim form may be accompanied by particulars of the claim, setting out the case and the facts relied on, or these may be served on the defendant up to 14 days after service of the claim form.

Following service of the particulars of the claim, the defendant should file an acknowledgement of service confirming whether or not the matter is disputed. If the claim is disputed, the defendant has the opportunity to file and serve a defence, setting out its position.

Subsequent stages of proceedings

Once the parties’ statements of case have been served, the court will allocate the claim to a “track” depending on its value and complexity and the parties will be encouraged to agree a timetable to trial (known as directions). These directions will be approved or amended by the court at a case management hearing. The directions will typically include deadlines for the following:

• disclosure of documents;
• exchange of witness statements;
• exchange of expert reports;
• a meeting of experts and preparation of a joint report of the experts;
• a pre-trial review hearing; and
• the trial.

The court plays an active role throughout the litigation process and, depending on the size and complexity of the case, several case management hearings may take place to ensure the proceedings run smoothly. Parties are typically encouraged to consider settlement options throughout the course of the proceedings. In the event that settlement is reached, the parties must notify the court and the litigation process will end.

Trial

The majority of insurance contract disputes are settled by agreement between the parties. However, if settlement is not achieved, the matter will progress to trial.

Each party will present their case at trial, with witnesses and experts being cross-examined on their evidence. The duration of the trial will vary depending on the complexity of the matter.

The remedies available will depend on the subject matter of the case but may include:

• damages;
• restitution;
• declarations;
• injunctions; and/or
• orders for specific performance.

A judge’s final decision takes the form of a reasoned written judgment, which will usually also address costs.

Appeals

If a party wishes to appeal, it must first seek permission from the court. This can be sought from the lower court where the decision was made, or from the appeal court.

For insurance disputes heard in the Commercial Court, appeals can be made to the Court of Appeal.

Parties can appeal on the grounds that the decision of the lower court was wrong or unjust due to a serious procedural or other irregularity. Permission will be granted if there is a real prospect of success or some other compelling reason.

Appeals from the Court of Appeal can be made to the Supreme Court. Applications for permission can only be made to the Court of Appeal, or to the Supreme Court, if permission is refused by the Court of Appeal.

Alternative dispute resolution (ADR) is encouraged and widely used in different forms to resolve disputes in England and Wales.

The CPR specifically requires the court and the parties to consider whether ADR is appropriate.

Many insurance contracts specify that a particular form of ADR must be used as an alternative to litigation. The most common forms of ADR used in England and Wales include:

• arbitration;
• adjudication;
• mediation; and
• negotiated settlement.

Some of the main advantages of ADR include: costs benefits (it is often much cheaper for all the parties to resolve disputes through ADR); the ability to retain confidentiality; and maintaining commercial relationships.

Arbitration

Arbitration is one of the most common forms of ADR used in insurance disputes and arbitration clauses are often incorporated into business insurance and reinsurance contracts.

The arbitration procedure will depend upon the precise terms of the relevant clause but this may specify that the arbitration is to be conducted under the rules of a particular institution, such as the London Court of International Arbitration (LCIA) or the International Chamber of Commerce (ICC).

Arbitration proceedings are governed by the Arbitration Act 1996 (AA 1996), which provides that an arbitral award can only be challenged in certain, limited circumstances. The AA 1996 also provides that the court can execute powers in support of arbitration proceedings, such as securing the attendance of witnesses.

Adjudication

Adjudication is a process whereby an independent adjudicator, who is an expert in the relevant subject matter, will make a decision on the matter using information presented by the parties, as well as their experience and expertise. Adjudication is often used in construction disputes.

The process usually takes place within a 28-day timeframe and begins when either party submits a Notice of Adjudication. The timetable set is strict, and the decision will be unenforceable if given outside the timeframe. Adjudication allows parties to resolve the dispute in a timely manner without incurring the costs associated with litigation or arbitration.

Mediation

Mediation is also commonly used in England and Wales. It involves a neutral third-party mediator attempting to reach agreement based on the issues and options for resolution. Mediation can be significantly cheaper than either litigation or arbitration and can be used to resolve a range of insurance disputes.

The most common type of mediation used is facilitative mediation, whereby the mediator does not make a decision, but assists the parties in reaching a commercial settlement.

Mediation is common in construction professional indemnity disputes as it is confidential and enables the resolution of disputes with a result both parties have accepted, so the professional relationship can be maintained.

Negotiations and the “Without Prejudice” Framework

“Without prejudice” negotiations are often used to reach a settlement and this is encouraged by the courts. Where negotiations are conducted without prejudice (with or without legal representatives acting as intermediaries), details of these negotiations cannot be put before the court (except, in some instances, on the question of costs). This encourages the parties to make genuine attempts to reach an out-of-court settlement and ensures that confidentiality is maintained.

Jurisdiction

Jurisdiction clauses are common in insurance contracts. The English courts will typically respect jurisdiction clauses subject to certain exceptions, usually aimed at protecting the weaker party to a contract.

The applicable rules to determine jurisdiction, which were historically determined by the domicile of the parties, depend on whether proceedings were commenced on or before 31 December 2020 (the end of the Brexit transition agreement).

