Round-up of Recent English Insurance Law Decisions

Repost of our social media coverage on recent English insurance law decisions

Photo credit marcin-nowak

(1)     Recent English High Court reinsurance decision - Royal & Sun Alliance Insurance Limited & Ors v Equitas Insurance Limited Neutral Citation Number [2025] EWHC 2704 (Comm).

The dispute arose from policies issued between Oct 1981 and Sept 1985. The insurer paid out to settle toxic tort cases in New Jersey which were first notified in 1986 but which were only settled in the 2000s. The insurer was seeking indemnity from the successors in title of its reinsurer.

❤️‍🔥 The court held that the excess appliable under the reinsurance policies was only eroded by indemnity payments and not by defence costs.

🤝 On a proper construction of the reinsurance contract, the claims cooperation clause did NOT modify or circumscribe the follow the settlement clause.

🙅‍♀️ The reinsurers would not be bound to follow the settlement if the insurer had failed to take proper and businesslike steps in settling the claim (i.e. if there was professional negligence on the part of the insurer). But on the facts there was no breach of this duty.

💸 The insurer was thus entitled to reimbursement from the reinsurer.

💰 The court pegged interest to 2% above the base rate on the basis that insurance markets are an area in which actual losses may be more properly reflected by compound interest rather than basic interest. However, insufficient evidence was led for the court to be persuaded to order compound interest.

(2)     Red hand doctrine and contractual inconsistency considered by English Court of Appeal in recently decided "Pay First" case - MS Amlin Marine NV v King Trader Limited & Ors [2025] EWCA Civ 1387.

🛳️ The case arose out of the grounding the Solomon Trader in February 2019. The owner and the P&I Club obtained an arbitration award of USD 47 million against the Charterer in an arbitration. As the Charterer was insolvent the owner and club looked to the Charterer's liability insurer, AS Amlin.

💸 AS Amlin sought a declaration that the "Pay First" clause in the policy was enforceable against the Charterer. This clause required the policyholder to pay out first in order to be entitled to an indemnity. As the Charterer was insolvent and could not pay the USD 47 million award in the first instance, the effect of the declaration would be to absolve the insurer of having to make any payment.

The insurer was successful at first instance and on appeal.

✍ The Court of Appeal held that the two indemnity provisions in the policy were not inconsistent as the policy contained a hierarchy clause which clarified which clause was to take preference. Even applying the test as summarised by Males LJ in The Nounou [2021] which focused on whether one term deprived the other term of any effect, there was no inconsistency. This is because the Pay to be Paid clause did not negate the insuring clause but simply qualified it (albeit in a very significant way).

🖐The Court of Appeal the held that the Red Hand doctrine does exist and does apply to commercial insurance, although a better phrase might be ‘the onerous clause doctrine. The effect of the doctrine is to relieve the party from liability under the onerous condition on the basis that the onerous clause is regarded as not being incorporated into the contract. The doctrine only applies if the clause is onerous or unusual.

👉 On the facts there was no basis to apply the doctrine as Pay First clauses are not unusual in the P&I context and are not generally onerous. Further, the policyholder in this case had been represented by professional brokers.