Insurance Principles I
Cases Interest
Lucena v Craufurd
(1806) 2 Bos & PNR 269
LAWRENCE J (at 302)
And whom it importeth, that its condition as to safety,…or.. other quality should continue: interest does not necessarily imply a right to the whole, or part of a thing, nor necessarily ahd-exclusively that which may be the subject of privation, but the h ng some relation to, or concern in the subject of the insurance, which relation or concern by the happening of the perils insured against may be so affected as,to p oduce a damage, detriment, or pre judice to the person insuring: and where a man is so circumstanced with respect to matters exposed to certain risks or dangers, as to have a moral certainty of advantage or benefit, but for those risks
or dangers he nray be said to bested in the safety of the thing. To be interested in the preservation of a thing, is to be so certainty mstanced, with respect to it as to have benefit from its existence, prejudice from its destruction. The property of a thing and the interest devisable from it may be very different: of the first the price is generally the measure, but by interest in a thing every benefit and advantage arising out of or depending on such thing , may be considered as being comprehended. .
Macaura v Northern Assurance Co Ltd
[1925] All ER Rep 51
LORD SUMNER
This appeal relates to an insurance on goods against loss by fire. It is clear that the appellant had no insurable interest in the timber described. It was not his. It belonged to the Irish Canadian Sawmill Co Ltd of Skibbereen, Co Cork. He had no lien or security over it, and, though it lay on his land by his permission, he had no responsibility to its owner for its safety, nor was it there under any contract that enabled him to hold it for his debt. He owned almost all the shares in the company, and the company owed him a good deal of money, but, neither as creditor nor as shareholder, could he insure the company’s assets. The debt was not exposed to fire nor were the shares, and the fact that he was virtually the company’s onlycreditor, while the timber was its only asset, seems to me to make no difference. He stood in no ‘legal or equitable relation to’ the timber at all. He had no’concern in’ the subject insured. His relation was to the company, not to its goods, and after the fire he was directlyprejudiced by the paucity of the company’s assets, not by the fire.
Cases Exclusions
Cooper v General Accident, Fire and Life Asmrance Corporation
(1922) 12 L1L Rep 219
VISCOUNT FINLAY
Then, my Lords, the district inspector proved beyond all question what appears indeed to have been a common knowledge, that there was a state of guerilla warfare in parts of Cork County and in the City of Cork, and that the combatants largely availed themselves of motors in their attacks on police and military. It is a matter of common knowledge that for warfare of this kind the possession of motors is of great service. It is directly established by the evidence in the present case that in earlier times thefts of motors were practically unknown in Ireland, but that there have been a great many in recent years.
Now it is suggested that this motor was taken away for the purpose of being employed in the prosecution of those civil commotions to which the district inspector referred. The probabilities are very much in favour of it, and to my mind the manner in which the abstraction of this motor was carried out irresistibly suggests that it was carried out by persons who had at their disposal irresistible force with which they carried it out in a high-handed way and with no element of concealment at all about what they were doing. The plaintiff himself says:
‘Between 7 and 8 o’clock that evening [it was early in the evening between 7 and 8 on an October evening] I heard what I thought was a car. I went to the back door (from house into yard). I opened it; a voice said “Shut that door.” I opened it again; voice again, “Shut that door.” A third time this happened; all I saw was an arm, it held what might have been a revolver or else a stick. Shortly after I saw car moving off.’
It appears to me to be inconsistent with any probability that that was the action of any ordinary motor thief. The manner in which, instead of endeavouring to carry out the abstraction quietly, he said in a tone apparently of command three times ‘Shut that door,’ when the owner, who was in the house, ventured to take some interest in what was happening in his own garage to hisown property-au these circumstances go to show that those who were engaged in this abstraction must have been acting with some force behind them which made them feel they were masters of the situation, and it appears to me to be quite inconsistent with the idea that it was an ordinary motor thief who was guilty of the removal of this car.
Spinney’s (1948) Ltd v Royal Insurance Co Ltd
[1980] 1 Lloyd’s Rep 406
MUSTILL J (at 429)
I do not propose to attempt any general definition of a civil war. It does, however, seem to me that a decision on whether such a war exists will generally involve a consideration of three questions:
(1) Can it be said that the conflict was between opposing ‘sides’?
(2) What were the objectives of the ‘sides’, and how did they set about pursuing them?
(3) What was the scale of the conflict, and of its effect on public order and on the life of the inhabitants?
As regards the first element, I find it difficult to visualise a war of any kind which is not fought between sides. International jurists / have started with the concept of war as an armed conflict between states, and have given the same general meaning to a civil war, regarding the latter as concerned either with a conflict between the state and a body of inhabitants who have a sufficient cohesion and apparatus of government to merit recognition as a kind of quasi-state, or with a conflict between two such quasi-states, each claiming to be the state itself. I believe that in ordinary speech the expression ‘civil war’ has a wider meaning than this. Nevertheless
it must to my mind be possible to say of each fighting man that he owes allegiance to one side or another, and it must also be possible to identify each side by reference to a community of objective, leadership and administration.
It does not necessarily follow that the objectives of all those on any one side must be identical. There may be considerable differences and even animosities between allies. But there must be some substantial community of aim, which the allies have banded together to promote by the use of force. Nor in my view need there always be only two sides. Two factions might fight one another, and also the state, in order to seize power. This would still be a civil war. But if the factions are too numerous, the struggle is no more than a melee, without the clear delineation of combatants which is one of the distinguishing features of a war.
