Consumer Flood Insurance Thoughts for an Emerging Market
Natural disasters impact large numbers of consumers, making insurance crucial. Understanding practical issues, exploring solutions from New Zealand's statutory scheme for natural catastrophes, and fostering neutral policy discussions are key to addressing emerging consumer catastrophe insurance markets.
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INSURANCE LAW & REGULATION: KEY DEVELOPMENTS 2019 James Davey Professor of Insurance & Commercial Law University of Southampton 1
PROF ROB MERKIN QC: THE ENRICO FERMI OF INSURANCE 2
HORIZON SCANNING Key regulatory changes and pressures; Key developments in compulsory insurance: liability insurance; Key developments in marine insurance: coverage & deliberate harm, capture & seizure 4
A. REGULATION Insurance Distribution Directive (Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (recast) Text with EEA relevance) and evolution of ICOBS & equivalent rules and principles. Senior Manager and Certification Regime (in insurance) General Insurance Pricing: FCA, Interim Report, Oct 2019. (https://www.fca.org.uk/publications/market-studies/ms18-1-general- insurance-pricing-practices-market-study) 5
PRICE REGULATION Risk: US-style pre-approval of insurance products (pricing mechanisms, cross-subsidies) etc Price controls PS16/21 Increasing transparency and engagement at renewal in general insurance markets (and renewal information) MS18-1.2, at [5.2]: Price discrimination by optimising the margin. Nearly all firms set different prices to new and renewal customers (through discounts to new business) and customers of different tenure(by price walking).They also set different prices to different customers of the same tenure based on their estimated willingness to accept a given price offer (through price optimisation) . 6
ECONOMICS MEETS LAW Identified customer harm Legal basis for intervention: Retrospective? Prospective? Competition law? Unfair Terms controls? Anti-discrimination law? GDPR? FCA competence under FSMA 2000 (as amended)? 7
B. COMPULSORY INSURANCE Equitas Ins Ltd v Municipal Mutual Ins Ltd [2019] Lloyd's Rep IR 359: Insurance, reinsurance and Employer s Liability insurance Lewis v Tindale -> MIB v Lewis [2019] Lloyd's Rep. I.R. 390 (CA): UK Insurance v Holden -> R&S Pilling v UK Insurance Ltd [2019] 2 WLR 1015 (SC): Use of a Vehicle and RTA 1988 (and the Motor Insurance Directives) 8
B1: EQUITAS INS LTD V MUNICIPAL MUTUAL INS LTD [2019] LLOYD'S REP IR 359 (CA) Appeal pending to the Supreme Court. Males LJ at [4]: in broad terms the question is whether an insurer which settles a claim for liability for mesothelioma arising under EL insurance policies which span several years of exposure to asbestos can claim an indemnity for its full loss under whichever annual reinsurance within this period it chooses in order to maximise its reinsurance recovery, or whether it is limited to claiming under each annual reinsurance policy a pro rata share of the settlement sum; and, if the former, what rights of contribution and recoupment are available to the reinsurer(s) against which the claim is made. 9
WAS PRIMARY INSURER ENTITLED TO PRESENT CLAIMS AS FALLING WITHIN A CHOSEN WINDOW? Prevented by implied term? Prevented by (continuing) duty of utmost good faith? Return to causal orthodoxy: The result of the jurisprudence so far, culminating in IEG, is that a victim of mesothelioma as a result of negligent exposure to asbestos is assured of a remedy. That will be either a solvent employer or a solvent insurer or, in cases where the insurer is insolvent, a statutory or industry compensation scheme. While the anomalies described by Lord Mance in IEG served a purpose at the insurance level, it is unnecessary to perpetuate them at the reinsurance level , at [92]. 10
END GAME (FOR NOW): ALLOCATION ON BASIS OF TIME ON RISK? Question 1: the contribution to the settlement of each engaged policy must by necessary implication be treated as having been on that basis; or Question 2: the doctrine of good faith requires the claim to be presented on that basis Question 3: If the EL insurer is not so obliged, and may present a claim to a single year of his choice, how are the rights of recoupment and contribution acquired by the reinsurers of that year to be calculated Answers: (1) No; (2) Yes, unless there is some other rational basis for ascertaining the contribution to the risk in each triggered policy year; (3) Does not arise unless the answer to question 2 is held to be wrong, in which case the Equitas method should be applied. 11
