Double defence

Super Chem Products Ltd v American Life and General Insurance Co Ltd and others PC TLR 28 January

Following a fire at its premises, the insured claimant presented claims under two insurance policies which were rejected on the ground that the fire had been caused by the arson, or with the connivance or complicity, of the insured. The insurers defended the consequent proceedings not only on the grounds of arson, but also on alternative grounds of breaches of conditions of the policy, including limitation and claims cooperation clauses. The allegations of arson were not substantiated and were dismissed. The claimant contended that having alleged that the claims were fraudulent, the insurers could no longer rely on any of the conditions in the policies because their conduct had amounted to a repudiation of the contracts of insurance. It relied on the speech of Viscount Haldane in Jureidini v National British and Irish Millers Insurance Co Ltd [1915] AC 499, 505 in which he held that the insurer’s repudiation of liability on the basis of arson was a repudiation going to the substance of the contract and the insurer was therefore not entitled to insist on a subordinate term of the contract still being enforced. In the present case, the Privy Council said that even if that accurately represented the ratio of Jureidini, it would not help the inured for at least three reasons: (i) the defence of arson was not a repudiation of the contract but rather a defence based on the contract; (ii) there had been no acceptance by the insured of any repudiation; and (iii) the limitation and claims cooperation defences came into force before the insurers rejected the claims. In any event, Viscount Haldane’s statement had bedevilled our commercial law for too long. Contract law could not and did not prevent an insurer from resisting a claim on alternative bases, one involving an allegation of fraud and the other breaches of policy conditions. It would be contrary to principle and business common sense, which underpinned our commercial law, to require an insurer to choose between alleging fraud, thereby abandoning the right to invoke other conditions of the policy, or to rely on those provisions, thereby giving up the right to allege fraud. The ratio of Jureidini was based on the special wording of the arbitration clause and the fact that no dispute as to quantum had arisen. It was not an authorative decision on insurance law or general contract law. If it had any remaining force it would be in the field of arbitration law, but then only on an arbitration clause on all fours with the clause in that case.