Archive for the ‘Bermuda’ Category

Business Interruption Insurance: Clearing up the Confusion

Tuesday, September 16th, 2014

By Alex J. Potts, Sedgwick Bermuda

In Eurokey Recycling Ltd v Giles Insurance Brokers Ltd [2014] EWHC 2989 (Comm), the English Commercial Court has confirmed the nature of an insurance broker’s duties to its clients when obtaining Business Interruption Insurance (BII) cover.

This case arose out of a broker’s negligence claim, brought by a waste recycling company that had suffered significant losses following a fire. The court dismissed the claim on the basis that the broker had satisfied its duty of care, and it was the company’s own acts or omissions that had resulted in it being under-insured.

The court summarized the broker’s obligations as follows:

  • A broker is not expected to calculate the BII sum insured or choose an indemnity period (which are matters for the commercial client).
  • A broker must, however, explain to the client the method of calculating the sum insured, technical policy terms such as “estimated gross profits” and “maximum indemnity period,” and relevant considerations when choosing a maximum indemnity period.
  • A broker will need to take reasonable steps to ascertain the nature of the client’s business and its insurance needs, but not necessarily by way of detailed investigation. The nature and scope of a broker’s obligation to assess a commercial client’s BII needs will depend upon the circumstances, including the client’s sophistication, and the number of times the broker has met the client in the past.
  • Although BII is for commercial clients, the level of client sophistication will vary enormously. It cannot be assumed that a small or medium-sized enterprise (an SME) will have any understanding of the nature of BII cover.
  • If a client who appears to be well informed about his business provides a broker with information, the broker is not expected to verify that information unless he has reason to believe that it is not accurate.
  • Having satisfied these obligations, a broker must exercise reasonable care to adhere to express instructions as to the BII cover to be obtained.

Although the outcome of the case turned on its own facts, the legal principles are important to the way in which insurance brokers conduct themselves when placing BII risk in the London market, and they should be of interest to brokers’ professional indemnity insurers.

The court made two observations of relevance to the London market collectively. The court noted that, notwithstanding the contract certainty initiative in the London market, there were certain aspects of standard BII policy wordings, such as the definition of gross profit and the calculation of indemnity periods, which still remained unclear for clients, brokers, loss adjusters, and even some insurers. The court also noted that the insurance industry, unlike other parts of the financial services industry, did not yet have standard procedures in place for the identification and recording of sophisticated clients.

It remains to be seen whether the same standard of care is imposed on brokers in the Bermuda insurance and reinsurance market, given certain differences in market practice in London and Bermuda, and the sophisticated nature of many Bermuda (re)insureds.

Offshore Professional Risk in 2014

Wednesday, April 16th, 2014

By Mark Chudleigh, Chen FoleyNick Miles, and Alex J. Potts, Sedgwick Bermuda

From the Cayman Islands to Hong Kong, there’s a lot going on in the world of offshore litigation and law reform. In this report, Sedgwick’s Offshore Professional Risks practice offers a global perspective on professional risk, with unique expertise and solutions valuable to providers and users of offshore services and insurance carriers operating in offshore jurisdictions, including Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, and the Isle of Man.

Learn more about new laws changing the future of this business, collective investment schemes, issues relating to cybercrime and cyberliability, and the dangers of being an offshore lawyer.

 Read the full news report here.

State of Washington v. James River Insurance Company – What Impact on Bermuda Insurers?

Friday, February 1st, 2013

By Richard J. Geddes, Sedgwick Chicago

The short answer is – none.

State of Washington, Dept. of Transportation v. James River Insurance Company, – P.3d –, 2013 WL 258877 (Wash. January 24, 2013), a January 2013 decision of the Washington State Supreme Court, upheld a Washington statute prohibiting insurance contracts from depriving Washington policyholders from access to state courts, due to the insurer’s contract provisions calling for arbitration to resolve contract disputes. [The Insurance Law Blog reported on the decision shortly after the court ruled on January 17th.]

James River represents a purely U.S.-domestic dispute. All parties to the dispute were U.S. residents, such that the NY Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the NY Convention”), which is the source of enforcement of international arbitration agreements, did not apply. The NY Convention applies to arbitration agreements between parties of different nations, each of which is signatory to the NY Convention, and requires those nations to enforce the arbitration agreements between those parties.

The law in the U.S. dealing with conflicts between international arbitration agreements and state insurance law is not uniform, but if a trend is apparent, it is to recognize the primacy of these international contractual agreements via the NY Convention over contrary state law. The question: whether the McCarron Ferguson Act, granting the states the right to regulate insurance except in cases where Congress has expressed a contrary intent, would be trumped by Federal law recognizing the enforceability of international arbitration agreements. The issues controlling these decisions are complex, and require consideration beyond the space available here. However, of the three Circuit Courts that have considered this question, two,¹ and importantly, the most recent two, have found in favor of enforcing the arbitration agreement, while only one,² the earliest, has not.

The lesson here is that U.S. state court decisions about purely domestic disputes say nothing about the enforceability of international arbitration agreements as are typically included in Bermuda form policies. The U.S. federal courts have generally favored the enforcement of these agreements. Equally important to Bermuda insurers is the fact that Bermuda and U.K. courts have routinely been receptive to applications to issue anti-suit injunctions to bar lawsuits filed in contravention of arbitration agreements. In short, Bermuda insurers may continue to rely on the enforceability of their chosen Bermuda- or London-based arbitration selection. 

