Insurance and the law of obligations

INSURANCE AND THE LAW OF OBLIGATIONS This page intentionally left blank Insurance and the Law of Obligations ROB MERKIN AND JENNY STEELE Great Clarendon Street, Oxford, OX2 6DP, United Kingdom Oxford University Press is a department of the University of Oxford It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries © R Merkin and J Steele 2013 The moral rights of the authors have been asserted First Edition published in 2013 Impression: All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by licence, or under terms agreed with the appropriate reprographics rights organization Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this work in any other form and you must impose this same condition on any acquirer Crown copyright material is reproduced under Class Licence Number C01P0000148 with the permission of OPSI and the Queen’s Printer for Scotland Published in the United States of America by Oxford University Press 198 Madison Avenue, New York, NY 10016, United States of America British Library Cataloguing in Publication Data Data available Library of Congress Control Number: 2013937232 ISBN 978–0–19–964574–9 Printed in Great Britain by CPI Group (UK) Ltd, Croydon, CR0 4YY Links to third party websites are provided by Oxford in good faith and for information only Oxford disclaims any responsibility for the materials contained in any third party website referenced in this work Foreword We are all bound by the laws of obligations one way or another They are the un-noted attendants to our everyday activities such as buying a new washing-machine, driving the car to work, operating a bank account or cultivating a hedge as boundary to the garden Law students will, after a moment’s thought, point out how these activities involve the laws of contract, tort, trusts, land law and, even, criminal law At the same time, perhaps without us realising it, insurance has now become central to life in the Western world We take out life insurance, motor insurance, household insurance (which, like motor insurance, includes liability insurance), insurance against the cost of repairing goods (like the washing machine), travel insurance, personal accident insurance and payment protection insurance In the business world, insurance against loss or liability can be found for any activity engaged in under the sun Yet the two legal worlds, that of the laws of obligations and that of the law of insurance, have always remained strangely apart Thus, the received view of the law was that matters concerning insurance cover should be ignored when considering who the claimant is or his right to substantial damages or whether the defendant was being funded by an insurer The fact that the claimant was actually a subrogated insurer and the defence was being maintained by the defendant’s liability insurer have traditionally been treated as the unacknowledged elephants in the court room And the academic study of the laws of obligations and of insurance have maintained this curious divide Insurance law is, traditionally, seen as something esoteric, an “add-on” to the general study of the laws of obligations and a subject that might be examined as an optional extra after the basics of the laws of obligations have been mastered This book is a trail-blazer because it challenges all these traditional attitudes and approaches It demonstrates that insurance is central to the laws of obligations and how it has moulded the development of the common law of contract and tort in particular So the authors ask such fundamental issues as how insurance has influenced the development of the law of tort, quite apart from the vexed questions raised by mesothelioma and asbestosis cases; how it has influenced the development of contractual obligations, particularly in business areas such as development and construction and oil and gas where, often, there are multi-parties all having insurance of various forms The authors ask the pertinent question: is our attitude to the interpretation of commercial contracts and to tortious liability actually influenced by the knowledge of where and how the parties are covered by insurance; and if it is, is it not time this was acknowledged frankly? The authors also analyse how the presence of insurance has fundamentally effected the evolution of both the practice and the substance of litigation It is easy to forget that in many commercial cases it is an insurer who sues (in the name of the claimant) by right of subrogation and the defendant’s case is actually being conducted by its liability insurer because the law has always insisted that be disregarded The authors ask vi Foreword whether it is time that we recognise the central position that insurance takes in the way legal disputes are decided In one single volume the authors enable the reader to understand the philosophical basis of the law of insurance, the key practical aspects of insurance and re-insurance and, through a broad based analysis of different topics, where and how insurance and the law of insurance is now an intrinsic part of our laws of obligations This book should be read by all scholars and practitioners who are concerned with the laws of obligations, insurance or both It will shake them out of their insularity, make them question some of their pre-conceptions and provide much material for new debate and argument It might even make the judges have a rethink and some might say “about time too”! Sir Richard Aikens Lord Justice of Appeal Preface Ask any practising lawyer to describe the role of insurance in her or his professional activities, and the almost inevitable response will be: ‘Pervasive’ The lawyer must have liability insurance just to participate in the profession, and it is important to monitor potential third-party claims so that they can be notified to insurers and so that information can be gathered for renewal negotiations Everyday conveyancing requires the purchaser to be protected by insurance against the risk of destruction between contract and conveyance, and if funding is to be obtained from a mortgagee then there will be a demand for insurance protection over the secured property given that it is likely to be the borrower’s major asset Establishing a family trust entails obtaining professional indemnity insurance for the trustees, and setting up a company—whether family or multinational—entails obtaining directors’ and officers’ liability insurance for present and future incumbents A personal injury victim will almost inevitably be seeking to recover any award of damages from the liability insurers of the tortfeasor, and it may be necessary to make immediate contact with those insurers to make sure that they are aware of the proceedings as well as ascertaining from the victim whether he or she has insurance funding for the litigation Other victims seeking to recover damages for property or financial losses will be advised that it may only be worth pursuing a defendant who is insured, and in many such cases the victim will have first-party insurers who will pay losses and then seek to recoup their outlay by subrogation proceedings Moving to the world of commercial transactions—sales, construction, licensing and the rest—contract negotiations inevitably involve agreement between the parties on the allocation of risks, who is to bear them, and who is to insure against them The lawyer, in the same way as any other person tendering for work, may well have to satisfy the other party that there is adequate liability insurance in place to cover risk of loss All of these matters are about risk If a party faces the risk of injury or loss, insurance will be taken out by way of protection If a party is at risk of inflicting harm, insurance will be obtained to fund any award of damages If the parties are entering a contractual relationship, they will determine where risks lie The desire either to shift risk, or to protect against it where it cannot be shifted, is shared by most The law of obligations, embracing both contract and tort, has to be seen in this