UK Acorn Finance (UKAF) brought a claim against insurers Markel, under the Third Party (Rights Against Insurers) Act 2010, in UKAF v Markel [2020] EWHC 922 (Comm).
The background was that UKAF had obtained judgments for negligent over-valuations of 11 agricultural properties. However, the valuer was insolvent and its professional indemnity insurer, Markel, used a clause in the contract (the unintentional non-disclosure (UND) clause) to escape responsibility. The valuer therefore had no cover, which left UKAF with no means of recovery.
In a judgment handed down on Skype last week, however, Judge Pelling QC held there was an implied term of the UND clause that Markel could not use it to make a decision which was arbitrary, capricious or irrational. The court did not believe it was right for it to review the position afresh, but instead considered the evidence adduced by Markel and judged the underwriter’s decision making, explained to the court in detailed cross examination, against this Braganza irrationality test.
Georgina Squire, partner at Rosling King, who acted for UKAF, said: ‘We are delighted by this judgment which is a significant judgment in that it underlines the point that a party in a position of contractual power should always have the Braganza test in their mind when making a decision.
‘It was expected that the Braganza test would be applied widely. Perhaps it has, though very few disputes over it appear to have gone to court and this is therefore all the more interesting.’
In Braganza v BP Shipping [2015] UKSC 17, BP was found to have reached a conclusion that no reasonable decision-make could have reached. BP had used a contractual loophole to deny death-in-service benefits to the widow of an employee who disappeared without trace off an oil tanker at sea. Lady Hale held that a contractual decision maker should not abuse their position and overcame this by implying a term as to the manner in which they exercise their decision-making powers.
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