The second matter for consideration is the nature of the objectives for which the sides are fighting. The classical opinion of the international lawyers is that the parties must be either the existing authorities and a faction striving to seize complete dominion over the whole or part of the state; or two factions striving against each other to seize power, with the existing rulers either fighting both factions at once, or standing impotently by. This concept is most clearly expressed in the fine passages from Vattel on the Laws of Nations which are cited in several American authorities. But where the term is used in ordinary speech I am not convinced that a desire to seize or retain the reins of state is the only motive which can ever put the contestants into a state of civil war. If all the other requirements are satisfied, I believe that there would be a civil war if the objective was not to seize complete political power, but (say) to force changes in the way in which power is exercised, without fundamentally changing the existing political structure. Again, other requirements being satisfied, I believe that there would be a civil war if the participants were activated by tribal, racial or ethnic animosities. Nevertheless, one should, in my view, always begin by enquiring whether the parties have the object of seizing or retaining dominion over the whole or part of the state. If it is found that they do not, there may still be a civil war; but it will then be necessary to look closely at the events to see whether they display the degree of coherence and community of purpose which helps to distinguish a war from a mere tumultuous internal upheaval.
Finally, there is the character and scale of the conflict, and its effect on public order and on the life of the inhabitants. It was suggested in argument that certain requirements must be satisfied before there can be said to be a civil war-for example, the holding by each faction of a substantial portion of territory. Although there is some warrant for this view in the books, I do not consider that it is correct. Civil wars vary greatly in character. The abundant presence of some elements may compensate for the comparative absence of others. For example, a small body of men occupying a modest amount of ground can nevertheless be engaged in civil war, if united by an explicit purpose to produce far-reaching political changes, possessed of a high degree of discipline, skill and weaponry, and backed by substantial popular support. (Curtis & Sons v Mathews2 provides an example of the way in which an uprising on a comparatively modest scale may be converted by other factors into a civil war.) Nevertheless, it is possible to build up a list of matters which, among others, should be considered when deciding upon whether internal strife has reached the level of civil war. I would include-the number of combatants; the number of casualties, military and civilian; the amount and nature of the armaments employed; the relative sizes of the territory occupied by the opposing sides; the extent to which it is possible to delineate the territories so occupied; the degree to which the populace as a whole is involved in the conflict; the duration and degree of continuity of the conflict; the extent to which public order and the administration of justice have been impaired; the degree of interruption to public services and private life; the question whether there have been movements of population as a result of the conflict; the extent to which each faction purports to exercise exclusive legislative, administrative and judicial powers over the territories which it controls.
There stiJI remains the question whether there were in existence ‘sides’, such as I have described, engaged in a struggle between themselves independent of any attempt to impose their will on the state. I cannot find that there were. Perhaps one can identify two or three sides (or even more) later in 1976. Even in January, one might be able to say that there was in a broad sense one side, in the shape of a loose alliance between the Phalange, the Chamounists, and the smaller groups of the extreme right wing-although even here, there is little sign of a common leadership and unanimity of purpose, beyond a shared desire to resist by force any other group which sought to impose any radical change on the existing state of affairs. On the left, the position was even rJlOre fragmented.The older and more conservative Sunni Moslems, the young radicals, the Nasserites, the Pan-Arabists, the religious enthusiasts, the Syrian-backed militias, the diverse Palestinian movements, and so on, all had different objectives even if, from time to time, some of them found themselves pointing in the same general direction. For all that Mr Jumblatt appears on occasion to have been presented as their spokesman, he was a point of intersection of converging views rather than the leader of a united front. Nor can there be any certainty that the leaders spoke for their followers. In the months leading up to mid-January 1976, the opposing leaders had on a number of occasions brought themselves together, with a view to finding a common solution to the crisis. They failed, but there is no justification for supposing that their efforts were other than genuine. Yet the ceasefires never lasted, and the fighting invariably broke out afresh. I cannot believe that this happened because the leaders willed it, and I infer that the leaders had only an imperfect control over what happened at street level. This inference is supported by such direct evidence as exists, as to the way in which the fighting was conducted. Moreover, the violence itself was of a sporadic and incoherent nature. There were a few pitched battles, but most of the fighting appears to have broken out, died out and flared up again, either spontaneously or by way of reaction to some other act of violence. Similarly, although one can in the later stages find a boundary or boundaries in Beirut separating areas where one faction or another was present in strength, it was not a front line in the sense that there was continuous organised fighting between troops on the twosides of it. Elsewhere the lines of the fighting (and in many cases even of the social and religious dissensions which underlay the fighting) are impossible to draw.
For these various reasons, I cannot find that by January 1976 matters had advanced between massive civil strife and virtual anarchy to the stage of a civil war. Perhaps they did later, but that is not for decision here.