context If it is the case that litigation is conducted or funded by insurers, damages are generally paid by insurers, and the very incidence of liability is underpinned by insurance, why is it also the case that the relevance of insurance is ignored, and indeed often denied, in analyses of the law of obligations? Academic orthodoxy, to begin with a focus on tort law, has the starting point that tort liability (or non-liability) is dictated by personal responsibility, and that the duty and standard of care, and indeed causation, in any one case have to be determined by principle and not by wider distributive notions If that is right for tort, then it follows that contract liability should be determined in the same way Insurance, therefore, is a personal decision and is the mechanism for enforcement and the spreading of loss throughout society rather than the driver of viii Preface liability The fortuitous presence or absence of insurance therefore tells us nothing about how legal principle should be developed This book argues that the orthodox approach should be reappraised We suggest that an entirely different vision is possible if the starting point is relational All contracts to a greater or lesser extent encompass risk allocation, and such allocation, varying with the degree of the contract’s complexity, rests upon explicit insuring duties or implicit understandings as to how insurance is to be arranged Of course risk allocation is not perfect, and the unforeseen is inevitable, but the agreed or assumed incidence of insurance may inform the court in ascertaining the objective intentions of the parties Moving from there to tort, we then suggest that tort liabilities are relational to a far greater extent than has been recognized Professional negligence claims, actions against suppliers or contractors and employment injuries all spring from contracts Actions against neighbours, local authorities, medical practitioners and road users are, to a lesser and less obvious extent, also relational It is only rarely that a novel situation, calling for the application of principle or legal policy in the absence of a familiar or agreed risk allocation, arises Our analysis of insurance thus extends from the accepted distributional role to the equally significant but under-analysed relational role It may be appreciated that our analysis differs in one fundamental respect from much of what has gone before, and that is that we regard legal principle not as an overarching imposition of personal responsibility but, in many relationships, as a default mechanism If the parties can agree which of them should bear a risk, and they act accordingly, then as long as there are no public policy considerations and no harm is inflicted on third parties there is no reason for high principle to intervene and to reverse their arrangements (particularly where it thereby allows a particular party, often an insurer, to subvert those arrangements) Other, social mechanisms with an influence on the allocation of risks are also sometimes in play If particular activities raise familiar hazards (such as employing or driving), insurance may, as a matter of public policy, be demanded by the state In the case of driving, the form of that insurance has been closely defined We are of the view that the academic focus on the exceptional rather than the mundane distorts the portrayal of the significance of insurance in and to the law of obligations That point has been made before in relation to the mass of cases which never reach court and are dealt with instead through routine settlement processes heavily influenced by insurance and insurers Here we extend the point, in relation to the shaping of litigation and of legal doctrine The most fundamental objection to the doctrinal relevance of insurance perhaps stems from a fear that the ability of a person to insure, rather than legal principle and notions of personal responsibility, will thereby come to determine whether that person owes or is owed a duty or enhanced standard of care We suggest that this objection has no part to play where the incidence of established risks has been agreed or understood: if the legal system regularly trumps those arrangements or understandings, the response will be that both potential claimants and potential defendants will have to insure, thereby unnecessarily increasing the cost of their activities Our suggestion is, therefore, that once risks have been ascertained (by agreement or by law), the allocation arrangements (backed by insurance) adopted to deal with them should be honoured and not disregarded Looking at that allocation explains a lot about the outcome of Preface ix contract and tort cases But to bring insurance out from the shadows may assist understanding of legal principles in a range of other ways, also Certainly, it should assist in understanding the way that claims are framed—yet the framing of claims has been promoted within formalist approaches as an expression of the pure bipartite (or bipolar) relationship between two parties It will also draw more attention to the boundaries of acceptable risk-shifting and loss-spreading, and therefore to different aspects of the idea of ‘responsibility’, such as wrongdoing which goes beyond mere negligence, or breaches of duty which constitute personal rather than vicarious liability The implications of these factors for the very shape of the law have been underemphasized, because the habitual insurance of more routine risks and shortcomings (including vicariously) has also been neglected This book focuses on risk allocation, and also upon the role of insurance in spreading loss from the risks as allocated It is not a treatise on insurance law, but rather a discussion of why insurance matters to obligations lawyers and why disregarding insurance removes our understanding of a key element in how the law actually works, and how its principles are developed and deployed As we were writing, developments in the law seemed to us to sustain our view In particular, the prolonged development of mesothelioma litigation, the dispute as to whether expert witnesses should have immunity from suit, and the enhanced focus on the operation of compulsory motor insurance, all gave us the opportunity to extend our analysis to matters of current concern At the end of the day, we also hope that our analysis will help to equip obligations lawyers to make their own distinct contribution to the study of insurance as an important social institution We owe thanks to a number of individuals and organizations Jenny owes a large debt of thanks to the Leverhulme Trust, whose funding through a Major Research Fellowship on ‘Liability, Insurance, and Society’ has secured the necessary research leave in which to develop the ideas in this book, and to York Law School for its support We have had the help of a large number of colleagues in getting the book to completion In the closing stages, Charlie Bishop gave us invaluable assistance in the preparation of the manuscript Before that, various of the chapters were read in draft form and we benefited immeasurably from comments received from an almost embarrassing number of people Though none should be held responsible for emerging arguments, many thanks are due to Kit Barker, Jill Poole, Paula Giliker, Bob Lee, James Goudkamp, Matt Dyson, Malcolm Clarke, Andrew Tettenborn, Paul Mitchell, Jamie Lee, Phillip Morgan, TT Arvind, and Carol Forrest, for their help and generosity in this respect Meixian Song provided valuable research assistance on the history of workers’ compensation We would also like to thank the team at Oxford University Press, particularly Natasha Flemming and Emma Brady, for keeping this project on track so professionally at a very busy time And, finally, we would like to thank our families Jenny is grateful as ever to Adrian, Joe, and Theo for sharing valuable time with another book, and Rob is similarly grateful to Barbara for her accustomed forbearance 400 Insurance in Litigation the case may be, and can then claim the sums due