Proceedings commenced on or before 31 December 2020

For proceedings commenced on or before 31 December 2020:

• in cases where both parties were domiciled in an EU member state, the rules are contained within the Recast Brussels Regulation (1215/2012);
• if only one party was domiciled in an EU member state and another in an EEA member state, the Lugano Convention on jurisdiction applies; or
• in cases where the defendant was domiciled outside of the EEA, jurisdiction would be determined under the common law.

The Recast Brussels Regulation and the Lugano Convention both contain specific rules relating to insurance contracts which are designed to protect the insured as the weaker party to such agreements.

Under the common law rules, jurisdiction will be determined in accordance with Part 6 of the CPR. The common law rules are less prescriptive and the English courts will typically respect the choice of jurisdiction specified in a contract. This is particularly the case where a contract contains an exclusive jurisdiction clause.

Proceedings commenced on or after 1 January 2021

As of 1 January 2021 (the end of the Brexit transition agreement), the Recast Brussels Regulation ceased to apply and the UK also ceased to be treated as a member of the Lugano Convention. The UK’s application to join the Lugano Convention was rejected in April 2021.

The current position is that, for proceedings commenced after 31 December 2020, the relevant rules will be contained within either:

• the Hague Convention on Choice of Court Agreements 2005 (the “Hague Convention”); or 
• the common law rules.

The Hague Convention (which became law in its own right in the UK on 1 January 2021) applies only to international cases where there is an exclusive jurisdiction agreement in favour of one of the states in which the Hague Convention applies. The application of the Hague Convention is subject to several limitations. The most important for present purposes is the exclusion of insurance contracts (in the case of EU member states and the UK). However, there is a “carve-out” for reinsurance contracts, large risks and certain other choice-of-court agreements in insurance cases.

Where the Hague Convention does not apply, parties to a contract will be reliant on the common law regime referenced above.

Choice of Law

As with jurisdiction clauses, the English courts typically uphold choice-of-governing-law clauses, subject to certain exceptions.

The pre-Brexit position

For contracts made after 17 December 2009, Regulation (EC) 593/2008 on the law applicable to contractual obligations (Rome I) applies.

Article 7 of Rome I provides specific rules for insurance contracts. It differentiates between contracts covering “large risks” and other insurance contracts.

For large risks, the insurer can choose which law governs the risk. If the insurance contract does not specify the applicable law, the location of the insurer’s head office will determine the choice of law unless the contract is more closely related to another country, in which case the law of that other country will apply.

For all other insurance contracts, the parties may choose the applicable law from a number of specified options. Where the applicable law has not been chosen by the parties, the contract will be governed by the law of the member state in which the risk was situated at the time the contract was concluded.

Where the risk is situated outside the EU, the contract will be governed by the choice of law rules in Rome I (Articles 3 and 4). Article 3 provides that the parties may choose the applicable law. Where the applicable law has not been chosen, the rules specified in Article 4 will apply.

It should be noted that Article 7 expressly does not apply to reinsurance and the general rules will apply in relation to these contracts.

The post-Brexit position

Little has changed in relation to choice of law as a consequence of Brexit.

Rome I continued to apply to the UK during the transition period and was incorporated into law after 31 December 2020 via the Law Applicable to Contractual Obligations and Non-contractual Obligations (Amendment etc) (UK Exit) Regulations 2019 (SI 2019/834), which is now known as the “UK Rome I”. As such, the principles detailed above continue to apply.

Foreign judgments may be enforced against insurers under one of several distinct regimes depending on the date the proceedings were instituted, the country in which the judgment was reached, the date of the judgment and the type of judgment.

The European Regime

The main European regime remains applicable to the enforcement of judgments given in proceedings instituted in EU/EFTA courts before the end of the Brexit transition period (31 December 2020). The relevant rules are contained within the Brussels Recast Regulation (1215/2012), the Brussels Regulation 2001 (44/2001), the Brussels Convention, the Lugano Convention and the European Enforcement Order Regulation (805/2004).

The Commonwealth Regime

To enforce a judgment in England and Wales that has been handed down in a Commonwealth country (and some other countries) the “statutory regime” may apply.

Part II of the Administration of Justice Act 1920 (AJA 1920) sets out the procedure for the reciprocal recognition and enforcements of the UK courts and certain Commonwealth courts. Under AJA 1920, a judgment obtained in Commonwealth countries that have entered into reciprocal arrangements with the UK may be registered with the English High Court (and the equivalent courts in Scotland and Northern Ireland) and enforced as if it had been a judgment of the High Court.

The Foreign Judgments (Reciprocal Enforcement) Act 1933 contains similar provisions to the AJA 1920 but extends the possibility of recognition and enforcement to all nations with which the UK has reciprocal arrangements. As with the AJA 1920, foreign judgments may be registered with the English High Court (or its equivalent in other parts of the UK).

The UK Regime

The rules concerning the recognition and enforcement of judgments between the courts of the constituent parts of the UK are contained within the Civil Jurisdiction and Judgments Act 1982 (CJJA). Broadly, the CJJA confers upon an interested party the right to apply for a certificate from the court issuing the judgment. The certificate may then be registered with a court in another part of the UK within six months of its issue. Following registration, the registering court will be granted the same powers of enforcement as the original issuing court.

The Common Law Regime

The common law regime is the default regime and applies to judgments issued in all countries not already covered by a specific regime.