B2: WHERE MUST A VEHICLE BE INSURED? S. 145(3)(a) RTA 1988 (as amended): policy must insure such person, persons or classes of persons as may be specified in the policy in respect of any liability which may be incurred by him or them in respect of the death of or bodily injury to any person or damage to property caused by, or arising out of, the use of the vehicle on a road [or other public place] in Great Britain , Road : challenged in Cutter v Eagle Star Ins Co [1998] All ER 417 Is a car park a road? Not a thoroughfare: not a road. Amended by Statutory Instrument: Motor Vehicles (Compulsory Insurance) Regulations 2000 to extend to public places . 12
WHAT PLACES MUST BE COVERED? Case C-162/13 Vnuk v Zavarovalnica Triglav Tractor. Driven on farmland. Causes personal injury. CJEU states that Motor Insurance Directives require use of vehicles to be insured, even on private land. Case C-334/16 Torreiro v AIG Europe Ltd Soldier. Night-time manoeuvres. Wheeled military vehicle. In area designed for tracked vehicles (tanks). Overturns. Serious personal injuries. Insured by AIG. CJEU confirmed that compulsory insurance requirements were met. 13
MIB v LEWIS [2019] LLOYD'S REP. I.R. 390 Defendant deliberately drove from a road, through a wire fence and on to a field. Believed himself to be chasing metal thieves . Collides with a walker, serious injuries. Acquitted of criminal charges. Are motor insurers and/or MIB liable for injuries even though on private land? If so, how? (Floor level) Harmonisation of motor insurance rules across EU, to allow cross- border travel: Motor Insurance Directive (Consolidated). 1st instance: Interpretation and of UK statute is subject to EU law issues: 1. Re-interpret statute to fit with EU Directive (Marleasing -> Vnuk): Not possible. 2. Direct effect of Directive (emanation of the State, nature of rights): Agreed. 3. Francovich damages: Not necessary (as 2). 14
COURT OF APPEAL 1st instance overturned existing UK precedent to find that the Motor Insurers Bureau (which compensates for uninsured motor losses) was a emanation of the State . Analogous to CJEU decision on MIBI (Ireland). Right to min 1m compensation (for personal injury) was sufficiently precise to be enforceable. [63]: The UK government has failed to fulfil its obligation under Article 3 of the 2009 Directive to ensure that civil liability in respect of the use of motor vehicles on private land is the subject of a scheme of compulsory motor insurance. That the government is under that obligation in respect of the use of vehicles on private land cannot be doubted in view of the judgment of the CJEU in Vnuk [etc].The government has also failed to comply with its co-extensive obligation under Article 10 to assign responsibility for meeting that liability to the compensation body contemplated by that Article, just as the Irish government had failed in Farrell v Whitty . 15
C. MARINE INSURANCE: DELIBERATE ACTS Hull & Machinery and War risks cover Navigators Insurance Co Ltd v Atlasnavios-Navegacao Lda (formerly Bnavios- Navegacao Lda), The B Atlantic [2019] AC 136. Aspen Underwriting Ltd v Credit Europe Bank NV, The Atlantik Confidence [2019] 1 Lloyd's Rep. 221. Suez Fortune Investments Ltd v Talbot Underwriting Ltd, The Brilliante Virtuoso [2019] EWHC 2599 (Comm). 16
NAVIGATORS INSURANCE CO LTD V ATLASNAVIOS-NAVEGACAO LDA (FORMERLY BNAVIOS-NAVEGACAO LDA), THE B ATLANTIC [2019] AC 136. Drugs discovered strapped to external hull of vessel insured under war risks for Capture / seizure Malicious acts But excluded 4.1.5 arrest restraint detainment confiscation or expropriation under quarantine regulations or by reason of infringement of any customs or trading regulations 6 months detention = CTL 17
MALICIOUS ACT? Lord Mance, at [22]: where a person acts in a way which involves an element of spite or ill- will or the like in relation to the property insured or at least to other property or perhaps even a person, and consequential loss of, or damage to, the insured vessel or cargo. It is not designed to cater for situations where the state of mind of spite, ill-will or the like is absent. In the present case, foreseeable though the vessels seizure and loss were if the smuggling attempt was discovered, the would-be smugglers cannot have had any such state of mind. They were, on the contrary, intent on avoiding detection . 18
CLAUSE 4.1.5: CUSTOMS INFRINGEMENT EXCLUSION Effective to deny cover (on terms of the policy), even if malicious acts had been one of the (but not the sole) proximate cause of the loss 19