under the policy in priority to other unsecured creditors.82 That is unaffected by the 2010 Act The matter is somewhat more complex in the case of an assured who has become insolvent at an earlier stage Where an assured protected by a liability policy83 has become subject to a statutory insolvency procedure84 prior to any judgment, the assured’s right to indemnification from the insurers is transferred to the third party However, there can be recovery from the insurers only if the liability of the assured has been established and quantified in proceedings against the assured itself The effect is that if the assured becomes insolvent, the third party must continue the proceedings until judgment, and only then can a claim be made against the insurers for the policy moneys It is not possible under the 1930 Act for the victim of an insolvent assured to transfer attention to the assured’s insurers as soon as the assured has become insolvent: that was established in Post Office v Norwich Union Fire Insurance Society,85 where the Court of Appeal held that an action against insurers before the assured’s liability had been established and quantified was premature In practice of course the actions will rarely be sequential, in that the insurers will be defending the proceedings on behalf of the assured or may be joined by one or other of the parties That means that if there is a dispute about the liability of the assured, and also a dispute about the liability of the insurers under the policy, those issues can be resolved in a single set of proceedings Commonly, the policy dispute is one of law which can be disposed of fairly quickly and thus an order may be given that it be tried as a preliminary issue in order to avoid a lengthy hearing on tortious liability if there are no policy moneys forthcoming at the end of it.86 Even if the insurers are not party to the proceedings, it is open to the third party to seek a declaration about the insurers’ liability on the policy in order to avoid embarking on a potentially expensive but inevitably fruitless tort claim.87 The need to establish and quantify the assured’s liability has proved to be somewhat problematic in the case of a long-tail injury, in particular one resulting after a period of years from exposure to asbestos or some other harmful substance It remains incumbent on the third party to establish and quantify the assured’s liability One of the many problems faced by the third party in doing so is that the assured may be a company that 82 The courts have allowed this procedure to be used against foreign companies: Re Allobrogia Steamship Corporation [1979] Lloyd’s Rep 190; Irish Shipping Ltd v Commercial Union Assurance Co Plc, the Irish Rowan [1991] QB 206; [1990] WLR 117 The 2010 Act, s 18, clarifies the territorial scope of the 2010 Act by confining its application to cases where there is an insolvency procedure against the assured in the UK 83 Including a legal expenses policy: Re OT Computers [2004] EWCA Civ 653; [2004] WLR 886, a decision codified by the 2010 Act, ss and 16 Section 1(5), however, excludes reinsurance, so that the policyholders of an insolvent insurer have no direct claims against reinsurers That remains the case under the 2010 Act, s 15 84 The procedures are listed in s 1(1) The 2010 Act contains an expanded list to reflect changes in insolvency law 85 [1967] QB 363; [1967] WLR 709 86 It was suggested in Wood v Perfection Travel Ltd [1996] LRLR 233, although the point was not resolved, that if insurers defended liability proceedings in the assured’s name, and only afterwards sought to rely upon a policy defence, they might be estopped from doing so on the basis that they had allowed the victim to waste time and money in pursuing a tort claim which the insurers had no intention of satisfying if it was established 87 This follows from the contingent rights reasoning in Re OT Computers [2004] EWCA Civ 653; [2004] WLR 886 Liability Insurance as a Means of Enforcing Judgments 401 has been dissolved by removal from the register of companies and has thus ceased to exist That situation arose in Bradley v Eagle Star Insurance Co88 where the House of Lords by a majority ruled that a dissolved company could not be sued following the expiry of a statutory two-year period of grace—then set out in the Companies Act 1984, s 651—running from dissolution, during which time a company may be restored to the register purely for the purpose of being sued Parliament responded speedily and commendably to remove this technical defence to proceedings, by amending the provision89 to extend the revival period for dissolved companies indefinitely for personal injury claims and to six years for property damage claims The relevant provisions are now enshrined in the Companies Act 2006, s 1030 A more elegant approach will be adopted when the 2010 Act comes into force The two-step (and in the case of a dissolved company, three-step) process demanded by the 1930 Act will be replaced by a single step If the assured becomes insolvent in the course of the proceedings, the action may proceed against the insurers although the assured may be joined so that the assured, if able, can make good any shortfall However, the third party must proceed against the insurers if there are available insurance moneys and the assured’s liability is excess only (s 14) The main advantage of a single set of proceedings is that it is possible for the court to order the trial of a preliminary issue for a declaration about coverage (s 2), in order to avoid a pointless liability action where no coverage exists This makes perfectly plain that recoverability may well be the priority issue 13.4.4 Effect of transfer on the insurers’ defences The transfer of rights under the 1930 Act is subject to any defences open to the insurers to a claim under the policy In the memorable words of Harman LJ in Post Office v Norwich Union Fire Insurance Society, the third party cannot ‘pick out the plums and leave the duff behind’.90 That means that the third party is in no better position than the assured as regards: coverage, including the sum insured91 and restrictions on recovery if other insurance is in place;92 and defences such as non-disclosure, misrepresentation, breach of warranty,93 breach of a condition relating to the conduct of the assured’s operations,94 late notification of a claim,95 failure to cooperate with the insurers after a claim has been notified,96 reaching a settlement without the consent 88 Bradley v Eagle Star Insurance Co [1989] AC 957; [1989] WLR 568 By the Companies Act 1989, s 141 [1967] QB 363; [1967] All ER 577 at 581 91 Avandero (UK) Ltd v National Transit Insurance Co Ltd [1984] Lloyd’s Rep 613 92 Phillips v Syndicate 992 Gunner [2003] EWHC 1706 (Comm); [2004] Lloyd’s Rep IR 418 93 McCormick v National Motor & Accident Insurance Union Ltd (1934) 40 Com Cas 76; Cleland v London General Insurance Co (1935) 51 Ll LR 156 94 George Hunt Cranes Ltd v Scottish Boiler and General Insurance Co Ltd [2001] EWCA Civ 1964; [2002] Lloyd’s Rep IR 178 95 Hassett v Legal and General Assurance Society Ltd (1939) 63 Ll LR 278; Farrell v Federated Employers Insurance Association Ltd [1970] WLR 1400; Monksfield v Vehicle and General Insurance [1971] Lloyd’s Rep 139; Pioneer Concrete (UK) Ltd v National Employers Mutual General Insurance Association Ltd [1985] Lloyd’s Rep 274; Cox v Bankside Members Agency Ltd [1986] QB 211; Total Graphics Ltd v AGF Insurance Ltd [1997] Lloyd’s Rep 599; Alfred McAlpine v BAI (Run-off) Ltd [2000] Lloyd’s Rep 437 96 K/S Merc-Skandia v Certain Lloyd’s Underwriters [2001] EWCA Civ 1275, [2001] Lloyd’s Rep 563 89 90 402 Insurance in Litigation of the insurers where such consent is required,97 admitting liability to the third party,98 and submitting all disputes to arbitration.99 The statutory limitation period for the assured’s claim against the insurers also applies to any claim by the third party.100 If the assured has not paid the premium, then the insurers have a right of set-off against any policy moneys.101 In the absence