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High Court considers the law of insurable interest and the application of section 13A of the Insurance Act 2015

7th Mar 2022

Quadra Commodities S.A. v XL Insurance Company SE and Others [2022] EWHC 431 (Comm)

Teams of barristers from 7KBW appeared on both sides of Commercial Court litigation concerning the loss of grain stored in Ukrainian warehouses and insured under a marine cargo insurance policy.  The decision is of particular interest for its consideration of the circumstances in which an insured purchaser may have an insurable interest in property.  It is also the first reported decision to consider the application of section 13A of the Insurance Act 2015.

The insured claimant purchased cargoes of grain under various contracts and paid for the same against the presentation by the sellers of warehouse receipts issued by Ukrainian warehouses.  Those warehouses were, however, participating in a fraud whereby multiple warehouse receipts in respect of the same goods were issued to different buyers.  When it came to the point of executing physical deliveries against those warehouse receipts, there was not enough grain to go round.

Following the loss of the grain for which it had paid, the claimant sought an indemnity from its cargo insurers.  The insurers resisted liability on the basis inter alia that there was no loss of physical property, alternatively it was not property in which the claimant could show it had any insurable interest.

Mr. Justice Butcher found for the insured claimant.  In summary:

  • The claimant had succeeded in showing that goods corresponding in quantity and description to the cargoes, and in which it had an insurable interest, were physically present in the warehouses at the time the warehouse receipts were issued. The claimant had an insurable interest by reason of: (i) having paid for unascertained goods and (ii) having an immediate right to possession of those goods vis-à-vis the warehouses, coupled with an economic interest therein.  This was the position irrespective of the fact that the claimant had no proprietary interest in the goods pursuant to section 20A of the Sale of Goods Act 1979, and there were potentially competing interests therein.
  • As to the nature of the insured peril, Mr. Justice Butcher concluded that the loss was caused by ‘misappropriation’ within the meaning of the policy. The fraudulent documents clause did not apply because (although there was a physical loss of goods) that loss was not caused by the claimant’s acceptance of fraudulent warehouse receipts.

The claimant’s separate claim for damages pursuant to section 13A of the Insurance Act 2015 was dismissed.  Two distinct questions arose: (i) what was a reasonable time within which insurers should have paid; and (ii) were there reasonable grounds for disputing the claim?   Mr. Justice Butcher concluded that a reasonable time was not more than about a year from the notice of loss; that there were reasonable (albeit mistaken) grounds for disputing the claim; and that, although there was some delay in certain aspects of the defendants’ investigations of the claim, those features of insurers’ handling of the claim still occurred within a reasonable time for payment.  There was accordingly no breach of the section 13A implied term.

The insured was represented by Jawdat Khurshid QC and Anna Gotts who were instructed by Kyri Evagora and Elizabeth Farrell of Reed Smith LLP.

The insurers were represented by Peter MacDonald Eggers QC and Sandra Healy who were instructed by Christopher Pratts and Daniel Jennings of Clyde & Co LLP.

To view a copy of the judgment, please click here.