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Alison Green discusses UK insurance law in Law360

Date: June 16, 2017

In the past year, the U.K. Supreme Court has ruled on insurance disputes over aggregation, the reach of the fraudulent claims rule and solicitors’ professional indemnity insurance.

Though litigation from some of the biggest changes to hit insurance law in years has yet to hit the courts, a number of major appellate decisions in recent months have offered guidance on a range of key issues that often pop up in the industry.

Here, Law360 looks at a few of the biggest insurance litigation decisions of the past year.

Impact Funding Solutions Ltd. v. AIG Europe Insurance Ltd.

An insurance dispute reached the Supreme Court in 2016, this one stemming from a third-party funder, an increasingly common part of the U.K. litigation scene.

Impact Funding Solutions had agreed to provide support to solicitors at Barrington Support Services Ltd., offering a loan to the firm’s clients to pursue industrial deafness litigation.

But Barrington failed to adequately investigate the claims and the firm’s clients ultimately could not repay the loans, leading Impact to try to recover its losses from the firm, according to the Supreme Court.

It succeeded in winning a roughly £581,000 judgment only to see Barrington become insolvent. That led Impact to try to recover its losses from Barrington’s professional indemnity insurer, AIG, under a 1930 law governing third parties’ rights against insurers, according to the court.

The Supreme Court noted that the case was important given how similar the terms of the professional indemnity insurance policy was to most such insurance policies solicitors take out in England and Wales — and because of the growing use of litigation funders since government support for civil cases was cut.

“We didn’t use to have so much third-party funding [because] we had other sources of funding years ago, like legal aid,” said Alison Green, a barrister at 2 Temple Gardens and the vice president of the British Insurance Law Association. “Now we are more and more finding litigation may be funded by professional third-party funders.”

Though the High Court rejected Impact’s claim against AIG, the Court of Appeal found that the loans were inherently part of Barrington’s professional practice and therefore covered under the policy with AIG.

But the Supreme Court overturned that decision, concluding that because Impact’s agreement was a contract to supply services to Barrington, it was excluded from coverage under the professional indemnity insurance. The court reasoned that Impact’s claim did not stem from Barrington’s clients’ claims against the firm, meaning that it did not have the same entitlement as the firm’s clients.

“The thinking behind the Supreme Court was really that professional indemnity insurance is provided by insurers to solicitors for the protection of their private clients,” Green said. “It’s not really to provide that to commercial entities that might get involved in funding.”

Versloot Dredging BV and Another v. HDI Gerling Industrie Versicherung AG and Others

In July, the Supreme Court dealt with another issue that frequently arises in insurance cases: whether a policyholder’s lie to improve the chances of receiving compensation invalidated an otherwise valid claim.

“There had been a whole series of cases which basically said that even though somebody may have a genuine insurance claim, if they use fraudulent means or devices to improve their chances of winning at court or getting a settlement, even though the original claim may have been genuine, the whole claim was forfeited,” Green said.

In this case, a ship was flooded and its main engine damaged beyond repair due to a variety of negligence and defects on the part of the crew, past contractors and engine room pumping system, according to the Supreme Court. The ship’s owner, Versloot Dredging, filed a €3.4 million ($3.8 million) claim. And a Versloot employee told the insurer’s lawyers that the crew had told the company a bilge alarm had sounded the day of the incident but that the crew couldn’t investigate during a storm.

But the crew hadn’t told the Versloot employee about any alarm at the time, according to the Supreme Court. Instead, because the cause of the flooding wasn’t clear, the employee hoped to speed up the claim by avoiding the possibility that the damage could be blamed on defects of the ship itself — a problem for which its owners might have been responsible.

Even though the court ultimately upheld the merits of the claim, the trial judge concluded he had to follow precedent that a lie told in presenting the claim invalidated it. The Court of Appeal upheld that decision, pointing to the value of deterring fraud.

But the Supreme Court, in its first look at the question, concluded that the fraudulent claims rule didn’t apply to otherwise justified claims backed by “collateral lies.” The court reasoned that there was an “obvious and important difference” between a claim a policyholder has fraudulently exaggerated to get more money and a valid claim supported by collateral lies.

“The position is different where the insured is trying to obtain no more than the law regards as his entitlement and the lie is irrelevant to the existence or amount of that entitlement,” the court ruled. “In this case the lie is dishonest, but the claim is not.”

Though the decision is a significant one for the insurance industry, Green warned that there would doubtless be litigation going forward about whether a lie was “collateral” or not.

“Fraud is still bad, and if it’s a fake claim or an exaggerated claim, you won’t be able to recover,” Green said. “There will probably be cases where one side says, ‘This is just collateral,’ and the insurer will say, ‘No, this is a fake claim.”

Read the full article in Law360 here.

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