A judge has challenged a controversial decision affecting the degree to which insureds who have made out-of-court settlements must admit liability so they can claim on their liability policies.

In Enterprise Oil v Strand, Mr Justice Aikens confirmed that insureds must prove actual liability to their insurers and that settlements reached were reasonable in order to succeed in their claims.

However, the judge maintained it was unreasonable to expect an insurer's decision on whether to honour a claim to be based purely on the settlement document, as was advocated in the earlier Lumbermans Mutual Casualty Company v Bovis Lend Lease Ltd KBD [2004].

According to Aikens, to rely solely on the settlement document "would lead to great commercial inconvenience and to artificial statements in judgments, awards and settlements".

Andrew Symons, a partner in the insurance and reinsurance group of CMS Cameron McKenna, said: "An insured would very rarely be willing to make an admission of liability in a settlement.

"The lawyers for both sides in this case agreed Mr Justice Colman's decision in Lumbermans was 'very controversial'."

The recent decision was not binding, but the question was likely to be raised again in a higher court, Symons added.