This regime requires the party seeking to enforce the judgment to bring new proceedings in the courts of England and Wales, where the foreign judgment is sued as a debt. In accordance with CPR part 24, the party seeking to enforce the judgment may apply to the court for summary judgment once proceedings have been issued, on the grounds that the defendant has no real prospect of successfully defending the action and there is no reason why the case should go to trial.

Enforcement under this regime will only be possible where the foreign judgment is for a debt or other specific sum of money (but not fines, taxes or other penalties) and where the foreign judgment is final and conclusive.

As previously detailed, the default method for resolving large disputes in England and Wales is by way of litigation in court. The system is adversarial in nature but the courts typically play a fairly active role in case and costs management. Two key features of the jurisdiction that international insurers should be aware of are the following.

Costs Rules and Regimes

The general rule in civil litigation in England and Wales is that the unsuccessful party pays the successful party’s costs. In the absence of unreasonable conduct, the successful party can usually expect to recover 65% (or more) of its legal costs from the losing party.

However, the general rule on costs is subject to the court’s discretion. In exercising its discretion, the court will typically consider: the conduct of the parties; whether a party was only partly successful; and any admissible offers-to-settle that are drawn to the court’s attention.

There are also certain notable exceptions to the general costs rules. For example:

• where litigation is subject to qualified one-way costs shifting (QOCS) (personal injury claims from 1 April 2013), defendants will generally be ordered to pay the costs of successful claimants but will not be able to recover their own costs if they successfully defend the claim; and
• if a fixed-costs regime applies (for certain small claims and enforcement proceedings specified in CPR part 44), the amount of costs that may be recovered will be capped.

ADR

International insurers should also be aware that the CPR requires parties to a dispute to consider ADR (before and after the commencement of proceedings). Failure to engage in ADR can lead to costs sanctions being imposed by the court.

Arbitration clauses in insurance and reinsurance contacts are enforceable in England and Wales. The jurisdiction is widely regarded as pro-arbitration and the courts will generally seek to uphold arbitral awards.

The key provisions governing arbitration in England and Wales are contained in the AA 1996. A written arbitration agreement or clause must be clear enough to show that the parties intended to incorporate the clause as an agreement to arbitrate but it need not be signed or contained within a single document.

In accordance with the AA 1996, where a party starts court proceedings in breach of an arbitration agreement or clause, the other party can apply for a stay of the court proceedings, which must be granted unless the arbitration agreement is null and void, inoperative or incapable of being performed.

If required, arbitral awards may be enforced by the courts in England and Wales. There are two principal routes through which an award may be enforced:

• it can be enforced “in the same manner as a judgment or order of the court”; or
• the award can be converted into a court judgment.

To enforce the award under either route, the enforcing party must make an application to the court for permission. This is usually done on a without-notice basis and involves submitting an arbitration claim form and witness statement attaching the arbitration agreement and award.

If permission is granted, the award can be enforced in the same manner as a court judgment, including, for example, awards of damages, specific performance and/or injunction.

The UK has been a party to the New York Convention since 1975. Accordingly, the UK will recognise and enforce arbitral awards from other contracting states.

The AA 1996 gives effect to and implements the New York Convention. An application to enforce a New York Convention award is usually made without notice to the respondent by issuing an Arbitration Claim Form in the English courts, supported by witness evidence alongside an authenticated original award or certified copy, the original arbitration agreement or a certified copy, and an official translation if the award or agreement is in a foreign language.

The court may then give permission to recognise the award and the respondent will usually be served with a copy of the order and original application. Thereafter, a respondent may apply for the order to be set aside. In the event that the order is not set aside, the arbitral award will be treated as if it was a judgment made within the jurisdiction of England and Wales.

Arbitration is a common method of resolving insurance and reinsurance disputes in England and Wales. Contracts governed by English law often contain London-seated arbitration clauses and the same is often true of Bermuda excess liability insurance policies.

The ICC and the LCIA are two of the most frequently chosen institutions.

Provisions of the AA 1996

The AA 1996, alongside common law, governs arbitration in England and Wales. The AA 1996 contains both mandatory and non-mandatory provisions. The mandatory provisions are listed in Schedule 1 to the AA 1996 and include, for example, the right of the parties to stay legal proceedings for a matter referred to arbitration, and the powers of the court to extend time limits or remove an arbitrator. The “non-mandatory provisions” are all of the provisions that are not listed in Schedule 1. The non-mandatory provisions will apply in circumstances where the parties have not made their own arrangements by agreement.

The Arbitration Process

The arbitration process involves an arbitrator or panel of arbitrators who will gather evidence from the parties and make a decision on the dispute. The arbitration process is private, so third parties cannot attend hearings. This makes arbitration a preferred method of dispute resolution for many involved in international transactions and commercial dealings, which are typically kept private and confidential.

Decisions on the merits of a dispute by an arbitral tribunal are typically binding and may only be appealed in limited circumstances within 28 days of the date of an award.

The grounds for challenging an arbitral award are contained within the AA 1996 and include:

• the award was made without jurisdiction (Section 67);
• there has been a serious irregularity that has caused, or will cause, substantial injustice (Section 68); and
• an appeal on a point of law (Section 69).

Importantly, the parties may agree to exclude a right to appeal on a point of law under the AA 1996 (but not on the other grounds). Readers should also be aware that certain institutional rules governing arbitration proceedings (such as the LCIA rules) do not permit appeals, subject to certain limited exceptions.