Drinkwater v Corporation of London Assurance
(1767) 2 Wits 363
WILMOT CJ (at 364)
In the present case, what is the true idea conveyed to the mind by the words ‘usurped power’? The rule to find it out, is to consider the words of the context, and to attend to the popular use of the words, according to Horace, Arbitrium est, et jus, & norma loquendi. My idea of the words burnt by usurped power, from the context, is, that they mean burnt, or set on fire by occasion of an invasion from abroad, or of an internal rebellion, when armies are employed to support it. When the laws are dormant and silent, and firing of towns is unavoidable, these are the outlines of the picture drawn by the idea which these words convey to my mind. The time of the· incorporation of this Society of the London Assurance Company was soon after a rebellion in this kingdom, and it was not so romantic a thing to guard against fire by rebellion as it might be now; the time therefore is an argument with me that this is the meaning of these words. Rebellious mobs may be also meant to be guarded against by the proviso, because this corporation commenced soon after the Riot Act; and if common mobs had been in their minds, they would have made use of the word ‘mob’. The words ‘usurped power’ may have great variety of meanings, according to the subject matter where they are used, and it would be pedantic to define the words in all their various meanings; but in the present case they cannot mean the power used by a common mob. It has not been said that if one or fifty persons had wickedly set this house on fire, it would be within the meaning of the words usurped power. It hath been objected, that here was an usurped
power to reduce the price of victuals, and that this is part of the power of the Crown, and therefore it was an usurped power; but the King has no power to reduce the price of victuals. The difference between a rebellious mob and a common mob is, that the first is high treason, the latter a riot or a felony. Whether was this a common mob or a rebellious mob? The first time the mob rises the magistrates read the proclamation, and the mob disperse; they hear the law, and immediately obey it: the next day another mob rises upon the same account, and damages the houses of two bakers; thirty people in fifteen minutes put this army to flight, and they were dispersed and heard of no more. Where are the species belli which Lord Hale describes? This mob wants a universality of purpose to destroy, to make it a rebellious mob
Rogers v Whittaker
(1917) 116 LT 249
SANKEY J
Nor can it be properly contended that the words ‘military power’ do not refer to military power of a Government lawfully exercised. The disjunctive ‘or’ is used between, and contrasts the words ‘military’ and ‘usurped’. The words are not ‘usurped military power’. Without using language of rigorous accuracy, military and usurped power suggest something more in the nature of war and civil war than riot or tumult. To sum up, in my view this clause is not merely a riot clause from beginning to end, but it is a riot clause and a war clause combined. In the result the event is within
the exception, is not one which is covered by the policy, and as a consequence the claim fails
Munro, Brice & Co v War Risks Association Ltd
[1916-17] All ER Rep 981n
BAJLHACHE J (at 987)
This review of the authorities confirms me in my view that, as the law now stands, when in an action upon a policy of marine insurance the assured hasproved that hisship wassunk atsea, he has madeout a prima facie case against his underwriters on that policy, and it is for them to set up the free of capture and seizure exception and to bring themselves within it if they can. The rules now applicable for determining the burden of proof in such a case as the present may, I think, be stated as follows: (i) The plaintiff must prove such facts as bring him prirna facie within the tenns of the promise; (ii) when the promise is qualified by exceptions, the question whether the plaintiff need prove facts which negative their application does not depend upon whether the exceptions are to be found in a separate clause or not: the question depends upon an entirely different consideration-namely, whether the exception is as wide as the promise, and thus qualifies the whole of the promise, or whether it merely excludes from the operation of the promise particular classes of cases which but for theexception would fall within it, leaving some part of the general scope of the promise unqualified: if so, it is sufficient for the plaintiff to bring himself prirna facie within the terms of the promise, leaving it to the defendant to prove that, although prirna facie within the tenns, the plaintiff’s case is in fact within the excluded exceptional class: illustrations of this rule are actions against common carriers and the analogous cases in which a promisor undertakes to perfonn a given act unless excused by certain excepted events, as, for example, a vendor to deliver, strikes excepted, or achartere to load a ship in a given number of lay days, subject to the usual exceptions now found in charter-parties; (iii) when a promise is qualified by an exception which covers the wholescope of the promise,a plaintiff cannot make out a prima facie case unless he brings himself within the promise asqualified: there isex hypothesi no unqualified part of the promise for thesole of his foot to stand upon: asan instance I take a marine policy with the particular average franchise: there, reading the promise and the exception together, the promise is not a promise to pay particular average or to pay particular average except in certain events; it is a promise to pay particular average exceeding three per cent.: to bring himself within that promise a plaintiff must show more than a par ticular average loss, he must show a particular average loss exceeding
three per cent: this is the explanation, I think, of Dawson v Wrench,3 and why that case is no authority for the wide general statement in Bullen and Leake on Pleading (3rd edn) p 182, and why that case does not conflict with Wheeler v Bavidge4 or with my suggested rule (ii); (iv) whether a promise is a promise with exceptions or whether it is a qualified promise is in every case a question of construction of the
instrument as a whole: see per Palles CB in Gorman v Hand in Hand Insurance Co;5 (v) in construing a contract with exceptions it must be borne in mind that a promise with exceptions can generally be turned by an alteration of phraseology into a qualified promise. The form in which the contract is expressed is therefore material.
