Cases - Lumbermens Mutual Casualty Co v Bovis Lend Lease Ltd

Record details

Name

Lumbermens Mutual Casualty Co v Bovis Lend Lease Ltd

Date

[2004]

Citation

AII ER (D) 36 (Oct)

Keywords

Construction contract - settlement agreement of original claim – settlement of final account by assured – whether identifiable loss imposed on assured where settlement only identified overall price paid as part of final account - Insurance – liability insurance – requirement of proof of original insurer’s liability to original assured

Summary

This case illustrates the potential traps that unsuspecting parties may face when settling claims which one of the parties intends to offset against an insurance policy. The case concerned a claim and counterclaim scenario.

The claim by Bovis was for approximately £38 million and the counterclaim by the employer, Braehead, was either £104 million or alternatively £76 million. The counterclaim related to an insurable event for which Bovis could claim from their insurance. The dispute between Bovis and Braehead was settled in global terms such that Braehead agreed to pay Bovis £15 million. Bovis then sought to claim £19 million from their insurers as representing the true value of the employer's claim.

The insurers resisted the claim on the basis that the settlement agreement between Bovis and Braehead did not expressly specify whether any amount had been allowed for the employer's claims and if so how much.

Bovis argued that this did not prevent it from recovering under the insurance as it was possible to identify the value of its liability to the employer which had been compromised as part of the settlement agreement. Bovis argued that the fact that the settlement agreement did not expressly state whether and if so how much had been allowed in respect of the counterclaim did not prevent Bovis from recovering from the insurers.

The court held that a global settlement agreement of this nature does not satisfy the requirement of ascertainment of loss under these liability insurance policies. It does not impose on the assured any identifiable loss in respect of any identifiable insured eventuality. It merely identifies the overall price paid by the assured as consideration for a contract which conferred on the assured various different benefits including the dropping by the employer of all claims in respect of the project.

Therefore the absence of any reference to the amount included in the settlement agreement by way of settlement of Braehead's counterclaim was fatal to Bovis's claim against the insurance policy. Bovis could not demonstrate that they had incurred a loss by reason of the insured event. Therefore, Bovis's claim under the insurance policy failed.

Lumbermans were not liable for the sum agreed by Bovis and Braehead but would have been liable for some of the damages flowing from the claims made against Bovis. Lumbermans claimed that following the global settlement their liability could not now be determined and therefore they were not liable for any of Bovis's loss. The Court of Appeal agreed.

Unfortunately for Bovis this matter would have been relatively easily avoided by making express reference in the settlement agreement with the employer to the values being attributed to the respective claims and counterclaims.