Insurance and reinsurance contracts are subject to the same general principles as other commercial contracts in England and Wales. Terms may therefore be implied into such contracts by legislation, by the courts, from previous dealings between the parties and by industry customs. The following legislation implies terms into insurance and reinsurance contracts.

Insurance Act 2015

IA 2015 implies certain terms into a contract of insurance. Under Section 13A of the IA 2015 (introduced by the Enterprise Act 2016), there is a term implied in every contract of insurance that, if the insured makes a claim under the contract, the insurer must pay any sums due in respect of the claim within a “reasonable time”. See 4.8 Penalties for Late Payment of Claims. Parties to consumer insurance contracts cannot contract out of the relevant provisions of the IA 2015.

Consumer Legislation

A range of legislation lays down implied terms in consumer contracts, including insurance contracts, for the protection of the consumer. A notable example is the Consumer Rights Act 2015 (CRA). The material requirements of the CRA, when applied to insurance contracts, are as follows:

• every consumer insurance contract contains an implied term requiring the insurer to perform the service with reasonable skill and care;
• every consumer insurance contract contains an implied term providing that anything said or written to the consumer by or on behalf of the insurer that is taken into account by the consumer in making a decision about the contract, or service after entering the contract, is given contractual force;
• if the parties have not agreed the premium, and the contract is silent on how it is to be fixed, the contract contains an implied term that the consumer must pay a reasonable amount for the service, and no more; and
• if the contract does not expressly fix the time for the service to be performed, and does not say how it is to be fixed, the contract contains an implied term that the insurer must perform the service within a reasonable time.

The parties are not permitted to contract out of or breach any of these provisions, and doing so will grant the consumer the right to damages.

Business Insurance Contracts

The IA 2015 applies to business insurance contracts that were entered into after 12 August 2016. The “old” regime, as set out in Sections 18 to 20 of the Marine Insurance Act 1906 (MIA 1906) and interpreted by common law, will accordingly apply to policies entered into or varied before 12 August 2016.

The Duty of Fair Presentation Implied Into Insurance Policies by the IA 2015

The IA 2015 provides that, in the case of non-consumer insurance contracts, the insured has an implied duty of fair presentation of the risk.

The IA 2015 provides some guidance as to what “fair presentation” of the risk entails, including:

• the requirement on the insured to disclose:
1. every material circumstance which is known, or ought to be known, by the insured’s senior management and the individuals responsible for arranging the insured’s insurance; and
2. sufficient information to put an insurer on notice that it needs to make further enquiries;
• information can be considered to be “material” if it would influence the judgement of a prudent insurer in setting the premium and/or the terms of the insurance and/or determining whether to accept the risk; and
• the insured “ought to know” what should have been revealed by “reasonable search” of the information available to it (information held internally and by the insured’s agents).

Any representations as to expectation or belief should be made in good faith. A presentation will be “fair” if the information provided to the insurer is:

• reasonably clear and accessible; and
• the facts disclosed are substantially correct.

Remedies for Breaches of the Duty of Fair Presentation

In the event that the insured breaches the implied duty of fair presentation, an insurer can seek a remedy only if it proves that it was induced by the breach to enter the contract of insurance on the terms that it did, or at all. The remedy available to the insurer will depend on whether the breach was deliberate or reckless.

If the insured’s breach of the duty of fair presentation was deliberate or reckless, the insurer:

• may treat the contract as having been terminated from the time when the contract or variation was concluded; and
• need not return any of the premiums paid.

If the insured’s breach is not deliberate or reckless, various proportionate remedies may apply, depending on what the insurer would have done if the insured had complied with its duty:

• if the insurer would not have entered into the contract at all, on any terms, the insurer may refuse all claims under the contract and the contract will be treated as if it never existed, but the insurer must return any premium paid;
• if the insurer would have entered into the contract but on different terms (other than terms relating to the premium), the contract is to be treated as if it had been entered into on those different terms, if the insurer so requires; or
• if the insurer would have entered into the contract but would have charged a higher premium and imposed different terms, the contract will be treated as if it contained those different terms and the insurer will be able to reduce the amount to be paid out on a claim in proportion to the amount of the increased premium. 

Consumer Insurance Contracts

CIDRA (referred to in 1.1 Statutory and Procedural Regime) contains the provisions regarding the consumer insured’s duty of utmost good faith.

CIDRA requires consumers to take reasonable care not to make a misrepresentation to an insurer when a contract is entered into or varied. It is therefore less onerous than the “old” duty of disclosure, which implied on an insured a duty of “utmost good faith” (as set out in the MIA 1906), which required consumer insureds to volunteer all material information to insurers, and it can be distinguished from the duty of fair presentation placed on business insureds under the IA 2015.

The remedies available to insurers for misrepresentation under CIDRA are also proportionate to the failings of the insured. CIDRA provides that:

• where a misrepresentation is deliberate or reckless, the insurer may rescind the contract while retaining the premium, unless it would be unfair on the consumer to do so;
• where a misrepresentation is careless, the remedy available to the insurer will depend upon what it would have done had there been no misrepresentation;
• if the insurer would not have entered into the contract on any terms, it may avoid the policy and refuse all past claims but must return the premium;
• if the insurer would have entered into the contract but on different terms, it may choose to treat the contract as if those terms applied; or
• if the insurer would have charged a higher premium in relation to a risk, any claim under the policy will be reduced proportionately.

