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.
