GAN INSURANCE CO LTD v TAI PING INSURANCE CO LTD (No 3)

A claims co-operation clause requiring co-operation in investigating and assessing a loss extends at least to the loss's nature, scope and amount, the application of policy cover, and any loss-related breach of condition or warranty. Its possible application to a loss-related misrepresentation giving a right to avoid was left open.

An insurer settling a claim subject to reinsurance must act in a proper and businesslike manner. The reinsurer bears the burden of pleading and proving a breach. On a summary judgment application, a newly discovered defence may be raised through evidence without a formal draft amendment, but its nature must be stated clearly and concisely.

Tai Ping insured machinery being installed in Taiwan and facultatively reinsured part of its exposure with Gan. Following a fire, Tai Ping settled the insured's claim. Gan alleged that Tai Ping had failed to co-operate with requested investigations under a claims co-operation clause and had failed to settle in a proper and businesslike manner.

Andrew Smith J granted summary judgment against Gan on both issues on 8 February 2001. Gan appealed. The central questions were the scope of the claims co-operation obligation, whether the requested investigation had already been adequately completed, and whether newly disclosed material gave Gan a real prospect of establishing that the settlement was made in an unbusinesslike manner.

1. Appeal allowed in part and dismissed in part. Mance LJ delivered the judgment of the court. Gan had no real prospect of proving breach of the claims co-operation obligation, but it could advance at trial its contention that Tai Ping had failed to settle in a proper and businesslike manner.

2. The claims co-operation clause bore a relationship to ordinary claims handling and to the reinsurer's need to assess whether to approve a settlement. It extended at least to determining the nature, scope and amount of the loss, whether the loss fell within the policy cover, and whether there had been a loss-related breach of condition or warranty. Treating an investigation of such a breach as outside the investigation of a loss would be unrealistic. The court did not finally decide whether the clause also covered a loss-related misrepresentation capable of supporting avoidance from inception.

3. Gan's request concerned not only its own possible avoidance of the reinsurance but also the insured's compliance with the original policy, including a condition concerning fire-extinguishing facilities. Those matters were within the clause's scope. Nevertheless, the forensic reports already supplied adequately addressed all relevant facts, and Gan had no real prospect of proving otherwise. The related allegations were therefore struck out.

4. Gan bore the burden of pleading and proving that Tai Ping had failed to settle in a proper and businesslike manner. Breach of the separate claims co-operation obligation would not reverse that burden.

5. A respondent to a summary judgment application may sometimes raise a newly discovered factual defence in evidence without first producing a formal draft amendment, particularly where the defence depends upon disclosure controlled by the applicant. The respondent must, however, state the proposed defence clearly and concisely.

6. Material disclosed shortly before the application supported further inquiry into whether Tai Ping had exceeded carefully assessed settlement limits, marginalised relevant legal advice, or allowed reputational and other local commercial pressures to affect the settlement. At that interim stage, before full disclosure, the court should not impose too high a barrier. There was also a real prospect that any unbusinesslike conduct affected the settlement figure. Summary judgment on that issue was therefore inappropriate.

1. Court of Appeal (Civil Division): Gan's appeal was allowed in part and dismissed in part. Andrew Smith J's order was varied so that Gan could pursue at trial its allegation that the settlement was not made in a proper and businesslike manner. Its claims-co-operation allegations remained struck out.

2. Commercial Court, Queen's Bench Division: Andrew Smith J, by order dated 8 February 2001, determined under Part 24 that Gan had no real prospect of succeeding on either the claims-co-operation issue or the proper and businesslike settlement issue.

3. Earlier proceedings: On 3 July 2001 the Court of Appeal had determined other issues arising from judgments of Longmore J dated 21 June 2000 and Andrew Smith J dated 8 February 2001. The present appeal concerned the two issues left for later determination.