The case, Quadra Commodities S.A. v XL Insurance Company SE and Others  EWHC 431 (Comm), concerned the Claimant, a commodities company, being the victim of a fraud in which goods which it had paid for did not arrive in sufficient quantity. A thorough background to the case and commentary is provided by Herbert Smith Freehills here.
While the case provides an important discussion on insurable interests, it is also notable because it is the first to consider the application of section 13A of the Insurance Act 2015.
The Claimant had argued that the insurers had not paid the sums due within a reasonable period of time and, as such, were in breach of the Insurance Act. The Defendants disagreed with the definition of a reasonable time and argued there had been reasonable grounds to dispute the claim.
The Judge took into account the type of insurance, size and complexity of the claim, compliance with statutory and regulatory guidance and factors outside the insurer’s control.
The judge concluded that had the claim not been disputed, a reasonable time to investigate, evaluate and settle the claim would have been “not more than about a year” from the notice of the loss.
The Judge, however, did recognise that the Defendants had reasonable grounds for disputing the claim, even if ultimately that dispute was unsuccessful.
“It was interesting that the judge noted that the parties had not adduced any expert or detailed comparative evidence on this issue and raises the question of whether parties will adopt a different approach to evidence in cases where s.13A is in issue,” HSF stated in its commentary.
“Insureds should also bear in mind the judge’s comment that ‘the fact that, in some respects, the Defendants’ actual conduct of the claims handling can be said to have been too slow or lethargic, does not itself answer the question of what was a reasonable time’.
“Even though, as here, it may be found that an insurer’s investigation appears to be unduly protracted, there will not necessarily be a breach of the implied term under s.13A especially where there are reasonable grounds for disputing a claim.
“The case is also a useful reminder that ‘if the court finds that an assured has taken out insurance to cover a particular subject matter against risks that have eventuated, it will be reluctant to find that the claim fails for lack of insurable interest’.
“The judgment also confirms that, even where property in goods has not passed, payment or part payment of the price will usually give the buyer an insurable interest, because if the goods were lost or damaged and the seller became insolvent, the buyer would suffer prejudice. This highlights the importance of contemporaneous inspections and reports of inspection.”
To read HSF’s full commentary, visit their site here.