Full policy limit to be paid on W&I Claim
The recent Victorian Supreme Court (“Court”) decision in UDP Holdings Pty Ltd (subject to a deed of company arrangement) (rec and mgr apptd) v Ironshore Corporate Capital (No 2)  VSC 645, provides useful insight into policy interpretation and the scope of coverage offered under a Warranty & Indemnity insurance (“W&I”) policy.
Ultimately, the Court determined that the plaintiff, UDP Holdings Pty Ltd (“Insured”) suffered a loss under a buyer’s Warranty and Indemnity insurance policy (“Policy”) underwritten by the defendants, Ironshore Corporate Capital Ltd (No 2) and International Insurance Company of Hannover SE (“Insurer”). It was held that the Insured was entitled to judgment in the sum of $25 million, being the full Policy limit, plus interest.
Takeaways and Insights
One of the key takeaways, is that the court is inclined to hold W&I insurers to a reasonable response, consistent with the commercial interpretation of a W&I policy. Once the Policy was triggered and the quantum of loss ascertained, the Insurer was obligated to pay. We expect this decision to influence the early assessment and settlement of W&I claims. As Marsh expects W&I claims activity to increase in coming years, the decision bodes well for Insureds’ rights under the policy.
There are a number of other key insights to be gained from the decision:
- W&I insurance operates as the first port of call with respect to compensation for a breach of warranty rather than being utilised as compensation of last resort.
- The early submission of supporting evidence to establish a valid claim under the policy, protects the insured’s position. In this case, the early submission of accounting evidence allowed the court to find there was unreasonable delay by the Insurer and the Insured was entitled to interest.
- An Insurer cannot unreasonably delay determining its indemnity position by issuing requests for further information.
- A higher policy limit at a marginally higher premium is a significant commercial consideration as the Insured in this case could have been covered for the full amount of the determined loss.
- The high threshold for proving fraud and concerns around insurer reputation might explain why seller fraud was not argued by either the Insured or the Insurer. The Insurer's rights of subrogation under the Policy were limited and did not arise in relation to the litigated claim.
- Underwriters are not bound by an arbitral award for a claim under the sale agreement in the absence of a policy provision to that effect.
Our Private Equity, Mergers & Acquisitions team explore the judgement including the quantification of loss, policy triggers and the Court’s findings on the claims assessment process.
This page and the referenced article contain general information and do not take into account your individual objectives, financial situation or needs. For full details of the terms, conditions and limitations of any insurance covers, refer to the specific policy wordings and/or Product Disclosure Statements. Marsh Pty Ltd (ABN 86 004 651 512, AFSL 238983) arranges the insurance and is not the insurer. LCPA 19/238
 UDP Holdings Pty Ltd v Ironshore Corporate Capital Ltd (No 2)  VSC 645, para 1
 Ibid, para 441