of a clear statutory policy of the type to be found in the Road Traffic Act 1988, there can be little justification for requiring the insurers of an insolvent assured to make payment to the assured’s victim even though there was no coverage under the policy: that would be to change the nature of liability insurance to some form of guarantee fund More difficulty is occasioned by breach of policy terms by the assured, particularly where those terms relate to claims If the assured is facing insolvency and has no reputation to preserve, he may be indifferent as to whether or not to claim against his liability insurers, although if he fails to so then breach of any claims term expressed to be a condition precedent will defeat the third party’s own claim under the 1930 Act Accordingly, the failure to comply with claims conditions may be a side-effect of the very insolvency whose effects the 1930 Act seeks to overcome Outside the contexts of motor insurance and employers’ liability insurance, where the conduct of the assured after the loss cannot defeat the right to claim, the courts have been confined to their traditional weapons of denying notice provisions the status of conditions precedent, and of narrow construction of the obligations imposed, to protect third-party claimants.102 Inevitably there are textual limits to what can be done Even where a clause is found not to be a condition precedent but there is nevertheless breach, the third party may be adversely affected by an award of damages representing loss of opportunity on the part of the insurers to defend the claim.103 Partial relief will be conferred on the implementation of the 2010 Act Section restricts the right of insurers to rely upon breach of claims provisions, bringing the general law into line with motor and employers’ liability claims Any clause which requires the assured to notify personally is treated as satisfied if the third party notifies (s 9(2)) Further, if there is an obligation to provide information to, or to cooperate 97 Horwood v Land of Leather Ltd [2010] EWHC 546 (Comm); [2010] Lloyd’s Rep IR 453 Post Office v Norwich Union Fire Insurance Society [1967] QB 363; [1967] WLR 709; Total Graphics v AGF Insurance [1997] Lloyd’s Rep 599 But note that an employee claiming under the 1930 Act has the benefit of the principle in the Employers’ Liability (Compulsory Insurance) Act 1969 which prevents the insurer from pleading post-loss breaches of condition 99 The Jordan Nicolov [1990] Lloyd’s Rep 11 This case, one of assignment rather than statutory transfer, also decides that if the arbitration proceedings are ongoing at the time of the transfer then the assignee simply takes over the proceedings, although the point is not straightforward: contrast The Felicie [1987] Lloyd’s Rep 299, to the effect that fresh proceedings have to be commenced 100 Lefevre v White [1990] Lloyd’s Rep 569 The limitation period for the assured’s claim is six years from which the liability of the assured has been established and quantified However, if the assured becomes insolvent after it has commenced proceedings and the limitation period has expired at the date of its insolvency, the victim is required to commence fresh proceedings and will be time barred, as shown by Lefevre itself The problem can be overcome by the third party seeking permission to be substituted as a party in place of the assured under CPR Part 19 101 Cox v Bankside Members Agency Ltd [1995] Lloyd’s Rep 437, rejecting the contrary view in Murray v Legal and General Assurance Society Ltd [1970] QB 495; [1970] WLR 465 102 Chapter 103 Milton Keynes BC v Nulty [2011] EWHC 2847 (TCC) where the court assessed damages as 15 per cent of the claim, a measure which was admittedly unscientific and arbitrary That issue was not raised on appeal [2013] EWCA Civ 13 98 Liability Insurance as a Means of Enforcing Judgments 403 with, the insurers, it is to be disregarded if the assured is a dissolved company or a deceased individual (s 9(3)) and even if the assured remains in existence (s 9(4)) The section is not a model of clarity, and it would appear not to apply to a failure to notify claims made insurers of circumstances which may give rise to a claim, but it seems to operate perfectly well for policies that respond to exposure or injury It would seem that conditions precedent are to be disregarded, and breach of other conditions will not lead to a deduction from damages There is also a minor change in the law as regards sums owing by the assured to the insurers: the 2010 Act, s 10, retains the position under the 1930 Act that the amount of premium due under the policy can be set off against the sums payable, but set-off is not permitted in respect of any sums due by the assured to the insurers from other dealings between them 13.4.5 Protecting the third party against loss of rights Two steps are taken by the 1930 Act, replicated in the 2010 Act, to protect the third party against agreements which might undermine the operation of the legislation The first, s 1(3), negatives any term which ‘purports, whether directly or indirectly, to avoid the contract or to alter the rights of the parties upon the happening to the insured of [any insolvency event]’ The purpose is to prevent a policy from stating that cover is withdrawn in the event of the assured’s insolvency, a provision which at one time featured in the rules of P&I Clubs The second, s 3,104 prevents any post-insolvency settlement between the assured and the insurers under which the assured settles a pre-existing claim by a third party for a sum which may be insufficient to meet that claim The section is an illustration of the concept that, once the assured has become insolvent, the third party has a contingent claim against the insurers which crystallizes on the establishment and quantification of the assured’s liability to the third party Section does not deal with the situation in which an assured, facing liability to the assured but at that stage in an insolvency procedure, agrees a settlement with the insurers for a figure significantly less than the ultimate claim:105 that type of arrangement may well prejudice a third party, and it has been argued—albeit unsuccessfully on the facts—that if the agreement is designed to remove the insurance fund from the third party then the parties to it are guilty of conspiracy.106 Again, although primarily of significance to the assured rather than to the third party, s has no application to settlements negotiated between the insurers and the third party.107 13.4.6 Pay to be paid clauses One particular problem which has proved to be incapable of satisfactory resolution under the 1930 Act is the operation of the ‘pay to be paid’ provision commonly found in the rules of P&I Clubs in respect of shipowners’ liabilities Under the clause, a shipowner facing liability must make payment in order to receive indemnification, a 104 106 107 105 2010 Act s 17 Normid Housing Association Ltd v Ralphs [1989] Lloyd’s Rep 265 Rowe v Kenway & United Friendly Insurance Co (1921) Ll LR 225 Re T&N Ltd (No 4) [2006] EWHC 1447 (Ch); [2006] Lloyd’s Rep IR 817 404 Insurance in Litigation requirement which is impossible for an insolvent shipowner to fulfil The House of Lords in a joined appeal, The Fanti and The Padre Island (No 2),108 concluded that the words ‘shall become liable to pay and shall in fact have paid’ rendered the Club’s liability conditional on payment by the shipowner, and if that payment could not be made then the Club could not be required to provide an indemnity Their Lordships further held that a pay to be paid clause was not nullified by the s 1(3) prohibition on varying the assured’s rights on insolvency, because the pay to be paid clause applied whether or not the assured was solvent and simply imposed a pre-payment requirement in all cases In so deciding, their Lordships drew a distinction between a legal variation of rights after insolvency and a practical variation of rights after insolvency, the former but not the latter falling within s 1(3) It is apparent