Cases Misc
Caledonia North Sea Ltd. v London Bridge Engineering Co. and Others
[2000] Lloyd’s Rep. IR 249
Court of Session (Scotland)(Inner House)
JUDGMENT
The Lord Ordinary, Lord CAPLAN
On day 381 of the proof, in the last day of their submissions in defence, the defenders advanced an argument that six out of the seven actions are irrele vant on the basis that they should properly have been raised in the name of the pursuers’ insurers against the defenders for contribution. This submis sion was not the subject of a special plea in law but was advanced under the defenders’ general preliminary plea attacking the relevancy of the pursuers’ case. The present proof is of course before answer but it has to be said that the defenders’ contentions on this matter came somewhat as a surprise see ing that the case had proceeded for 381 days without there having been a whisper about the question of contribution. That such a fundamental argu ment should only emerge at the last gasp of such a long proof prima facie does not seem in harmony with a legal system that prides itself on the avail ability of preliminary procedures for disposing of points that are purely points of law …
The defenders maintained (and I do not think it was disputed) that a party can only recover under an indemnity in respect of loss incurred. The essence of. the defenders’ point was that the pursuers have already been indemnified by the insurers in respect of their loss so that they have no remaining loss. They cannot be compensated twice for the same loss. The loss covered by in surance was the same loss as is now the subject of the indemnity claims by the same parties as were the beneficiaries under insurance.
The defenders submitted that if there are two distinct obligations of indem nity with each indemnifier liable to the same creditor for the same loss, then the liability of the two indemnifiers is joint and several. It was said that it was a general principle of Scots Law that where several persons are liable in volidum to the creditor each is liable only for a proportionate share in a question with his co-obligants. If he has required to pay more than his share then he is entitled to relief from his co-obligants to the extent of their pro rate share …
In my view the principle behind contribution is very succinctly stated by Pro fessor Gloag. The important factor is that parties should have undertaken the same risk to the same common creditor. However different the genesis of the contracts there can be no doubt that the pursuers’ insurers and the con tractor, if they have any obligation to OPCAL and the participants, have it under contracts of indemnity. No doubt there is a difference regarding the consideration which prompts an indemnity between a case where the indem nity is given because of the payment of a premium and the case where it is granted because of the benefits of a contract to provide services. An insurance indemnity will have features specific to it like the obligation uberrimae fidei just as a contract for services on an oil rig will have many features which will not be found in a contract of insurance. However it is clear from the authori ties that the contracts which give rise to the joint debt need not be identical. The question is whether in relation to the creditors have the debtors obliged themselves for the same debt? Insurance, whatever its special features, is basically an indemnity to cover losses arising from a particular event. De spite the manifold provisions of the contractor’s contracts we need only focus on the indemnities granted for the pursuers only present their claims on the basis of these. In the contracts the contractor undertakes to make good to the company any loss occasioned to the company through death of or injury to one of the contractor’s employees. There are special provisions applying to matters like wilful misconduct but as I have held in relation to the facts of this case the indemnity is applicable. Equally the company’s insurers have pledged themselves to meet the company’s loss in circumstances which in clude the death of or injury to a contractor’s employee. Although we have not seen the terms of the insurance policies this is the inevitable inference from the fact that they immediately assumed and settled the claims. The contrac tors are not insurers but they have, among the various obligations they have assumed, granted an indemnity – that is an undertaking to make good loss in a certain eventuality. It is difficult to see how this differs fundamentally from an insurer’s equivalent indemnity.
Whatever else is obvious it is that in a case of this kind where no specific provision has been made for double recovery the creditor should not recover twice. Accordingly the insurers who paid out in the first instance should ei ther be able to recover their whole outlay through subrogation or a propor tionate part of their outlay through contribution. Obviously they cannot invoke both since they are mutually exclusive. The prerequisite of subroga tion is that the creditor should have an enforceable right that can be trans ferred to the debtor who settles. Now this is what happens in, say, claims under delict. The law there is quite settled. If there is a claim against a wrongdoer for damages arising from delict or, say, for damages arising from breach of contract that wrongdoer has the primary obligation to make repa ration. He cannot be relieved of his responsibility by the fact that the victim had decided to cover himself by insurance. Thus if an insurer settles a claim for damages the claim against the original wrongdoer survives because he remains primarily liable to the victim. However the victim cannot recover damages for his own benefit until he compensates his insurers for settling the claim. Thus the principles of subrogation.
If a party enjoys the benefit of two or more indemnities granted to him to cover a particular loss then if that loss emerges he can choose to recover from which of the indemnities he chooses. If he recovers his whole loss it is diffi cult to see upon what principle he retains a right to enforce his indemnity against the non-paying indemnifier. His loss has been satisfied. There is no established principle that I am aware of that would entitle him to enforce his loss from the contractor as there is in the case of a wrongdoer. Perhaps if the indemnities had been granted to cover only facts occasioned by the indemni fier” own negligence some nice questions would arise but that is not the case here and indeed the indemnity is being invoked in circumstances where no one suggests that the contractors have been negligent. The pursuers contend that the service contract has to be regarded as the governing indemnity. I am not quite sure why unless it is because it is connected with a whole lot of quite different obligations. In respect of these actions the pursuers proceed under the indemnity alone and the non-related provisions of the contracts are irrelevant except perhaps insofar as they assist the construction of the in demnities. I suppose that were terms of the indemnities to declare that they were to be regarded as the primary indemnity obligations, that might raise different issues but that is not the case here. It should be noted that it is fea sible that the company could have indemnities arising out of different con tracts in respect of the same loss. Thus one contract might give rise to an indemnity claim in respect of injury to a contractor’s employee. However if that injury arose out of the actings of, say, a supplier of another contractor then the company would have a claim against that contractor under the third party injury indemnity. The second indemnifier need not necessarily have been negligent for the indemnity to arise. Under the pursuers’ presentation which of the two indemnities is to be regarded as the primary one? Presuma bly any question between the two contractors could only be settled on the basis of contribution.
