Quadra Commodities S.A. v XL Insurance Co SE and Others is the first reported case to consider section 13A of the Insurance Act 2015 (“the Act”), and insurers’ liability to pay damages for not paying a claim made by a policyholder, within a reasonable time. Whilst the law for damages for late payment has been around for some time in respect of claims against insurance brokers (see, for example, Arbory Group v West Craven Insurance Services  Lloyd’s Rep. I.R. 491), it is relatively new in the context of claims against an insurer.
In short, the court held in favour of the claimant insured, Quadra Commodities S.A. (“Quadra”), in its claim for an indemnity. However, Quadra was unsuccessful in its claim for damages under section 13A. Notably, the court held the insurer, XL Insurance Co SE (“XL”) was not unreasonable in disputing the claim even though it ultimately transpired that its grounds for doing so were wrong.
The claim was made by Quadra against XL under a contract of marine cargo open cover insurance (“the Policy”). It arises out of the ‘Agroinvestgroup Fraud’, which affected the Ukrainian agribusiness and came to light in 2019.
Quadra purchased cargoes of grain under various contracts with entities in the Agroinvestgroup between September 2018 – January 2019. Warehouse receipts were provided to Quadra confirming that the relevant quantities of grain were held in common bulk in specified warehouses, at which point it made payment. Subsequently, around February 2019, it came to light that Agroinvestgroup and the warehouses were involved in a fraudulent scheme where the receipts were fraudulent insofar as the same grain had been sold to multiple buyers.
Consequently, when Quadra sought to execute physical deliveries against the fraudulent warehouse receipts, it became apparent that there was insufficient grain to go around.
Quadra sought to recover its losses under the Policy. XL denied the claim stating there had been no physical loss of grain and Quadra had suffered a purely financial loss which was not covered by the policy.
The Claim for an Indemnity
The court found in Quadra’s favour, and held there was an insurable interest in the grain physically present at the time the warehouse receipts were issued.
The court’s reasoning was based on the fact that Quadra had successfully shown the grain which was the subject of the warehouse receipts was physically present at the time the receipts were issued. Quadra had an insurable interest in it as it had paid for unascertained goods. Moreover, the court determined Quadra had an immediate right to possession of the goods, although it did not have a proprietary interest.
Damages under Section 13A Insurance Act 2015
Section 13A of the Act was inserted via the Enterprise Act 2016 and came into effect on 4 May 2017. It does not have retrospective application, but applies to policies commencing on or after that date. In broad summary, section 13A of the Act implies a term into insurance contract which requires the insurer to pay the sums due within a “reasonable time”. If they do not, breach gives rise to compensatory damages in excess of what the insured is otherwise entitled to under the policy and such losses are not capped to the overall sums insured. It, therefore, has the potential to be very costly to insurers. The main contention in the Quadra case was in regard to what constituted a “reasonable time”.
Quadra’s case was that XL took an unreasonably excessive amount of time to investigate and assess the claim, and subsequently to pay the sums due. Conversely, XL contended that a “reasonable time” meant a “considerable time” which extended beyond the time at which the proceedings were commenced (20 May 2020). In any event, XL pointed to section 13A(4), which states an insurer does not breach the implied term if it can demonstrate reasonable grounds for disputing the claim.
In the judgment, the court held a “reasonable time” was not more than about a year from the notice of loss; Quadra sent XL the notice of loss on 14 February 2019. This was based on the assumption that the investigation had indicated no reasonable grounds for disputing the claim, or a part of it.
Concerning section 13A(4), the court decided that XL had reasonable grounds to dispute the claim; albeit they were mistaken as to the grounds. The fact the grounds they had relied on were wrong, did not mean they were unreasonable. Consequently, there was no breach of the implied term under section 13A.
As the first reported case dealing with section 13A of the Act, this decision provides useful insight into the factors which may be considered in ascertaining what is a reasonable time for insurers to investigate and pay a claim.
Whilst each case will naturally turn on its specific facts, for insurers, it demonstrates that delays in investigating a claim do not necessarily equate to unreasonableness so long as there are reasonable grounds for disputing a claim.
It is also worth noting that if you or your client has a potential claim under section 13A of the Act, it must be brought within one year from the date on which the insurer has paid all the sums due in respect of the claim or when the insured has otherwise received the equivalent payment from a third party.
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