The case of Quadra Commodities SA v XL Insurance Company SE & Ors  EWHC 431 (Comm) (04 March 2022) (bailii.org) provides an interesting consideration of the law of insurable interest. Perhaps of more interest is that it is the first reported judgment which considers whether insurers are liable to pay damages for late payment of an indemnity. While the damages claim for late payment was not accepted in this case, the judgment provides some very helpful analysis on the factors to be taken into account when considering a claim under Section 13A of the Insurance Act 2015.
The claimant and the insured, Quadra Commodities SA (Quadra), was a commodities, trading and logistics company specialising in the trade of agricultural commodities including grains, oil seeds and vegetable oils. Quadra entered into contracts with Agroinvest Group companies to purchase and trade grain. Warehouse receipts were provided to Quadra to confirm that the required quantities of grain were held in specific warehouses in Ukraine, following which Quadra then made payment. Quadra did not see the grain before payment was made, although it had retained a third party to undertake inspections on its behalf.
It subsequently transpired that the receipts issued to Quadra had been fraudulent, forming part of the 'Agroinvestgroup Fraud' uncovered in Ukraine in 2019. The warehouses were issuing receipts to multiple entities in respect of the same grain and there was insufficient grain to satisfy the receipts they had issued. When Quadra sought to take delivery of its grain, there was not enough available – the same grain had been sold many times over.
Quadra sought to recover the loss it had suffered, having paid for the grain it would never receive, and claimed under its Marine Cargo Policy. Insurers declined the claim, arguing that there had been no physical loss of property – Quadra had suffered only financial loss, in respect of which it was not insured.
Quadra issued proceedings, claiming in respect of its lost goods and its sue and labour costs. It also made a damages claim under Section 13A of the Insurance Act (the Act).
Insurers argued that Quadra had no insurable interest in the goods that had been lost and there was no misappropriation of any goods. There had been no loss of physical property. The insured's loss was purely financial and no payment was due under the Policy as a result.
Commercial court decision
The court held that Quadra was entitled to an indemnity under its Marine Cargo Policy for the misappropriation of goods. However, no damages were due under S13A of the Act; insurers had not breached the implied term under S13A to pay insurance monies within a reasonable time.
Mr Justice Butcher confirmed that the burden of proving an insurable interest will rest with an insured, although where insurance has been taken out and a premium accepted the courts will be reluctant to find that no such interest exists.
In this case, the court found that:
- When the receipts were issued to Quadra goods corresponding in quantity and description to the goods purchased by it were physically present in the warehouses;
- Quadra had an insurable interest in those goods because it had paid for them and they were treated as being stored for Quadra and being part of its business. Quadra would therefore suffer a loss if the goods were lost or damaged;
- There was no loss under a fraudulent documents clause because the physical loss of the goods was not caused by the insured's acceptance of the fraudulent warehouse receipts.
Claim under Section 13A of the Insurance Act 2015
Section 13A of the Act provides that "it is an implied term of every contract of insurance that if the insured makes a claim under the contract the insurer must pay any sums due in respect of the claim within a reasonable time", which will include "a reasonable time to investigate and assess the claim".
Quadra argued that insurers had not paid the sums due to it within a reasonable time. Quadra contended that insurers' conduct of the claim was "wholly unreasonable, and its investigations either unnecessary or unreasonably slow". Insurers argued that a reasonable time to investigate the claimant's claim was "a considerable time" which should have extended beyond the time at which the proceedings were commenced, and that, in any event, there were reasonable grounds entitling them to dispute the claim. Section 13A(4) provides that if the insurer shows that there were reasonable grounds for disputing the claim, the insurer does not breach the implied term merely by failing to pay the claim.
Mr Justice Butcher confirmed that the onus was on the insured to show that insurers had failed to pay within a reasonable time, whereas it was on insurers to prove whether there were reasonable grounds for disputing the claim. These were two different questions.
Factors to be considered in establishing whether the length of time was reasonable included;
- The type of insurance cover – in this case it was Marine Cargo, a type of property insurance. Property insurance claims normally take less time to value than, for example, business interruption claims. However in this case the cover applied to transport and storage operations of different types and involving or potentially involving many different countries and locations. Claims could therefore involve various factual patterns and differing difficulties of investigation.
- The size and complexity of the claim – the size of the claim was substantial but not exceptional in the context of marine cargo insurance. The claim was complicated to a significant extent by its location, the detail of the Agroinvestgroup fraud, the destruction of documents and the existence of proceedings in Ukraine.
- There were a number of factors outside the insurers control which meant that the claim would take some time to investigate. This included the destruction and unavailability of evidence.
Mr Justice Butcher concluded that – given the nature and complicating circumstances of the claim – a reasonable time was not more than about a year from the notice of loss. A year should have been a reasonable time for insurers to have properly investigated and evaluated the claim – and to pay the claim if that investigation and evaluation had indicated no reasonable grounds for disputing the claim.
The judge accepted that insurers had reasonable grounds for disputing the claim - he also confirmed that the fact that he found the grounds were wrong did not mean that they were not reasonable.
Quadra argued that the proviso in section 13A(4)(b) should be applied – so that even if insurers were found to have reasonably disputed the claim (so there was no breach for not paying while the dispute continued) insurers' conduct should still be taken into account in deciding whether there had been a breach of Section 13A. The judge rejected Quadra's argument that the insurers' handling of the claim was unreasonable and slow. He accepted that elements of the insurers' investigations were unnecessarily delayed - including a delay in the surveyor's report provided to Quadra, instructing loss adjusters and taking legal advice. However, those delays did not prevent the investigations from occurring in what was considered to be a reasonable time for payment of the claim and there were reasonable grounds for disputing the claim that existed throughout. There was, therefore, no breach of section 13A.
This judgment provides helpful guidance on the factors the court may take into account when considering a claim under Section 13A and determining what a reasonable length of time for insurers to evaluate and pay a claim may be. It certainly suggests that the hurdle of establishing a successful claim against insurers under section 13A is reasonably high given that delayed or slow investigations will not necessarily be unreasonable if the insurer has reasonable grounds for disputing a claim, even if the court ultimately finds the grounds for disputing a claim are wrong. This may provide some comfort to insurers but will no doubt continue to frustrate those policyholders who are facing contested claims.
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