I think the questions that arise on the matter under discussion ought to be settled on the basis of principle and not by reference to any rigid classifi cation such as insurance and non-insurance. Initially attempts were made to confine contribution to particular categories of insurance and this was re jected by the court as artificial. My conclusion therefore is that the insurers of OPCAL and their participants do not have any right of subrogation in re spect of the indemnities granted by the contractors. The pursuers no longer have any title or interest to sue the contractors. This means that if the insur ers want to recover their outlay this would have to be by way of a separate action based on contribution.
The pursuers appealed.
The Lord President, Lord RODGER of Earlsferry
Although the present litigations were raised and have been fought in the name of the pursuers, counsel for the pursuers accept that their insurers are in fact using the pursuers’ name by virtue of subrogation. In other words, having indemnified the pursuers, the insurers are standing in their shoes and are using their name to bring proceedings to enforce the obligations con tained in the indemnity clauses in the various contracts betwee.n the pursu ers and the defenders …
1.2 Subrogation to rights under an indemnity – the defenders’ “Simple” argument
In presenting their argument that the payment by the insurers had the effect
of extinguishing the contractors’ liability under the indemnity clauses, coun sel for the defenders accepted, of course, that payments by an insurer are not generally regarded as having the effect of extinguishing a third party’s liabil ity to the assured. To take only the most obvious example, it has long been settled that a wrong-doer’s liability to pay damages is not affected by the fact that the victim may have been indemnified for his loss under a contract of insurance. See for instance, Bradburn v Great Western Railway Co (1874) LR 10 Ex 1. Counsel argued, however, that a clause or contract of indemnity was different. Under such a contract the person to be indemnified is entitled to be indemnified for his loss but is entitled to nothing more. Therefore, it was said, in a case where the person seeking to be indemnified had already been indemnified by his insurers, he no longer had any loss for which he could be indemnified under the contract or clause of indemnity.
I do not find the supposed distinction compelling …
So, it is critical to the entire approach of the law to many routine claims for damages which are brought before our courts that the pursuer is regarded as continuing to suffer loss even though he has been indemnified for his loss by his insurer to the assured – indeed the very existence of a contract of insur ance – is said to be res inter alias acta. For that reason, when considering whether an assured’s right to be indemnified is to be treated as remaining in existence, even after the assured has been indemnified by his insurer. I do not find the answer simply in the fact that the indemnifier’s obligation is to indemnify for loss. Equally, a wrongdoer’s liability is to compensate for loss. In both cases, the question is whether, as between the assured and the third party, the law regards the assured a continuing to suffer loss even though he has been indemnified by his insurer. We know that in the case of a wrong doer the law does indeed treat the assured as continuing to suffer loss in those circumstances and so allows an action to be brought in his name. For my part, I can see no real distinction, for the present purposes, between that kind of case and the case of an indemnity clause or contract; nor do I perceive any reason in principle why the approach of the law should be different in the two cases …
In all these cases the law has chosen to disregard the payments made by the insurer to the assured and to permit the insurer to raise an action in the as sured’s name. This is not a standpoint which is compelled by legal logic alone; if nothing but legal logic has been in play, the law could equally well have taken the opposite view. It could have regarded the payments made by the insurer as having the effect of indemnifying the assured and so as extin guished the loss. But the law has consistently taken the opposite view and, as a matter of substance, this can only be because the policy underlying the law of insurance is that the insurer should not bear the ultimate responsibil ity for indemnifying the assured in these cases. Instead the third party who is under an enforceable legal obligation to pay the assured is made to bear the ultimate responsibility …
On the basis of the authorities the doctrine could perhaps be stated in a more general form to the effect that where the assured has a primary right against a third party which goes to reduce his loss, whether the right be based on a delict or on a contract, an insurer on making good the loss is entitled to be put in his place and to enforce the remedies which he would have had against the third party …
I therefore see no reason in principle why the law should adopt a different approach and exclude the possibility of a subrogated action in the case of a clause of indemnity. Such a clause of indemnity, however absolute its terms, is just an undertaking by an indemnifier to pay to the creditor the amount of the loss which he has suffered. In essence that obligation is no different from the absolute obligation of the wharfinger to make good the loss suffered by the owner of grain stored in his warehouse and destroyed by fire (North Brit ish and Mercantile Insurance); or the obligation of a tenant under a lease to repair the landlord’s house if it is destroyed by fire (Darrell v Tibbitts). In these cases the insurers can raise subrogated proceedings against the wharf inger or tenant and recover the loss, even though the owner has been indem nified. If the law does not impose the ultimate liability to indemnify on the insurers in these cases, there can be no reason of legal policy to make the insurers bear the ultimate liability in a case like the present. They should therefore be entitled to raise proceedings in the pursuers’ name based on the indemnity clauses.
I have reached that view by looking at the issue in the broad context of the law of insurance and subrogation. What is perhaps most surprising about the defenders’ argument is the paucity of authority specifically dealing with it. At the same time, there is nothing in the general authorities on subroga tion which would suggest that contracts of indemnity fall into a distinct cate gory, subject to an entirely different rule. On the contrary, the law on the availability of subrogation tends to be stated so broadly as to leave little or no room for an exception of the kind envisaged by the defenders. For instance, one of the classical descriptions of subrogation, by Brett LJ in Castellain v Preston (1883) 11 QBD at pages 388-389, as in these terms:
… as between the underwriter and the assured the underwriter is enti tled to the advantage of every right of the assured, whether such right consists in contract, fulfilled or unfulfilled, or in remedy for tort capable of being insisted on or already insisted on, or in any other right, whether by way of condition or otherwise, legal or equitable, which can be, or has been exercised or has accrued, and whether such right could or could not be en forced by the insurer in the name of the assured, by the exercise or acquir ing of which right or condition the loss against which the assured is insured, can be, or has been diminished.
