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William McIlroy Swindon Limited (1) & Rannoch Investments Limited (2) v Quinn Insurance Limited

William McIlroy Swindon Limited (1) & Rannoch Investments Limited (2) v Quinn Insurance Limited [2010] EWHC 2448 (TCC)

At a trial of preliminary issues, the Technology & Construction Court upheld the application of an arbitration clause in an insurance policy which required that any dispute between insurers and insured has to be referred to arbitration within nine months, failing which the claim was deemed abandoned.

Quinn provided public liability cover to Lenihan. In earlier judgments in separate proceedings, Lenihan were held liable to the claimants for a fire which occurred on 5 September 2006. The amount of damages payable was assessed on 11 December 2009 and 13 January 2010 respectively for the two claimants. Lenihan went into voluntary liquidation shortly afterwards and the claimants issued proceedings against Quinn under the Third Parties (Rights Against Insurers) Act 1930.

Liability under the policy for any claim arising from the fire was denied by Quinn on grounds of breach of policy terms and conditions. In addition, Quinn argued that because there had been no reference to arbitration within the time required under the arbitration clause, any claim under the policy was deemed to be abandoned and was not recoverable.

The main issues before the Court were:

  1. Whether the arbitration clause excluded the right to pursue a claim by litigation
  2. Whether the arbitration clause was incorporated into the policy
  3. Whether the time for referring the matter to arbitration had expired

Edwards-Stuart J held:

  1. On a proper construction of the clause, the wording was clear and prescribed a mandatory mode of dispute resolution. The language made it “abundantly clear” that the clause was intended to provide an exclusive remedy.
  2. The arbitration clause was contained in an “off-the-shelf” policy. It was not written specifically for Lenihan nor Lenihan’s type of business.

The judge rejected argument that the arbitration clause was not incorporated for the following four reasons:

  1. The insured had the policy wording in their possession for two years prior to the inception of the policy year in question (i.e. the 2006/2007 policy year). They had the opportunity of studying the policy terms and this was not a case of incorporation by reference.
  2. Quinn’s covering letters sending the policy documents specifically asked the insured to read the policy carefully to ensure that it met with the insured’s particular needs.
  3. The insurance was arranged through brokers who could be expected to be familiar with Quinn’s standard form of policy and to give relevant advice to Lenihan. The brokers should have been aware in general terms of any unusual terms on Quinn’s policy and advised Lenihan accordingly.
  4. The provisions of the arbitration clause were not unduly onerous. A requirement to resolve disputes by arbitration cannot be regarded as onerous just because it is unusual and possibly inconvenient. The nine month time limit is shorter than the statutory six year limitation period but that does not make it onerous.

Both Lenihan and the brokers were aware of Quinn’s refusal to indemnify by February 2009. The judge expected them to look at the policy for the provisions which Quinn had relied on. He said also, that the brokers at least, if not Lenihan also, should have looked at the policy to see what provisions there were for dispute resolution; there was no shortage of time within which to do this.

In reaching the above finding, the judge commented that, with one possible exception, insurers are not required to draw to the insured’s attention every term in an insurance policy that might prove onerous. The only exception identified is that of terms concerning claim notification.

  1. It was common ground that the arbitration clause referred to a dispute in respect of a claim by the insured under the policy, as opposed to a claim by a third party against the insured.

However, there was an issue as to when such a dispute arose.

The claimants argued, by reference to Post Office v Norwich Union [1967], that insurers had no liability to the insured until the insured’s liability to the third party had been determined and quantified and as such, the earliest date the dispute could arise was when Lenihan’s liability was established and ascertained by orders of 11 December 2009 and 13 January 2010. On this basis, the nine month limit had not expired.

The judge held that where insurers have notified an insured that indemnity would not be granted and the refusal to indemnify is unjustified, then insurers are in breach of contract. It follows that once Lenihan had notified Quinn of a claim under the policy of a potential liability to a third party and Quinn had notified Lenihan that they were refusing indemnity, then there was a dispute between Quinn and Lenihan within the meaning of the arbitration clause.

The judge commented that the Post Office case did not prevent an insured from seeking declaratory relief where it is alleged that insurers are in breach.

On the facts, the judge found that the dispute between Quinn and Lenihan arose at latest by end of February 2009 and any arbitration had to be commenced by the end of November 2009.

The claimants had also sought to rely on paragraph 2.5.3 of the Insurance Conduct of Business Sourcebook (“ICOB”) which stated that “A firm must not in any written or oral communication to a customer seek to exclude or restrict, or rely on any exclusion or restriction of, any duty or liability … unless it is reasonable for it to do so”. The judge decided that Quinn were not under any obligation to advise Lenihan of the existence of the nine month time limit in a policy that Lenihan have had for some years; and that Quinn had acted within their rights and reasonably in relying on the arbitration clause.

Leave for permission to appeal has been given for point 3 above but refused for points 1 and 2.

Quinn Insurance Limited were represented in these proceedings by Ling Ong, Partner in the London Market Insurance & Reinsurance team at Weightmans.

Please refer any queries to Ling on +44 (0) 20 78221985 or ling.ong@weightmans.com.