Matthew Hirst reports on a case where the policyholder claimed the insurers had waived rights to enforce policy terms
The Commercial Court recently considered an application for summary judgment, providing a useful reminder to insurers and reinsurers on the situations in which they risk being 'estopped', or prevented, from taking legal points when responding to "updates" from insureds or brokers or considering extensions or renewals of policies.
In MJ Harrington Syndicate 2000 & Others v AXA Oyak Sigorta, a number of reinsurers sought a declaration that they were not liable. The defendants had provided a bankers' blanket bond policy to a Turkish bank.
A condition precedent required the bank to require all employees to take at least 14 days' uninterrupted holiday
(seen as a useful tool to combat fraud). The reinsurance policy was also conditional upon the completion of a proposal form and confirmation that survey requirements had been carried out.
A previous survey had recommended a rule concerning uninterrupted holiday. The proposal form of August 2003 stated employees were required to take uninterrupted holiday. Subsequent correspondence suggested that the bank was allowing the holiday to be interrupted. This was noted by the underwriter of MJ Harrington on 14 November 2003.
Earlier in November 2003 a potential £2m employee theft was notified to
brokers. Loss adjusters' investigations revealed that the employee had not been taking uninterrupted holiday. As a consequence the reinsurers' representatives investigated on a without prejudice basis.
In August 2004 the reinsurers agreed a 14-day extension of the policy. However, in November 2004 they rejected the claim.
The judge found that the defendants did have a real prospect of defending the claim. As to the breach of survey requirements, the underwriter's note of 14 November 2003 meant there was a real prospect of defending the claim on the basis of waiver.
As to the alleged breach of warranty (the incorrect answer in the proposal form), other documentation and knowledge needed to be considered and, in any event, there was a real prospect of defending the claim on the basis of waiver.
As to the alleged breach of condition precedent, requiring uninterrupted holiday, there was "force" in the argument that it could not apply to losses incurred prior to inception and possible argument of waiver. It was also thought there was a real prospect of succeeding in arguing that the policy extension amounted to waiver or estoppel.
' Matthew Hirst is a partner in the insurance group of DLA Piper Rudnick Gray Cary UK