There have been several significant trends in policy coverage disputes over the last 12 months.

COVID-19-Related Insurance Claims

As a result of the COVID-19 pandemic, there was a surge in related insurance claims, most notably, claims under property policies with extensions for non-damage business interruption (BI). These claims were largely brought as a result of BI losses caused by the government-mandated closure of certain categories of business to prevent the spread of COVID-19.

In 2020, the Financial Conduct Authority (FCA), with the assistance of eight insurers, brought a test case on behalf of affected policyholders which considered various sample policy wordings and was designed to resolve uncertainty as to whether these BI policies respond. The High Court held that certain of the sample policy wordings (“prevention of access” clauses) were not in response to nationally imposed restrictions, due to the local nature of the cover provided.

However, the High Court found that certain other sample policy wordings containing “disease” clauses and “hybrid” clauses respond to the nationally imposed restrictions. This finding was the subject of an appeal to the Supreme Court. In January 2021, the Supreme Court upheld the High Court’s ruling that these policies are triggered. In reaching that decision, the Supreme Court found that each and every case of COVID-19 within the radius stipulated by a BI policy was an equal and effective cause of the nationally imposed restrictions on businesses.

The decision in the FCA Test Case left a number of unanswered questions which generated a range of satellite litigation and appeals heard during the period 2021 to 2024 (see, for example, Various Eateries Trading Ltd v Allianz Insurance Plc [2024] EWCA Civ 10; Gatwick Investments & Ors v Liberty Mutual Insurance (and related cases) [2024] EWHC 124 (Comm). While the decisions delivered in these cases have brought some clarity, several coverage issues remain to be resolved (for example, whether “at the premises” clauses respond in the same way as other clauses in BI policies).

More recently, in Unipolsai Assicurazioni SPA v Covéa and Markel International v General Reinsurance AG [2024] EWHC 253 (Comm), the High Court considered an appeal in respect of two separate arbitration awards relating to the aggregation of COVID-19 BI losses under catastrophe excess of loss reinsurance treaties. The High Court judgment of Foxton J is currently under appeal, with a judgment expected in September 2024. Given that the aggregation language under consideration by the Court is widely used in similar reinsurance treaties, the outcome of the appeal is eagerly awaited because of the impact it may have on the reinsurance market.

GDPR-Related Claims

There has been growing interest as to whether risks of failing to comply with the GDPR can be and are insurable.

On the basis that English law prohibits the insurance of punitive fines, and given that policies will likely specifically exclude cover for such fines, it is unlikely that the risks of failing to comply with the regulation will be insurable.

However, it is possible that insurance may cover the costs of participating in regulator investigations or any follow-on proceedings. It is therefore expected that the number of insurance coverage disputes arising out of failure to comply with data protection regulations will continue to rise.

Civil claims relating to data breaches are increasing, with defendants increasingly turning to insurers to defend and indemnify these claims. Assessing the value of these claims can be complex and there are already a number of claims in the court system on this question.

Artificial Intelligence and Cyber-Related Claims

Disputes relating to a failure to appreciate the scope and impact of artificial intelligence have been increasing and this continues to be a developing area for insurance claims. In addition, it is anticipated that, given the growing prevalence of cyber-attacks, the frequency of such disputes will likely increase.

As discussed in 1.3 Alternative Dispute Resolution (ADR), the English courts encourage ADR before and during litigation. Disputes may be resolved through a variety of different ADR mechanisms including, but not limited to, arbitration, adjudication and mediation. If disputes cannot be resolved via ADR, then they will be heard in the courts.

Mediation is one of the most commonly used means of resolving insurance disputes, as it provides considerable flexibility and confidentiality and is less expensive than court proceedings.

The most commonly used resolution mechanism for reinsurance contract coverage disputes is arbitration. This is because reinsurance contracts commonly contain arbitration clauses, which will typically be upheld by the English courts.

If the law views the insured party as a consumer, the position is different.

Consumers (and small businesses and certain charities and trusts) may take complaints to the Financial Ombudsman Service (FOS), which was established under the Financial Services and Markets Act 2000 (FSMA).

The FOS may make awards of up to GBP150,000. Complaints made to the FOS may be resolved far more quickly than disputes resolved by way of litigation, but the FOS is not bound by strict legal precedent, which means its decisions are difficult to predict. The FOS is also typically regarded by those in the insurance industry as a pro-consumer organisation.

The Third Parties (Rights against Insurers) Act 2010

The Third Parties (Rights against Insurers) Act 2010 (as amended) or TP(RAI)A permits a third party with a claim against an insured to bring proceedings directly against the insurer in the event of the insured’s insolvency. The act does not apply to reinsurance contracts.

The TP(RAI)A will specifically apply if:

• an insolvent insured incurs a liability to a third party against which they are insured; or
• an insured subject to such a liability becomes insolvent.

Of particular note, the TP(RAI)A does not require the third party to have established liability prior to bringing proceedings against an insurer, although the third party may not enforce their rights against an insurer before liability is established. The TP(RAI)A also allows a third party that considers itself to have a right of action to obtain information about an insured’s contract of insurance from a party that it reasonably believes may possess such information, such as an employer or agent. A party that receives such a notice is required to provide as much information as it can within 28 days.

