IEG v Zurich: Insurance Law for the Digital Age?

The rules for the division of a prize, that is a captured Vessel in 18th Century Maritime custom, were elaborate and precise. In Patrick O’Brian’s, “Master and Commander”, Captain Jack Aubrey contemplates his share of the prize, the Danish ship, “DORTHE ENGELBRECHTSDATTER”, as follows:

As he let himself sink on to the long cushioned locker, he found that he was in the act of saying “Carry Three” for his mind was busy working out three eighths of £3,500 – it had now fixed upon the sum as the worth of the “DORTHE ENGELBRECHTSDATTER. For three-eighths (less one of them for the Admiral) was to be his share of the proceeds. Nor was his the only mind to be busy with figures, by any means, for every other man on the Sophie’s books was entitled to share – Dillon and the Master, an eighth between them; the surgeon (if Sophie had officially borne one on her books) bosun, carpenter and master’s mates, another eighth, then the midshipmen, the inferior warrant officers and the marine sergeant another eighth, while the rest of the ship’s company shared the remaining quarter. And it was wonderful to see how briskly minds not given to abstract thought rattled these figures, these symbols, up and down, coming out with the acting yeoman of the sheets’ share correct to the nearest farthing.”

Unfortunately for Jack Aubrey and his crew, all these calculations were pointless as the crew of the Danish ship who had been assumed to have been killed by Corsair pirates were found in a secret hiding place within the Vessel, which then was no longer deemed a prize.

Such precise calculations and customs were common in the 18th Century at the time when insurance law began to emerge in its present form. It is instructive to consider what a different commercial world existed in the 18th Century when business was conducted through arcane ledgers, when communication beyond the immediate face to face was difficult, often impossible, and when the opportunities for real wealth were so infrequent and slight, that great precision was required when it arose. This is to be contrasted with the emerging digital age, where process is seamless through software, when communication is instant and worldwide, and there are seemingly limitless business opportunities.

Reading the speeches of the Supreme Court in IEG v Zurich, it is striking how all the justices attempt to fit what can be perceived as an obviously fair and reasonable solution into the historic rubric of insurance law, even though such law developed in very different times and commercial practices.

The advantages of the digital age will only be fully exploited if it is understood that digital process is not a means of supporting a traditional approach, but rather a different approach in itself reflecting the need for much greater speed and flexibility in the exchange of information.

An obvious problem emerged in insurance law when the creation of the Fairchild exception in mesothelioma claims created a situation in which policies underwritten for single events such as accidents had to be interpreted in the context of liability reflecting the risk of an event occurring, as opposed to causation proved on a traditional basis. The Fairchild exception created rights to indemnity under policies underwritten successively and the same would not have been contemplated at the time that the policies were incepted. In Phillips v Gunner Limited [2003] EWHC 1084 (Comm), I attempted a simple argument that if indemnity was working in a way not anticipated at the time that the policies were underwritten, it would be reasonable if the concept of double insurance was modified so as to reflect this situation . In particular, the historic application of double insurance only to policies underwritten at the same moment in time should be modified. This argument, however, was met with a rigid and conservative approach and the principle of double insurance remains as originally cast. A decade of insurance litigation has followed since Phillips and it is reasonable to reflect on how much of this might have been avoided had a simple and pragmatic approach been taken at the outset. It is interesting to see in the Supreme Court speeches, reference to the Australian approach which has been more liberal. Australia is a younger country and has a noticeable judicial creativity which appears to produce more reasonable and contemporary results.

Whilst traditional insurance law no doubt has an intellectual fascination for those who engage in it, those who need to use such law in their commercial transactions are increasingly likely to want an approach that is comprehensible, leading to swift and reasonable resolution of disputes.

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