 


¹ Safety National Casualty Corp. v. Certain Underwriters at Lloyds, 587 F.3d 714 (5th Cir. 2009); ESAB Group v. Zurich Insurance PLC, 685 F.3d 376 (4th Cir. 2012).

² Stephens v. American International Ins. Co., 66 F.3d 41 (2d. Cir. 1995).

 

Boom or Bust: Third Party Rights Against Liability Insurers of Bankrupt Entities in Bermuda and the U.K.

Friday, February 1st, 2013

By Alex J. Potts, Sedgwick Bermuda

In the recent case of Re Kingate Management Limited (in Provisional Liquidation) [2012] SC (Bda) 52 Com, the Supreme Court of Bermuda considered the statutory rights of third party claimants to assert direct claims against liability insurers of insolvent and bankrupt insureds in Bermuda.

This is the first occasion that the Court has considered and applied Bermuda’s Third Parties (Rights Against Insurers) Act 1963, a piece of legislation modeled on the U.K.’s Third Parties (Rights Against Insurers) Act 1930.  The Court confirmed that the effect of Bermuda’s legislation is that the benefit of insurance policies taken out by an insolvent company (or bankrupt individual) with respect to third party liabilities are directly transferred to any third party to whom the company is liable, by operation of law.  The transfer of rights takes place when a winding-up order is made or a liquidator is appointed.

The Court also confirmed that the Act imposes discovery obligations on an insolvent insured and its liquidator, receiver or trustee in bankruptcy, as well as its insurer.  A third party who asserts a disputed claim against an insolvent company which is insured against the relevant liability is entitled to obtain from the insolvent insured, and its insurer, such documents and information as may reasonably be required for the purpose of ascertaining and enforcing such rights, if any.

Importantly, the Bermuda Court followed and applied the English Court of Appeal’s decision in Re OT Computers Ltd (in administration) [2004] 3 WLR 886, which made clear that, under English law, a third party claimant did not need to have conclusively established liability before it was entitled to documents and information relating to the insurance position.

It should be noted that the U.K. Act is due to be significantly reformed by the Third Parties (Rights Against Insurers) Act 2010. However, the implementation date for the U.K. reforms has been delayed, and the new legislation is not currently expected to come into force until later this year.

Be Prudent with Privilege: Legal Advice From Non-Lawyers is Not Privileged Under English and Bermuda Law

Wednesday, January 23rd, 2013

By Alex Potts

In its first major judgment of 2013, R (on the application of Prudential plc and another) v Special Commissioner of Income Tax and another [2013] UKSC 1, the United Kingdom Supreme Court has confirmed the common law principle that legal professional privilege only applies to communications passing between a client and its lawyers in connection with the provision of legal advice.

As a matter of English law, privilege does not apply to communications between a client and other professional service providers, such as accountants or consultants, even if their advice is legal or quasi-legal in nature (as tax, corporate, restructuring, regulatory and compliance advice often is).

The case arose out of a U.K. tax avoidance scheme devised by PricewaterhouseCoopers (‘PwC’) for the Prudential group in 2004. The U.K. tax authorities investigated the scheme, and served document requests on Prudential. Prudential refused to give disclosure of certain sensitive documents, claiming that legal professional privilege attached to communications between Prudential and PwC relating to the tax advice given by PwC, and it sought to challenge the tax authorities’ request by way of judicial review.

The English High Court and the Court of Appeal both rejected Prudential’s claim to legal professional privilege. Prudential appealed to the Supreme Court (supported by the U.K. accountancy profession), the appeal being heard by a panel of seven Supreme Court judges. By a majority of five to two (Lord Sumption notably dissenting), the Supreme Court dismissed Prudential’s appeal, and confirmed that legal professional privilege should not be extended to non-lawyers (unless Parliament enacts primary legislation to that effect).

This judgment is likely to be followed in other jurisdictions that follow English common law, such as Bermuda. Indeed, Bermuda courts have confirmed that legal professional privilege is a fundamental right, protected both at common law and by Bermuda’s constitution, which can only be specifically overridden by statute, or by the client waiving its privilege (IRS & Minister of Finance v Braswell [2001] Bda LR 41, [2002] Bda LR 51; R v Hoskins [2003] Bda LR 25; and Fidelity Advisor Series VIII v APP China Group Ltd [2006] Bda LR 70).

U.S. and international businesses should continue to ensure that they take advice from properly qualified lawyers on both English law and Bermuda law matters, if they want to keep their legal, tax, and regulatory advice privileged from inspection.

The full judgment and a summary can be found here.

Bermuda Monetary Authority Announces Principles Underpinning Use of New Powers

Wednesday, January 23rd, 2013

By Nick Miles

The Bermuda Monetary Authority (the BMA) has published a new statement of practice (SoP).  It sets out factors to which it will have regard and procedures to be followed in deciding whether and in what manner to exercise powers granted under the following four statutes that regulate financial sectors in Bermuda:

• The Insurance Act 1978
• The Banks and Deposit Companies Act 1999
• The Investment Business Act 2003
• The Trusts (Regulation of Trust Business) Act 2001

A full analysis of the SoP and the BMA’s powers can be found in our Insurance News Flash published today.

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