that a pay to be paid clause does not vary the legal requirement for indemnity, but it plainly varies the latter The solution to the problem has been the practice of Clubs not to rely upon pay to be paid clauses in personal injury cases but to confine their operation to cargo and other property damage claims faced by the shipowner from third parties That practice will be given legal effect on the implementation of the 2010 Act Pay to be paid clauses are rendered ineffective in personal injury cases although they are otherwise permitted (s 9(5)–9(6)) 13.4.7 Allocation of policy moneys The policy moneys payable may be insufficient to meet the claims against the assured Two questions here arise: if there are competing claims to the limited fund, what rules of priority apply; and what is the personal liability of the assured? The legislation is silent on competing claims The point can arise where different claims result from entirely distinct acts of negligence against different people, or where the assured has committed a mass tort which affects a large number of people in the same class, for example employees or purchasers of dangerous products The ordinary rule as regards insurance claims is that they are to be treated in the order in which they occur Under a property policy the assured’s claim accrues as soon as the insured peril occurs, and it would be logical to assume that the policy moneys are to be allocated chronologically As far as a liability policy is concerned, the trigger for indemnity is the establishment and quantification of the assured’s liability by means of a judgment award or settlement, and we have already seen that the policy responds on a chronological basis so that the assured cannot seek to order claims so as to maximize insurance recoveries.109 But is there any reason to apply the same analysis to thirdparty claims? One approach might be to ascertain the sum of all claims against the assured and to allocate policy moneys pro rata between them, an approach which has the greatest appeal in a mass tort case, in that each of the third parties is in more or less the same position and their rights should not rest on the delays and other vagaries of litigation and in particular the competence of their lawyers However, pro rata 108 [1991] AC 1; [1990] WLR 78 Teal Assurance Company Ltd v W R Berkley Insurance (Europe) Ltd [2011] EWCA Civ 1570; [2012] Lloyd’s Rep IR 315, discussed in Chapter 12 109 Concluding Thoughts 405 allocation has the distinct disadvantage that it may be impossible to identify all of the potential claimants so that aggregate losses cannot be ascertained That is particularly true where a policy responds to acts of negligence occurring within its currency: if the negligence consists of exposure to a harmful substance, the effects of that substance may not be known for many years and some individuals will be affected before others Delaying payment until there is no further possibility of new claims is unfair on those who have established and quantified their injuries, and the best that could be achieved is some form of interim payment procedure This argument is of more or less equivalent strength where the policy responds to injuries suffered within the policy period, because such injuries may take many years to manifest The argument against apportionment is perhaps at its weakest where the policy is written on a claims made basis, because it will be obvious in any one policy year what claims there are going to be But even under that form of recovery there remains uncertainty, because claims made policies also allow for the notification of circumstances which may give rise to a claim and deem any later claim to be made in the year of notification So once again there are potential delays Phillips J discussed the point in Cox v Bankside Members Agency Ltd,110 one of the key decisions in the Lloyd’s litigation which produced Reconstruction and Renewal in 1996 A substantial number of individuals who were Names at Lloyd’s commenced proceedings for negligence against their Members Agents’ advice on the spread of investments in Lloyd’s syndicates The litigation was conducted under a management plan although judgments were obtained by different individuals at different times Phillips J opted for a ‘first-past-the-post’ principle for the allocation of the policy moneys, relying upon the general law applicable to liability insurance and the potential for open-ended delay before all claims could be resolved The 2010 Act leaves the firstpast-the-post principle untouched 13.5 Concluding Thoughts This chapter has focused on the practicalities of litigation and the role that insurance plays in it We have not attempted to give a comprehensive picture, but we have drawn attention to the points at which insurance can have a decisive influence on whether a claim is brought, how it is defended, how it is settled, and whether it is actually paid In our view the neglect by scholars of some aspects of this topic, which is the daily fare of practising lawyers, may give a distorted view of how the law of obligations works There has of course been much academic study of the operation of the civil justice system, and in particular of the manner in which personal injury claims are settled in the light of the fact that the vast majority are defended by insurers rather than the wrongdoer.111 Nevertheless, scholarly texts on the law of obligations for the most part fail to 110 [1995] Lloyd’s Rep 437 Examples include H Genn, Hard Bargaining: Out of Court Settlement in Personal Injury Actions (Oxford: Clarendon Press, 1987); D Harris et al., Compensation and Support for Illness and Injury (Oxford: Clarendon Press, 1984); T Ison, The Forensic Lottery (London: Staples Press, 1967); D Elliott and H Street, Road Accidents (Harmondsworth: Penguin, 1968) 111 406 Insurance in Litigation emphasize the pervasive nature of insurance at the dispute-resolution stage for all classes of disputes In particular, while there is some recognition of the fact that most tort judgments are defended by liability insurers, there is less understanding that most tort judgments are in fact paid by liability insurers under legislation which does not necessarily guarantee that the liabilities will be satisfied It is in our view important for students of the subject to understand why, for example, motor claims are nearly always paid, whereas other negligence claims have to be framed with care to establish a cause of action which is likely to be covered by insurance, and run the risk of not being paid even if liability is established Further, attention is not always drawn to the fact that insurers will regularly be the real claimants in a dispute where they are exercising subrogation rights, or they will be standing behind the claimant because they are funding the proceedings That has profound effects on settlements in all classes of case, not just personal injury actions Index 100 per cent: definition 167 accident insurance: accident defined 75, 269, 350, 356 early developments in personal accident insurance 59 no-fault liability for accidents at work 253 actuarial model: applicability 9–10 illegal conduct in relation 329 ‘insurance technology’ model in relation 29 loss-spreading in relation 26, 139, 156–7 relational model in relation 5, 17–25, 34, 37 responsibility in relation 30 uncertainty factor 28, 31–4 advice to purchasers of premises: tort and risk allocation in relation 228–34 vulnerability defined 232–3 after the event (ATE) insurance: before reform 388–90 following reform 390–1 aggregation: definition 71 liability insurance 70–3 allocation of risk, see risk allocation asbestos litigation: claims against and between insurers 376–9 ‘disease contracted’ defined 371–2 establishment of tort liability 365–7 ‘injury sustained’ defined 371 insurance and liability in relation 363–4, 381–2 insurance coverage leading cases 369–78 liability for personal injuries 367–9 mesothelioma 364–5 reinsurance claims 379–81 ‘assumption of responsibility’: absence of 344 definition 234 duty of care 