If ever there was a High Court judgment that highlights the spectrum of policy coverage issues that cause disputes between insurers, insureds and brokers - the recent Commercial Court judgment in ABN Amro was it!  (ABN Amro Bank N.V. -v- Royal & Sun Alliance Insurance and others [2021] EWHC 442 (Comm)).

After a 5 week trial, the Court handed down a 263 page judgment, essentially rejecting most of the arguments run by the defendant Underwriters to avoid cover in respect of the Bank's £35m loss claim that followed default by two customers under a series of “repo” financing deals over cocoa and cocoa product.  

The Court rejected Underwriters' attempts to avoid cover and in doing so the Court made findings that the broker in question was under a duty (based on well-established legal principle as to brokers' duties) to procure cover that clearly and indisputably met the insured’s requirements and protected it against an unnecessary risk of litigation.  

The judgment covered a range of key issues, may of which go to the heart of the tripartite relationship between insured, broker and insurer  - and the interaction of their respective rights and obligations.

Also of note are the passages in the judgment concerning:

  • The interpretation of insurance contracts and the weight to be given to ‘factual matrix’ considerations 
  • The effect of a non-avoidance clause in a policy of insurance, and whether Underwriters can circumvent such a provision by arguing that the clause itself should specifically have been disclosed when the policy was placed 
  • The doctrine of affirmation, especially with regard to Underwriters affirming a policy by pleading a Defence 
  • The duty of the utmost good faith: is the insured or their broker required to disclose the purpose or intention behind a bespoke clause? 
  • The precise formulation and application of the test for inducement following a misrepresentation 
  • The meaning of a reasonable endeavours obligation imposed on the insured during the currency of the risk, and whether it can be breached by any conduct falling short of recklessness.

Whilst reading the full 263 page judgment (linked below) is perhaps a "big ask" for most risk-management professionals with better things to do in their post lock-down spare time, awareness of these issues can pay dividends.   The range of legal/litigation risks that may affect your business is the foundation for any review with your Litigation Risk Advisory professionals and brokers, in the lead-up to insurance renewal.

James Hartley

Freeths LLP