The Contracts (Rights of Third Parties) Act 1999

Under the Contracts (Rights of Third Parties) Act 1999 or C(ROTP)A, third parties are permitted to benefit from contractual terms where they are identified by name or by class in the insurance contract. This may, for example, take the form of reference to a subcontractor by a contractor in a construction all-risks insurance policy, or an employer taking out personal accident/injury policies for the benefit of employees. It is possible to exclude the C(ROTP)A entirely from a contract of insurance.

The manner in which the interest of a third party is noted in the policy will affect whether a benefit is conferred on the third party, or whether the third party is given a right of enforcement. It should also be noted that any third-party claim has the potential to be defeated by any defence available to the insurer against an insured claim. A notable example would be a breach of the duty of fair presentation.

There is no concept of bad faith under English law.

As noted in 4.1 Implied Terms, under Section 13A of the IA 2015, damages can be awarded to insureds for late payment of claims. Section 13A was added to the IA 2015 by the Enterprise Act 2016 and implies a term into all consumer and non-consumer insurance contracts that the insurer must pay any sums due to the insured in respect of a claim within a “reasonable time”.

The term “reasonable time” is not defined and is therefore decided on a case-by-case basis having regard to the relevant circumstances, including but not limited to the type of insurance, the complexity and/or value of the claim, compliance with relevant statutory or regulatory rules or guidance, and factors outside the insurer’s control.

Section 13A states that a reasonable time will include a reasonable time to investigate and assess the claim. If the insurer shows that there were reasonable grounds for disputing the claim, the insurer does not breach the term implied merely by failing to pay the claim (or the affected part of it) while the dispute is continuing. However, the conduct of the insurer in handling the claim may be a relevant factor in deciding whether that term was breached and, if so, when. Recent case law has confirmed that “reasonable time” will include defending a claim in court, even if that defence ultimately fails, as long as the defence itself is not unreasonable.

Damages can be awarded for breaches of Section 13A, in addition to the insured’s right to enforce payment of the sums due and the right to interest on those sums. A claim under Section 13A must be brought within one year of payment by the insurer.

Insurance brokers are independent agents appointed by an insured. Their primary function is to obtain agreement and understanding between an insured and an insurer in order to place appropriate insurance cover. In accordance with the principles of agency, it is generally accepted that a broker acts as the agent of the insured. Therefore, in theory, an insured is bound by representations made by its broker. However, in practice, it can be more complicated.

In the case of consumers, Section 9 and Schedule 2 of CIDRA specifically outline the circumstances in which certain classes of person (including brokers) can be regarded as agents of an insured.

Insurers commonly use delegated authority arrangements to outsource certain functions to third parties, including underwriting and claims handling activities. While it is possible that this type of arrangement may give rise to litigated issues or disputes, this is a relatively rare occurrence.

There are many types of insurance policies in England and Wales which include cover for the costs of funding an insured’s defence. Notably, such cover is usually provided under liability insurance policies, such as employers’ liability and public liability policies. This compulsory insurance routinely funds the defence of insured businesses for claims of bodily injury or disease sustained by their employees in the course of their employment. Similarly, professional liability cover also provides defence costs cover for any claims brought against professionals.

Defence costs cover is often compulsory for certain types of insured business or professional. For that reason, there are unlikely to be significant changes in the prevalence of defence costs cover under liability policies.

Significant efforts have been made by the UK government to streamline the litigation process in recent years. Notable examples include the following.

• The introduction of the Claims Portal, which (as noted in 1.1 Statutory and Procedural Regime) is an online hub which facilitates the resolution of low-value, straightforward claims, and in certain cases avoids the need to issue court proceedings altogether. The portal was first introduced to facilitate the resolution of motor claims but was more recently expanded to cover employers’ liability and public liability claims valued between GBP1,000 and GBP25,000.
• Reform of the CPR. In 2019, the courts introduced a disclosure pilot scheme in an effort to reduce the costs of disclosure in cases heard in the Business & Property Courts. Feedback in relation to the scheme – particularly in relation to its ability to reduce costs – has been mixed. However, the scheme became permanent in October 2022.

Despite attempts to reduce the time and cost of litigation, the litigation process often remains time-consuming and expensive. It is expected that the process of streamlining civil litigation will continue in future, in an attempt to widen access to justice. The increasing move towards technology by the courts – hastened by the COVID-19 pandemic – is also likely to result in the continued reduction of litigation costs in the longer term.

Protection against costs risks is readily available and legal expense insurance is very common in England and Wales. There are two types of legal expense insurance, namely “before the event” and “after the event”. Due to after-the-event insurance being purchased when legal action is already contemplated, it tends to be offered as a standalone policy.

In circumstances where an insurer has paid out money to an insured for a loss under a policy, it accrues subrogation rights to pursue an action, in the name of the insured, to recover some or all of the loss from the third party who caused or contributed to the original loss.

The right of subrogation is based on the principle of indemnity, which prevents the insured from being over-compensated by recovering sums from both its insurer and a culpable third party. Consequently, the right will not arise until the insurer has paid the insured the indemnity under the policy.

Subrogation claims must be pursued in the name of the insured. Subrogation rights arise under common law and any recoveries are subject to an established order of priority between the insured and the insurer in the event that there are both insured and uninsured losses. Subrogation rights (often re-stating the common law position) are commonly set out in insurance policies.