205 attribution: theory of vicarious liability 322 vicarious liability distinguished 321 Australia: compulsory liability insurance 262 illegal conduct 358 illegality defences 333 insurable interest 51 ‘insurance crisis’ 392 insurer solvency 175 liability insurance 76 litigation 394, 396 loss-spreading 142, 150, 161 marine and non-marine risk distinguished 39 no-fault liability for accidents at work 253 proportionate liability 334 recoverability 335 regulatory approach 78 reinsurance 150, 156 risk allocation 216, 242, 246 subrogation 100, 111, 124–5, 135 terms and conditions 55–6 unjust enrichment 101 vulnerable parties 233 avoidance of policy: motor insurance 274 ‘barratry’: definition 318–19 before the event (BTE) insurance: litigation funding by 386–8 bipartite model: as definitional issue effect of 208, 216 relevance of 14, 19, 164, 206, 207, 211, 220, 222, 265, 269, 304, 328 use of 98, 218, 226, 230, 231, 301 Canada: compulsory liability insurance 270 illegal conduct 334, 336, 351, 358 litigation 394 risk allocation 189, 207, 216, 218, 221, 237 subrogation 124, 134 vicarious liability 306, 307 cancellation: definition 171 car park: definition 267 causation: motor insurance 270 claims: defences to, see defences reinsurance, see reinsurance settlement clauses 153 classes of insurance: overview 39–41 co-insurance: construction contracts, see risk allocation common employment defence and doctrine of 281–2, 284, 293, 313, 314, 315, 316–17 compensation: motor insurance 271–2 ‘compensation culture’: insurance litigation 391–3 composite insurance: construction contracts, risk allocation 196–7 ‘joint names’ defined 196–7 compulsory liability insurance: current state 257–60 employers’ liability insurance, see employers’ liability insurance 408 Index compulsory liability insurance: (cont.) importance 256–61 introduction to 251 legislation 256–7 motor insurance, see motor insurance rationales for 260–1 tort in relation 251–5 vicarious liability 252, 254, 256, 266, 284 conditions: policy terms 54–6 ‘consistency’: definition 336 construction, see interpretation construction contracts: duty of care 195, 221, 222, 223, 224, 225, 226, 227, 228 ‘hub and spokes’ pattern 208 risk allocation, see risk allocation ‘continuous trigger’ theory of liability: loss-spreading in relation 154, 381 contract for insurance: anatomy of 44–5 ‘carrying out or effecting contracts’ defined 40 definitional issues 11, 38–43 drafting 46–9 historical origins 44 interpretation 48–9 introduction to 37–8, 56, 76 judicial approach of UK and US contrasted 49, 56, 76 law of duty of utmost good faith 52–4 insurable interest and indemnity 50–2 policy terms 54–6 sources 49–50 loss-spreading in relation 33 obligations 10–11 placement process 45–6 principles 44–56 relevance of US scholarship to UK 47–8 risk allocation, see risk allocation risk pooling in relation 11, 47 standard forms 46–9 standardized contracts 48 types, see entries for specific types of insurance ‘wager’ defined 43 ‘contractual matrix’ cases, see risk allocation contribution: double insurance 142–3 principle 143–6 role of 141–2 contributory negligence Australian reform 392 distributive implications of 263 employment claims 282, 287 fault requirement 220 illegal conduct 336 reform of 262–3, 314, 335 credit insurance: allocation of insolvency risk 174–6 criminal conduct, see illegal conduct Criminal Injuries Compensation Scheme: loss caused by terrorism 277–8 ‘deep pockets’ thinking: insurance and liability in relation 8–9 defective performance: risk allocation, see risk allocation defences: breach of duty of utmost good faith 256, 264, 274, 294 common employment 281–2, 284, 293, 313, 314, 315, 316–17 contributory negligence, see contributory negligence ex turpi causa, see illegal conduct voluntary assumption of risk, see volenti non fit injuria definitions, see words and phrases ‘disease contracted’: definition 371–2 double insurance: contribution in relation 142–3 definition 142 double recovery: life insurance 118–22 personal injury 122–8 drunk driver insurance coverage 274 duty of care absence of 344 advice to purchasers of property 229, 231 allocation of risk 211, 216, 220 ‘assumption of responsibility’ as prerequisite 205 Australian rules 392 construction contracts 195, 221, 222, 223, 224, 225, 226, 227, 228 employees 189, 218 employers 281 liability in tort 365 Lloyd’s 84–5 loss-spreading 144 negligence 195, 212–14, 215 public bodies 105, 136, 235, 239, 242 duty of utmost good faith, see utmost good faith economic loss: definition 215 employee: definition 303 employers’ liability insurance, see also workmen’s compensation: asbestos litigation 367–78 early common law position 281–2 ‘employee’ defined 303 Employers’ Liability Act 1880 282–5 Employers’ Liability (Compulsory Insurance) Act 1969 background 294–5 operation 295–7 introduction to 280, 297–8 no-fault liability for accidents at work 253 origins of modern system 292–4 personal injury 368 ‘worker’ defined 303 ‘workmen’ defined 284 Index employment: contributory negligence 282, 287 employees’ duty of care 189, 218 employers’ duty of care 281 identification of tortfeasor’s employer 324–7 tort and risk allocation in relation 247–50 enforcement of judgments, see litigation engineering contracts: risk allocation, see risk allocation European Union: compulsory liability insurance 253, 263, 266, 268, 269, 271, 272, 274, 275, 278, 287 contract 47 illegal conduct 345 insurer solvency 84, 91, 92 regulatory approach 81, 82–3 reinsurance 157 risk allocation 191 Single Insurance Market 77–8, 87 ex turpi causa, see illegal conduct exclusion of liability: construction contracts 193 criminal or fraudulent acts 322 explosion: definition 154 failure to insure: criminal sanction 267, 296 false or misleading statements: criminal sanctions 82 fault: contributory negligence 220 definition 335 financial markets: convergence with insurance 34 Financial Services and Markets Act 2000: insurance regulation 80–3 fire insurance: early developments in 59 fire defined 174 first party insurance: defective performance as to risk allocation 184–6 third party insurance in relation 37–8 flood: definition 161 follow settlements clauses: losses under facultative reinsurance contracts 153 ‘fortuity’ argument: insurance and liability in relation 8–9 general reliance theory: risk allocation 242 good faith: duty of utmost good faith 52–4 harmonization, see European Union Hong Kong: liability insurance 75 litigation 394 no-fault liability for accidents at work 253 risk allocation 185 409 illegal conduct: actuarial model 329 claims against insurers assured as malefactor 358–60 ex turpi causa defence of 347–9 motor insurers 350–5 policy terms 349–50 no claim possible 319 other liability insurance claims 355–8 claims against policyholders legal principles 339–41 narrow rule of ex turpi causa 341–3 wide rule 344–7 ‘consistency’ defined 336 contributory negligence 336 Criminal Injuries Compensation Scheme 277–8 exclusion of liability 322 failure to insure 267, 296 false or misleading statements 82 ‘fault’ defined 335 intoxicated driver, insurance coverage 274 introduction to 329–31, 360–1 losses arising from 68 misleading contract terms and unfair practices 191 principles of illegality 331–9 public policy defence 335–9 unauthorized carrying on of regulated activity 81 vicarious liability 348 indemnity: insurable interest in relation 50–2 liability insurance 70–3 indemnity insurance: as alternative to reinsurance 157 general principle of 12 incidence of 246 introduction of 61 uncertainty as to boundaries of 124 use of 63, 349, 360 subrogation 109 India: no-fault liability for accidents at work 253 injury, see personal injury ‘injury sustained’: definition 371 insolvency of insurers: regulation 84, 91–3 risk allocation credit insurance 174–6 insurance and lending 170–4 introduction to 170, 176 insurable interest: definition 50, 51–2 indemnity in relation 50–2 insurance: actuarial model, see actuarial model aim and main arguments of book 3–4, 13–15 bipartite model, see bipartite model cancellation defined 171 challenges to