It is hard to see how Brett LJ could have stated the principle in broader terms and equally hard to imagine that he did not intend it to be comprehen sive. Certainly, I find it impossible to say that he intended to exclude the right of an assured who is the creditor under an indemnity clause or contract, since such a right is undoubedly one “by the exercise of … which” any rele vant loss of the assured “can be diminished”. This passage from Brett LJ’s
opinion was quoted with approval by Lord Jauncey in the House of Lords in Essa Petroleum Co. Ltd. v Hall Russell & Co. Ltd. 1988 SLT 874 at page 882D-F; [1989] AC 643 at pages 671H-672C.
Although they combed the British law reports, counsel were unable to
turn up any case dealing squarely with the right of insurers to sue in the name of their assured on the basis of an obligation of indemnity. The lack of any reported decision does not persuade me that such an action would be legally impossible; rather, it may tend to suggest that the competency and relevancy of such an action, which must have been potentially open for ar gument on countless occasions, have long been regarded as established …
For these reasons I reject the defenders’ “simple” argument. But counsel for the defenders supplemented that argument with a much wider submission to the effect that the insurers’ rights, if any, against the defenders are not rights to pursue a subrogated action in the name of the pursuers but rights to seek contribution in an action of relief. From the terms of his opinion, it ap pears that the Lord Ordinary was considerably influenced by this aspect of the argument which raises certain very fundamental matters.
1.3 The defenders’ wider argument
Counsel for the defenders put their argument in this way. The insurers had entered into a contract of indemnity with the pursuers; the defenders had en tered into contracts with the pursuers and all those contracts contained in demnity clauses. Although the risks covered by the insurance contract were not, of course, identical with the events giving rise to the obligations of indem nity under the contracts for services, in fact in each case the insurers and the defenders had contracted to indemnify the pursuers in the events which had occurred. In that situation the law regarded the insurers and the defenders as co-obligants, each liable in solidum to the common creditor. Where, as here, one of the co-obligants had indemnified the common creditor, the right of the other co-obligant was limited to a right of contribution, enforceable in an action of relief. That right of contribution arose precisely because the payment by one co-obligant discharged the obligation of the other; to prevent the second co obligant being unjustly enriched in this way, the law allowed the first co obligant to recover one half of the sum which he had paid to the common credi tor, so that in the end each of the co-obligants would bear a pro rata share of the debt. It was not, therefore, anomalous that the insurers should not be enti tled to bring the present proceedings against the defenders; they could not do so because their payment to the pursuers had discharged the defenders’ liabil ity under the indemnity and had thereby given the insurers a new right to sue the defenders for contribution in an action of relief. The insurers might have lost that newright by reason of prescription, but, if so, that wasmerely because they had analysed their legal position incorrectly and had raised the wrong kind of proceedings. These last matters were peculiar to the facts of this par ticular case and did not affect the position in principle.
For the pursuers Mr Batchelor submitted that the defenders’ argument presupposed that the payment by the defenders had indeed extinguished the defenders’ obligation to the pursuers. If, as he had argued, the payment by the insurers was truly res inter alias acta and did not extinguish the defend ers’ obligation under the indemnity clauses in their contracts, then on the defenders’ own argument no obligation of contribution could arise between the defenders and the insurers. In any event it was wrong to regard the in surers and defenders as being co-obligants for these purposes. The primary or ultimate obligation to indemnify rested on the defenders and any obligation of the insurers was secondary to that obligation. Accordingly, where the in surers had fully indemnified the pursuers, they were entitled to raise pro ceedings in the pursuers’ name in order to recover from the defenders the sum which they had paid to the pursuers. In this way the primary or ulti mate liability would rest on the defenders. Since the insurers were entitled to recover the whole of their outlay and not simply a contribution of one-half, an action of relief would have been irrelevant.
In dealing with the defenders’ “simple” argument I have held that the contractors should bear the ultimate responsibility for indemnifying the pur suers. In the terms used in North British and Mercantile, the contractors have “the primary liability” to indemnify the pursuers. That being so, the insurers, who have paid on behalf of the pursuers, should be able to recover their expenditure from the contractors. How the law brings that about may be more a matter of machinery than of principle, but it is an important mat ter, nonetheless. One possible mechanism would be by subrogation, allowing the insurers to stand in the shoes of the pursuers and sue on the indemnity clauses. Another possible mechanism would be by an action of relief. Counsel for both parties assumed that these two mechanisms were necessarily mutu ally inconsistent. In my view, in Scots law at least, that assumption is mis conceived and tends to distort the legal picture, thereby introducing unnecessary complications and untenable distinctions ..