COVID-19

Notwithstanding that COVID-19 restrictions have been lifted in the UK, insurers continue to measure the impact of the pandemic. Although the Supreme Court judgment handed down by the UK Supreme Court in January 2021 following the FCA Test Case resolved many BI coverage issues, insurers are yet to settle all BI claims. A number of outstanding legal questions are yet to be determined and there are other cases concerning BI coverage issues currently going through the courts – see 7.3 Coverage Issues and Test Cases.

War in Ukraine

The effects of the war in Ukraine continue to be monitored across the insurance market. The early effects of the war have been seen primarily in the aviation and marine markets, where insurers are grappling with the issue of whether there is cover for claims under the “War Risks” or “All Risks” sections of cover provided within certain policies. This issue is the subject of a mega-trial commencing in October 2024 – see 7.3 Coverage Issues and Test Cases.

As the war progresses and the impact of EU/US sanctions and Russian counter-sanctions becomes clearer, other classes of business are increasingly affected by claims, particularly political risk and trade credit.

Insurers must now also consider the stringent sanctions regime when they insure Russian businesses or interests.

It is likely that insurance litigation will be dominated by the fall-out from the Ukraine war over the next 12 months and beyond. It is also expected that there will be a rise in litigation concerning PFAS chemicals in both the US and Europe, with a corresponding impact on UK insurers (see 7.3 Coverage Issues and Test Cases).

Litigation in Relation to the Ukraine Conflict

The Commercial Court has ordered a joint trial of six similar sets of proceedings in which claims are being brought against multiple insurers under contingent and possessed insurance policies for the alleged loss of aircraft that have not been returned to lessor policyholders following the Russian invasion of Ukraine and the imposition of western sanctions against Russia. The claims in this “mega-trial” are significant (with a quantum of several billion dollars) and impact more than 30 insurers and Lloyd’s syndicates. A 12-week trial will commence on 2 October 2024.

Separate claims have also been brought by lessors against (re)insurers of separate “operator” policies, being insurance policies taken out by the Russian airlines which leased and operated the aircraft, under which the aircraft were insured by Russian insurers and reinsured in (among other locations) the London market. Whilst these actions are not as far advanced as the claims concerning the contingent and possessed, they will be equally as significant, both in terms of the quantum involved and the number of insurers impacted.

A judgment handed down in March 2024 in those operator proceedings confirmed that notwithstanding the exclusive jurisdiction clauses in favour of the Russian courts contained in the operator insurance and reinsurance policies, the operator claims in relation to aircraft leased to Russian airlines will continue to be heard by the English Commercial Court. In a judgment in June issued in other proceedings, Henshaw J dismissed an application by operator reinsurers to resist exclusive jurisdiction clauses in favour of Ukrainian courts, holding that claims in relation to Ukrainian aircraft must proceed before the Ukrainian courts.

One of the issues to be determined in both the contingent and possessed and the operator claims is whether there is cover under the “War Risks” or the “All Risks” section of the policies. Certain insurers and Lloyd’s syndicates subscribe to both sections. The outcome of the dispute will have major implications for the aviation market, as well as for reinsurers. The contingent and possessed proceedings will consider some novel points of law, including the test for total loss in non-marine insurance.

The COVID-19 Pandemic

It is clear that the COVID-19 pandemic has impacted insurers’ appetite for infectious disease risk – in the short term, at least. Given the ongoing effects of the pandemic and the repeated implementation of “lockdowns” as a means of controlling the spread of COVID-19, many insurance policies have been amended to include blanket exclusion clauses for COVID-19, and these are now a common feature of most travel, health and BI policies.

In time, the appetite for underwriting pandemic-related risks is likely to grow, as insurers are able to price such risks more accurately and repair their balance sheets from the COVID-19-related losses they incurred. However, for now, the appetite for such risks remains limited.

The War in Ukraine

The war in Ukraine has also impacted insurance cover and appetite for risk in several classes of business including marine, aviation, trade credit and political risk. Premiums are widely expected to increase across all associated lines of business.

Litigation Concerning PFAS (Polyfluoroalkyl Substances)

PFAS are used in the manufacture of a range of everyday household products, such as Teflon cookware, cosmetics and food packaging. There has been a proliferation of PFAS-related litigation in the US and Europe, by individuals who claim that they have suffered bodily injury as a result of exposure to PFAS and by individuals and businesses whose property has been contaminated by PFAS. Within the last year, PFAS manufacturers have concluded multi-billion dollar settlements of PFAS claims. The growing trend for PFAS litigation has been aided by increased regulation and scrutiny of PFAS manufacturers and users, as moves towards a potential ban of PFAS in Europe has begun.

In February 2023, five EU member states (Denmark, Germany, Netherlands, Norway and Sweden) applied to the European Commission seeking a ban in relation to the manufacture and sale of over 10,000 PFAS chemicals.

In April 2023, the UK’s Health and Safety Executive (HSE) published a report recommending limitations on the use of PFAS in various products including firefighting foam, cleaning products and textiles, although the HSE is yet to confirm whether it is leaning towards a more widespread ban.  Against this background, it is expected that claims will be made under insurance policies covering a diverse range of business lines. It is expected that the use of PFAS exclusions for different classes of insurance and tighter wordings will increase as litigation activity grows and further regulatory measures are put into place.

Insurers are increasingly aware of environmental, social and governance (ESG) risks. The environmental element of this includes consideration of climate change-related risks.