understanding of 5–10 characteristics and concepts 17–35 classes 39–41 410 Index insurance: (cont.) contract, see contract for insurance ‘deep pockets’ thinking 8–9 definitional issues 5, 25–9 ‘fortuity’ argument 8–9 legal definitions 41–3 legal principle and practice in relation 7–8 litigation, see litigation long-term business classes 41 market, see insurance market models of, see also actuarial model; bipartite model; relational model 9, 17–25 obligations, see obligations as ‘policy’ factor 8–9 premium, see premium reform, see law reform regulation, see regulation relational model, see relational model responsibility in relation 30–1 risk, see risk; risk allocation types, see entries for specific types of insurance uncertainty factor 31–4 insurance companies: regulation 78–80 ‘insurance crisis’: insurance litigation 391–3 insurance intermediaries: regulation 85–7 insurance market: convergence with financial markets 34 development 56–63 EU Single Insurance Market 77–8, 87 reform, see law reform risk allocation, see risk allocation theories as to growth 56 tort in relation 60–3 types of insurance, see entries for specific types of insurance ‘insurance technology’: definition 29 insurance treaties: reinsurance losses under 155–6 insurer solvency, see insolvency of insurers interpretation: approach to 48–9 motor insurance legislation 278 UK and US approach contrasted 49, 56, 76 intoxicated driver insurance coverage 274 Ireland: asbestos litigation 365 regulatory approach 78 joint names: definition 196–7 judgments, enforcement, see litigation judicial interpretation, see interpretation law and economics: ‘insurance technology’ model of insurance 29 law of obligations, see obligations law reform: compulsory liability insurance 251, 258, 262, 263, 281, 282, 283, 285, 286, 289, 293, 295 after the event (ATE) insurance 388–91 illegal conduct 331, 335 insurable interest 51–2 insurance contract 51, 53, 55, 78, 219 insurance market 21, 80, 161 litigation 384, 392, 396, 398 Lloyd’s 83 risk allocation 205, 212, 248 subrogation 100, 129, 132, 135 terms and conditions 55–6 theoretical bases 7, utmost good faith 88 vicarious liability 314 legal expenses insurance (LEI): litigation funding by 386–8 lending: insurance in relation 170–4 liability, see also vicarious liability: ‘continuous trigger’ theory 154, 381 ‘deep pockets’ thinking 8–9 exclusion as to risk allocation 189–94 motor insurance in relation 278–80 no-fault liability for accidents at work 253 ‘primary liability’ theory 301, 307, 334 proportionate liability 334 recoverable loss in relation 6–7 strict liability as to workmen’s compensation liability insurance: aggregation 70–3 defective performance as to risk allocation 186–9 events triggering 68–70 indemnity 70–3 legality issues 64–8 liability in relation 73–6 ‘likely’ defined 70 litigation, see litigation loss-spreading in relation 303 types 63–4 workmen’s compensation 68, 294, 303, 315, 316 life insurance: double recovery 118–22 early developments in 59 ‘likely’: definition 70 Lister v Romford Ice: decision as to subrogation 130–2 restriction of impact 132–4 litigation: asbestos, see asbestos litigation ‘compensation culture’ 391–3 defence by liability insurance 393–5 enforcement of judgments allocation of policy moneys 404–5 effect of transfer on insurers’ defences 401–3 need for enforcement mechanism 395–8 obtaining insurance information 398–9 pay to be paid clauses 403–4 protection of third party against loss of rights 403 transfer of rights 399–401 funding 386–93 ‘insurance crisis’ 391–3 Index introduction to 383–4, 405–6 planning of insurance litigation 384–5 Lloyd’s: regulation 83–5 long-term business: classes of 41 loss: ‘economic loss’ defined 215 from illegal activity 68 ‘loss occurrence’ defined 161 recoverable, see recoverable loss reinsurance, see reinsurance terrorism 277–8 loss-spreading, see also risk pooling: actuarial model in relation 26, 139, 156–7 authors’ argument as to 13 contract in relation 33 contribution, see contribution definition 18 development 307 duty of care 144 insurance defined as introduction to 5–6, 9–10, 139 as legislative policy approach 104 liability insurance 303 misconceptions 139–41 motor insurance 261, 266 negligence in relation 12 operation 29 reinsurance, see reinsurance risk allocation in relation 12, 33, 129 subrogation in relation 105, 135 tort in relation 4, 21, 203, 204, 253 vicarious liability, see vicarious liability workmen’s compensation 317 marine insurance: ‘barratry’ defined 318–19 early developments in 57–9 ‘perils of the sea’ defined 173 ‘master’s tort’ theory: vicarious liability 301, 321, 328 mesothelioma, see asbestos litigation misleading contract terms and unfair practices criminal sanctions 191 misleading statements criminal sanctions 82 motor insurance: ‘any one accident’ defined 269 avoidance of policy 274 car park defined 267 causation 270 civil sanction for infringement 267–9 claims against insurers, see illegal conduct compensation 271–2 coverage 272–4 employers’ liability insurance in relation 295, 296 fault principle 244 judicial interpretation of legislation 278 liabilities to be insured 269–70 liability in relation 278–80 loss-spreading in relation 261, 266 Motor Insurers Bureau, see Motor Insurers Bureau obligation to insure 267 411 Road Traffic Act 1988 263–7 tort in relation 261–3 workmen’s compensation in relation 263, 264, 351, 397 Motor Insurers Bureau (MIB) contractual agreements 253 Central Fund agreement 1946 265, 266 Central Fund extension agreement 1969 266 function of 266 Uninsured Drivers Agreement 268, 274, 274–5, 275–6, 345–7, 348, 352–3, 354 Untraced Drivers Agreement 276–8 negligence: Australian law reform 392 contributory, see contributory negligence duty of care, see duty of care gross 287, 350 law of 12, 116, 136, 212, 235, 238, 262, 334 liability 213, 229, 238, 266, 343 loss-spreading in relation 12 New Zealand: general reliance theory 242 insurable interest 51 litigation 396 no-fault liability for accidents at work 253 regulatory approach 78 reinsurance 150 risk allocation 216, 242 state as primary insurer 160–1 terms and conditions 55–6 no-fault liability: accidents at work 253 obligations: contract 10–11 law of, insurance in relation 1, 4, 5, 6, 9, 10, 13, 17, 21, 24, 31, 33, 34 tort 11–12 unjust enrichment 12–13 parametric model: as alternative to reinsurance 157 pay to be paid clauses: insurance litigation 403–4 ‘perils of the sea’ defined: definition 173 personal accident insurance: early developments in 59 personal injury: asbestos litigation 367–9 double recovery 122–8 ‘injury sustained’ defined 371 placement of risk: process of 45–6 policy moneys: allocation 404–5 policy terms: law of 54–6 policyholder protection: policyholder defined 92 regulation 87–93 premium: definition 389 412 ‘primary liability’ theory: vicarious liability 301, 307, 334 proportionate liability: development 334 public bodies: duty of care 105, 136, 235, 239, 242 risk allocation, see risk allocation subrogation 135–6 vicarious liability 245 public liability insurance: ‘any one accident’ defined 269 public policy defence: illegal conduct 335–9 recoverable loss: illegal conduct 334–5 liability in relation 6–7 reform, see law reform regulated activity unauthorized carrying on of 81 regulation: European, see European Union Financial Services and Markets Act 2000 80–3 foreign, see entries for specific jurisdictions insurance companies 78–80 insurance intermediaries 85–7 insurer solvency 91–3 introduction to 77–8, 93 Lloyd’s 83–5 policyholder protection 87–93 private law and public law in relation 87–91 Scotland, see Scotland reinsurance: asbestos litigation 379–81 contract terms 150–1 definition 147 introduction to 146–7 losses under facultative contracts establishment of claim 151 follow settlements clauses 153 proof of reinsured’s liability 152 proof of reinsurer’s liability 153–5 losses under insurance treaties 155–6 nature of 147–50 new forms of 156–7 riot damages 157–9 risk pooling in relation 146, 379 by state 159–61 relational model: actuarial model in relation 5, 17–25, 34–5, 37 