1.7 Conclusion
On the basis of the authorities which I have discussed, in Scots law at least, there is no inconsistency in holding that an insurer which indemnifies the assured has in theory two methods of recovering its expenditure from an other indemnifier who is meant to bear the ultimate liability for indemnify ing the assured. The insurer can rely on its right of total relief from the indemnifier and raise an action of relief in its own name. Alternatively, it can seek in substance to work out its right of relief by bringing proceedings in the name of the assured against the indemnifier on the basis of the contract or clause of indemnity. That is what the insurers have done in this case and nothing in the authorities which I have examined suggests that the action is other than competent and relevant.
For these reasons I am satisfied that the Lord Ordinary – who, of course, heard a much more limited argument on the point that we did – was wrong to sustain the defenders’ general pleas to the relevancy.
Bovis Construction Ltd. & Another v Commercial Union Assurance Co. plc
[2001] Lloyd’s Rep. IR 321
Queen’s Bench Division (Commercial Court)
DAVID STEEL J
Double Insurance
It is convenient to start by considering the claim from the perspective of Bovis before turning to the Eagle Star claim. The first hurdle to be overcome, regard less of the question under which section of the policy it was said that CU should respond, was the plea that, since Bovis had been fully indemnified by Eagle Star, they were thus precluded from making a claim under another pol icy of insurance. Reliance in this respect was placed by CU on the Scottish de cision in Sickness & Accident Assurance Association v General Accident Assurance Corporation Ltd. [1892] 19 R 977 where the Court of Session upheld the decision of the Lord Ordinary. His Opinion contained the following passage:
“In marine insurance a rule which has long been recognised is that when the insured has recovered to the full extent of his loss under one policy, the insurer under that policy can recover from other underwriters who have in sured the same interest against the same risks a rateable sum by way of contribution. The foundation of the rule is that a contract of marine insur ance is one of indemnity, and that the insured, whatever the amount of his insurance or the number of underwriters with whom he has contracted, can never recover more than is required to indemnify him …
There is no reason in principle in my opinion why the same rule should not be applied to other classes of insurance which are also contracts of indemnity …
The right of an underwriter who has indemnified the insured to claim con tribution from the other underwriters cannot be founded upon the doctrine of subrogation, because an assignee can have no higher right than his ce dant and a shipowner who has received full indemnity from one under writer can never make a claim against another underwriter. The answer, therefore, to the claim of an underwriter who had paid, if made only in the right and as assignee of the assured, would be that the contract was one of indemnity, and that the insured had already been indemnified.”
The principle thus set out was recognised as valid in the decision of the Eng lish Court of Appeal in Austin v Zurich GA and Liability Ins. Co. Ltd. [1945] 1 KB 250. As I understood it, the answer advanced on behalf of Bovis was that there was no double insurance because the cover furnished by the two policies was not co-extensive. But this is not to the point. The right to contri bution as between insurers exists where more than one policy covers the risk that has given rise to the claim: see Albion Insurance Co. Ltd. v Government Insurance Office of NSW [1969] CLR 342. Of course, if the risk is covered by the Eagle Star policy and is not covered by the CU policy, no issue arises. I see nothing in the recent decision of the Scottish Court of Session in Caledo nia North Sea Ltd. v London Bridge Engineering (The Times, 8 February 2000) to detract from or modify this approach. In these circumstances, I con clude that Bovis are unable to surmount this threshold issue and that their claim must fail on that ground alone.
Voluntary Payment
Turning now to the claim advanced by Eagle Star, it in turn faces a threshold hurdle raised by the defendant. The Eagle Star policy contained the following condition:
“6. If at any time any claim arises under this Policy there be any other in surance covering the same liability the Company shall not be liable to pay or contribute more than its rateable proportion of any such claim and cost and expenses in connection therewith.”
As I have already recorded, Eagle Star in fact provided a full indemnity to Bovis. Leaving aside the implications of the fact that the claim included a sum representing the loss of rent during the course of the repairs, it follows that Eagle Star was a volunteer in respect of half the indemnity it afforded to Bovis. Indeed, the Claimants conceded as much in the Amended Points of Reply. In these circumstances, the defendant contended, Eagle Star could not look for a contribution under the Civil Liability (Contribution) Act 1978 or otherwise to cover that part of the indemnity in respect of which it had no legal liability; see Weddell v Road Transport and General Insurance Co. Ltd. [1932] 2 KB 563; Legal and General Assurance Society Ltd. v Drake Insur ance Co. Ltd. [1992] 1 QB 887.
I accept that submission and conclude that the claim by Eagle Star is, in this respect, misconceived and must fail. This conclusion is fortified by the terms of clause 3 of the General Conditions attached to the CU policy:
“3. This Policy other than is required under the Contract Conditions shall not inure to the benefit of any other Insurer and shall only pay claims that are not recoverable from or are in excess of amounts recoverable under any other policy of insurance.” …
The conclusions that I have already reached are sufficient to dispose of the claim …
David Cowan v Jeffery Associates and Others
[1998] Scot CS 11 March 1998
LORD HAMILTON
In Lucena v Crauford the House of Lords was concerned with a number of legal questions arising out of the loss of certain Dutch ships and their cargoes in respect of which Royal Commissioners had effected insurance. Those ships and goods had been detained at sea by British warships but had been lost prior to their arrival at a British port. Before ruling on the matter their Lordships sought the opinions of the English judges upon certain questions. One of those questions (the fifth question) was concerned with whether the Commissioners were interested in the ships and goods so that a legal and valid assurance could be effected on them by the Commissioners for their use, benefit and account as Commissioners. The judges duly returned their opinions. The majority answered the fifth question in the affirmative; the minority, which included Lawrence J, answered it in the negative …
It is not usual to quote Lawrence J’s opinion so extensively but doing so puts the “classic definition” in context. It appears that, arguing from the na ture of a contract of insurance, the learned judge would recognise as having an insurable interest any person so circumstanced factually in relation to the property that there is a “moral certainty” that, in the event of and by reason of the occurrence of the relative peril, he will sustain some disadvantage. Notwithstanding the range of persons who on this view would have an insur able interest, Lawrence J opined that in the circumstances of the case the Commissioners had no insurable interest in the ships and goods.
