[2017] EWCA Civ 25

On 25 January 2017, the Court of Appeal upheld Eder J’s ruling that a payment of money into escrow was not an insured loss under a programme of liability insurance. The payment was not an ascertainment of liability for the purpose of the rule in Post Office v. Norwich Union and Bradley v Eagle Star because it was not a payment of compensatory damages of itself. The escrow account was a fund from which money might be drawn down in future, to make payments which would represent sums payable as compensatory damages. Those payments would ascertain the insured’s liability but the payment into escrow did not.

The case considers Phillips J’s determination in Cox v. Bankside that an interim payment ordered by the Court was one “on account of and in anticipation of an eventual order of damages”, which triggered a right of indemnity under a liability insurance policy. The Court of Appeal rejected reinsurers’ contention that any payment that can be so described is enough to amount to insured loss. Phillips J was not intending to formulate any such general rule and, as Phillips J himself recognised, his conclusion in relation to an interim payment order was “an essentially pragmatic solution which might protect an insured from insolvency”. No such considerations arise in relation to settlement arrangements made by a solvent insured.

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