Climate-Related Risks

Climate change risk is a significant area of concern for insurers, which are experiencing climate-related losses and expecting the numbers of these losses to grow. The risks span three main areas.

• Physical risks from extreme weather conditions – such risks are already causing an increase in insurance claims – eg, losses caused by flooding, wildfires and drought, as well as business interruption and supply-chain cover claims.
• Transition risks – those risks resulting from adjustments made for the transition to a low-carbon economy.
• Liability risks – risks related to the financial impact of claims.

Trends in Climate Litigation

The climate litigation landscape is already active and is set to continue to develop rapidly, especially as climate science develops and draws clearer links between emissions and climatic events.

For example, insurers are already handling climate-related D&O claims, arising from litigation brought against company directors alleged to have failed to prepare their organisations for the net zero target.

In addition, claims targeting companies over their emissions are increasing, with US courts, in particular, becoming more willing to establish a “climate change duty of care”. At present, proving causation is a significant hurdle for claimants but this could change as climate science develops.

Civil action groups are becoming more organised, paving the way for increased strategic climate litigation with potential consequences for changes in the law, as well as changes to policy wordings and coverage across all lines of business. Activists are becoming increasingly creative in their means, and litigation is often used as a weapon to seek disclosure of corporate climate risk, and to force corporates to tighten and comply with their own climate policies.

The Rise of PFAS Litigation

As public awareness of the environmental and health concerns associated with PFAS grows, along with knowledge of the significant settlements which have been achieved in recent PFAS litigation, it is anticipated that there will be an increase in PFAS-related claims globally. This litigation will be the subject of claims under a range of different types of insurance policies, although it remains to be seen whether such claims will be capable of attracting cover.

Within the last year, there has been a rise in PFAS-related litigation geared towards companies across a number of EU jurisdictions, notably in the Netherlands, which has become a hotspot for collective actions. This is due to its well-established class action framework, combined with an increasing number of experienced US class action law firms having set up Dutch offices to advance large-scale environmental litigation.

In France, a criminal investigation and legal proceedings are underway against a large chemicals plant which is alleged to have discharged PFAS into the Rhône, causing environmental harm. Similar environmental actions, against different PFAS manufacturers, have been brought in Belgium, Italy and Sweden.   

This appetite for litigation will also be fuelled by an increase in unregulated third-party litigation funding across the EU, and the newly implemented EU RAD which requires each member state to have a collective redress mechanism in place. This increases the pool of countries in which litigation funders and international law firms can opt to litigate PFAS-related lawsuits.

Underwriting

The number of climate change liability claims in the UK (and other jurisdictions, including the US) is likely to increase over the coming decade, as climate science improves and extreme weather events become more frequent, resulting in potentially large liabilities for the London insurance market and posing new challenges for the insurability of climate-related events. As shareholder activism in the ESG space more broadly continues to increase, a corresponding increase in D&O claims is also anticipated.

To the extent that climate-related risks are covered, insurers are now considering increased premiums to match the increased risk in underwriting property policies in particular. It is also becoming much more common for insurers to include climate change-related exclusion clauses within insurance policies.

Insurers are also increasingly including clauses that mandate compliance by their insureds with obligations to improve environmental and sustainability standards. Many insurers are also reconsidering their underwriting decisions and are no longer taking on new business which does not meet their ESG thresholds.

As PFAS litigation continues to grow, it is likely that chemical manufacturers and companies that use PFAS in their products will be subject to wholesale PFAS exclusion clauses in their insurance policies.

Due to the rise in strong public sentiment against corporations seen to be undermining the ESG agenda, punitive damage jury awards and collective actions are inherent features of ESG-related litigation. These social inflation trends are increasingly resulting in settlement demands and jury verdicts that are significantly higher than ordinary economic inflationary increases (particularly in the US). Claims inflation trends need to be taken into consideration by underwriters in order to competitively price risks they are seeking to underwrite, and set accurate financial reserves for existing and future claims liabilities.

Data protection laws in the UK largely reflect the GDPR regime and other legislation derived from the EU prior to the UK’s departure. The government proposed to reform the existing regime by virtue of the Data Protection and Digital Information (No 2) Bill, which was introduced to Parliament in March 2023. Following the announcement of the UK general election, the Bill was not passed during the “wash-up period”. However, as the Bill enjoyed broad parliamentary support, it may well be reintroduced under the new Labour government. The Bill aims to create a new pro-innovation data protection framework that simplifies the current rules and reduces the regulatory burden on businesses. GDPR has created practical challenges for insurers in managing personal data, particularly with the highly intermediated business in the London market. It is hoped that the Bill will alleviate those challenges in the future. In litigation terms, the right to make data subject access requests gives claimants the opportunity to seek information by ways other than pre-action disclosure, while the right to compensation for even inadvertent data breaches is contributing to growing class action risk, which claimant law firms are keen to take advantage of.

One of the most significant developments in England and Wales that has affected insurance coverage is Brexit, which has seen various UK insurers establishing subsidiaries in the EU. It has been reported that 35 UK insurers founded branches in EU member states in response to Brexit and an estimated 29 million insurance contracts had, by the end of the Brexit transition period on 31 December 2020, been transferred to new offices.

In future, this may result in a greater number of insurance coverage disputes in the courts of EU member states, although it is expected that the English courts will continue to retain their dominance as the preferred European destination for insurance coverage disputes.