Markerstudy Insurance Company Ltd & Ors v Endsleigh Insurance Services Ltd

Exclusion clauses using “indirect or consequential loss” ordinarily exclude only losses falling within the second limb of Hadley v Baxendale. Specified categories such as loss of goodwill, business or profit are not automatically freestanding exclusions of both direct and indirect loss. Clear language is required to exclude direct losses within those categories.

A contractual liability cap may include contractual interest where its wording covers total contractual liability, but statutory interest is a separate statutory liability and falls outside the cap. A termination provision releasing all claims and liabilities takes effect according to its ordinary terms; a separate indemnity should not be construed inconsistently with that release.

The claimants, insurance companies and their parent, alleged widespread breaches of a series of claims-handling agreements by Endsleigh. They claimed approximately £14 million under several heads, including unnecessary claims payments, inaccurate reserving, delay and loss of business.

Following a case management conference before Beatson J on 26 June 2009, four construction issues were ordered to be tried as preliminary issues. They concerned exclusions for loss arising from data-input errors, releases in deeds of termination, an exclusion and liability cap in the fifth contract, and whether interest fell within that cap.

1. Article 13 of the Fifth Contract. The exclusion of “indirect or consequential loss”, including specified economic losses, was confined to indirect or consequential losses. The listed heads were examples of the excluded loss, rather than freestanding exclusions of all direct and indirect losses. The wording was insufficiently clear to exclude direct loss. The construction was supported by BHP v British Steel [1999] 2 Lloyd’s Rep 583 and Ferryways NV v Associated British Ports [2008] 1 Lloyd’s Rep 639.
2. Article 13.2. The cap on Endsleigh’s total liability in contract included contractual interest. Statutory interest was different: it was a discrete statutory liability arising from the court’s discretion and was outside the cap.
3. Articles 8.1 and 7.1. The introductory reference to direct or indirect loss governed the specified losses arising from data-input errors. Only indirect loss of profit or business was excluded. The clause potentially applied across the agreements, although data-input errors were unlikely to arise in claims-handling services after policy administration ceased.
4. Deeds of Termination. Article 2 terminated the agreements and released all claims, demands, liabilities and obligations. Article 3 could not be construed inconsistently with that express release. Its commercially realistic effect was confined to third-party claims arising from pre-termination breach, neglect or default.
5. The remaining preliminary issues had been agreed. The court therefore determined the four preliminary issues in accordance with those conclusions.

The judgment was a first-instance determination of agreed preliminary issues following a case management conference before Beatson J on 26 June 2009.