In the House of Lords, the decision, consistently with the conclusions of the minority of the consulted judges on this issue, was that the Commission ers had no insurable interest; but Lord Eldon said at p. 321 in relation to insurable interest:
“In order to distinguish that intermediate thing between a strict right, or a right derived under a contract, and a mere expectation or hope, which has been termed an insurable interest, it has been said in many cases to be that which amounts to a moral certainty. I have in vain endeavoured how ever to find a definition of that which is between a certainty and an expec tation; nor am I able to point out what is an interest unless it be a right in the property, or a right derivable out of some contract about the property, which in either case may be lost upon some contingency affecting the pos session or enjoyment of the party … ”
Lord Ellenborough, concurring, said at p.327:
“… I entirely coincide with my noble and learned friend who has just spo ken, not only in his general views of the case, and the principles which he has stated, but in every part of that discussion … ”
The Lord Chancellor (Lord Erskine), also concurring, stated at pp. 328-9:
“I will not detain your lordships further than to state my entire concur rence in the opinions delivered by my noble and learned friend, and the reasons given by my noble friend who first addressed you … ”
In the Court of Appeal in England, excerpts from Lawrence J’s opinion have been described as “the classic definition of insurable interest” (Mark Row lands Limited v Berni Inns Limited, per Kerr LJ at p. 228; Glengate v Nor wich Union, per Neill LJ at p. 621 and per Sir Iain Glidewell at p. 626). It is to be noted, however, that in neither case did those learned judges refer to the observations in Lucena v Crauford in the House of Lords where, as noted in MacGillivray on Insurance Law at para. 1-116, the House of Lords did not agree with some at least of Lawrence J’s views. In Glengate v Norwich Union, Auld, LJ at p. 623-4 observed:
“In the case of insurance against cost of repair or reinstatement of damaged property, the insured’s relationship to the property, to qualify as an insurable interest, must normally be of a proprietary or contractual na ture. Mark Rowlands Limited v Berni Inns Limited is an example of both a proprietary and contractual relationship, and Lord Justice Kerr’s reliance on the broad proposition of Mr Justice Lawrence in Lucena v Crauford was unnecessary on the facts of the case ”
Threeasoning of the House of Lords in Macaura v Northern Assurance Co. is, in my view, hardly consistent with the broad approach to insurable interest favoured by Lawrence J. Lord Buckmaster at p. 627, agreeing with a com ment in that case made by Andrews LJ in the Court of Appeal in Northern Ireland, said: “I find equally with him a difficulty in understanding how a moral certainty can be so defined as to render it an essential part of a defi nite legal proposition.” The approach of the House of Lords in Macaura v Northern Assurance Co. appears to be that to instruct an insurable interest in an item of property a person must have “a legal or equitable interest therein” (per Lord Buckmaster at p. 626) or stand in a “legal or equitable relation” to it (per Lord Sumner at p. 630) or have “property, legal or equita ble” in it (per Lord Wrenbury at p. 633) …
In Macaura what was in substance a factual expectancy test was firmly negatived by the House of Lords. The circumstance that the plaintiff was a creditor of the company which owned the insured property and in effect its sole creditor did not give him an insurable interest. The circumstance that he was a shareholder and the sole shareholder of that company likewise gave him no such interest. Lord Buckmaster also said (at pp. 625-6): “And if he was not entitled in virtue of either of these rights he can acquire no better position by reason of the fact that he held both characters.” Accordingly, where characters do not individually instruct an insurable interest, a combi nation of such characters is ineffectual to instruct it.
In the present case, the pursuer was at the time of the placing of the in
surance and at the time of the fire, prospectively a purchaser of the subjects but had neither acquired them nor entered into an enforceable contract to acquire them. As a prospective proprietor of the subjects he had entered into borrowing arrangements with the bank, which anticipated the grant by him to it of security over the subjects but, he never having become proprietor, no such security was in fact granted. The circumstance that the pursuer under took to the bank a personal obligation to insure the subjects does not advance matters; nor does the circumstance that he borrowed from the bank in an ticipation of being in a position to grant to it real security over the subjects. His characters as creditor of Premier and as its sole shareholder do not, on present authority, instruct an insurable interest (Macaura); nor does his character as guarantor of its debts; nor does any use of the subjects unsup ported by a right to use. In so far as those characters or relationships are contractual in character, the relative contract does not relate to the property in a qualifying sense.
Macaura is not, in my view, distinguishable. Had I felt free not to follow it and able to adopt a factual expectancy test, that test would have been satis fied by the pursuer’s character as sole shareholder. However, standing that authority, the pursuer has no averments sufficient to instruct an insurable interest in The Schoolhouse. In these circumstances I shall sustain the de fenders’ second plea-in-law and dismiss the action.