legal definitions of insurance 41 responsibility: insurance in relation 30–1 riot damages: reinsurance 157–9 risk: allocation, see risk allocation development of insurable 56–63 insurance in relation 5–6 loss-spreading, see loss-spreading placement process 5–6 transfer 5–6 uncertainty factor in relation 31–4 Index risk allocation: ‘100 per cent’ defined 167 adequacy as model of contracting 10–11, 13 ‘assumption of responsibility’ defined 234 construction contracts advice, see advice to purchasers of premises common concerns 169 ‘contractual matrix’ cases 227 effects of co-insurance policy 198–9 exclusion of liability 193 first party insurance 186 introduction to 194–6 limits on co-insurance protection 200–1 role of insurance 179 use of co-insurance clauses 197–8 use of composite insurance 196–7 contract law and market in relation 166–7 contracting and insurance in relation 163–6, 176–7 defective performance exclusion of liability 189–94 first party insurance 184–6 issues overviewed 194 liability insurance 186–9 no agreement on risk allocation 182–3 solutions to problem of 179–82 duty of care 211, 216, 220 ‘economic loss’ defined 215 employers’ duties to employees 247–50 general reliance theory 242 insolvency risk credit insurance 174–6 insurance and lending 170–4 introduction to 170, 176 introduction to 163–8, 201 key issues 168–70 loss-spreading 5–6 loss-spreading in relation 12, 33, 129 public bodies 235–44, 247 relevance of insurance 167–8 subrogation 128–36 tort in relation argumentational developments 215–17 construction and engineering advice to purchasers of premises 228–34 ‘contractual matrix’ cases 221–8 issues overviewed 234–5 ‘contractual matrix’ cases 217–21 introduction to 203–12, 250 issues overviewed 210–12 negligence duties 212–15 risk structures 206–10 use of insurance 177–9 vicarious liability in relation 179, 189, 196, 245 risk pooling: contract in relation 11, 47 insurance defined as 5, 22, 25, 27, 29, 32 loss-spreading in relation 10, 13, 26, 139–40, 142 reinsurance in relation 146, 379 relevance of use of Road Traffic Act 1988: motor insurance 263–7 Index Scotland: asbestos litigation 364, 365 compulsory liability insurance 260, 282 insurable interest 51–2 insurance law review 50 insurer solvency 173, 175 litigation 389 risk allocation 179, 186, 189, 226 subrogation 103 utmost good faith 88 secondary liability: vicarious liability as 14, 301–3, 334–5 ‘servant’s tort’ theory: vicarious liability 328 settlement of claims: follow settlements clauses 153 Singapore: no-fault liability for accidents at work 253 Single Market, see European Union standard forms: drafting of contract 46–9 state: as reinsurer 159–61 subrogation: Australian reform 135 basis of 106–15 classification 106–11 critique of 128–30 double recovery life insurance 118–22 personal injury 122–8 excluded policies 118–28 introduction to 97–102, 136–7 issues overviewed 102–6 Lister v Romford Ice as example decision 130–2 restriction of impact 132–4 loss-spreading in relation 105, 135 nature and influence 97–8 operational limits 115–18 public bodies 135–6 rationales for 111–15 risk allocation and loss distribution in relation 128–36 theories of 98–102 unjust enrichment 101 vicarious liability in relation 114, 130 terms and conditions: insurance contracts 54–6 terrorism loss: Criminal Injuries Compensation Scheme 277–8 third parties: protection from loss of rights 403 third party insurance: first party insurance in relation 37–8 tort: ‘assumption of responsibility’ defined 234 compulsory liability insurance in relation 251–5 defences, see defences definitional issues as to tort duties 205, 207, 208, 213, 215, 249, 250 ‘economic loss’ defined 215 insurance market in relation 60–3 413 liability and duty of care in relation 365 loss-spreading in relation 4, 21, 203, 204, 253 ‘master’s tort’ theory 301, 321, 328 obligations 11–12 risk allocation in relation, see risk allocation ‘servant’s tort’ theory 328 ‘tort as insurance’ model 253 tortfeasor: identification of employer 324–7 transfer of rights: enforcement of judgments, see litigation treaties: reinsurance losses under 155–6 two-party model, see bipartite model uncertainty factor: actuarial model of insurance 28, 31–4 uninsured/untraced drivers, see Motor Insurers Bureau United States: aggregation 73 asbestos litigation 380–1 compulsory liability insurance 251, 255, 266, 281, 282, 298 convergence of insurance and financial markets 34 illegal conduct 330, 335 insurable interest and indemnity 52 interpretative approach 48–9 judicial approach to contract contrasted with UK 49, 56, 76 litigation 392–3 loss-spreading 154, 156, 317 negligence and tort 62 products liability 21, 62 regulatory approach 78, 84 reinsurance 147, 153 relevance of US scholarship to UK 24–5, 47–8 risk allocation 215, 317 standardized contracts 48 subrogation 97, 98, 100, 102, 107, 112, 113, 119, 121, 125, 126, 127, 128, 129 workmen’s compensation 289 unjust enrichment: obligations 12–13 subrogation 101 utmost good faith: breach of duty 256, 264, 274, 294 concept of 25 duty of 38, 43, 52–4, 149 fairness in operation of 50 modified rules of 88 vicarious liability: attribution distinguished 321 attribution theory 322, 328 ‘barratry’ defined 318–19 compulsory liability insurance 252, 254, 256, 266, 284 contractual structure in relation identification of tortfeasor’s employer 324–7 risk allocation 323–4 essential features 304–7 illegal conduct 348 414 vicarious liability: (cont.) incidence 62, 307–8, 342 introduction to 301–4, 328 loss-spreading association with 14, 302, 308, 327, 328 basis of insurance cover 318–22 contractual limits 322–3 contractual origins 310–15 growth of 315–17 insurance in relation 318–23 risk allocation in relation 309–17 role of 309–10 ‘master’s tort’ theory 301, 321 ‘primary liability’ theory 301, 307, 334 public bodies 245 rationales for 309–10 risk allocation in relation 179, 189, 196, 245 as secondary liability 14, 301–3, 334–5 ‘servant’s tort’ theory 328 subrogation in relation 114, 130 volenti non fit injuria absence of 344 applicability of 262, 282, 287, 336 voluntary arrangements: risk allocation, see risk allocation vulnerable party: vulnerability defined 232–3 ‘wager’: agreements 347 definition 43 insurance contracts in relation 38 Lloyd’s 83 policies 39, 57, 59 prevention of 39, 51 reinsurance 147 subrogation 124 warranties: policy terms 54–6 words and phrases: 100 per cent 167 accident 350, 356 aggregation 71 any one accident 75, 269 assumption of responsibility 234 barratry 318–19 Index cancellation 171 car park 267 carrying out or effecting contracts 40 consistency 336 contract 11, 38–43 disease contracted 371–2 double insurance 142 economic loss 215 employee 303 explosion 154 fault 335 fire 174 flood 161 follow the settlements 153 injury sustained 371 insurable interest 50, 51–2 insurance 3, 5, 25–9, 41–3 insurance technology 29 joint names 196–7 likely 70 loss occurrence 161 perils of the sea 173 policyholder 92 premium 389 reinsurance 147 vulnerability 232–3 wager 43 worker 303 workmen 284 worker: definition 303 workmen: definition 284 workmen’s compensation: Act of 1897 61, 69, 285, 371, 395–6 Act of 1906 61, 69, 396 Act of 1925 371 common employment doctrine in relation 281 dismantling of statutory regime 248, 253, 292–3 employers’ liability insurance 286–92 fallback scheme 91 legislation 79, 411 liability insurance 68, 294, 303, 315, 316 loss-spreading 317 motor insurance in relation 263, 264, 351, 397 strict liability ... philosophical basis of the law of insurance, the key practical aspects of insurance and re -insurance and, through a broad based analysis of different topics, where and how insurance and the law of insurance. .. engaged in under the sun Yet the two legal worlds, that of the laws of obligations and that of the law of insurance, have always remained strangely apart Thus, the received view of the law was that... the laws of obligations and how it has moulded the development of the common law of contract and tort in particular So the authors ask such fundamental issues as how insurance has influenced the