A game of ping pong between lawyers
Australian Pharma finally get referred to Flaxmans to settle dispute
At the other extreme of our many successful outcomes this year is an extraordinary multi-million-dollar claim made by a pharmaceutical entity under a bespoke policy underwritten in the London insurance market and sold to an Australian company.
The entity bought an insurance advertised to cover the risk of the pharma’s development of its product through the stages on the way to market. The policy was developed by the insurer with some help from brokers and based upon a Combined Commercial insurance policy with considerable modifications that gave it a scope of coverage far in excess of the typical Combined Commercial cover.
A series of five losses
A loss arose – in fact, over time that one became a series of five losses, from distinct causes only loosely related one to the other. The loss arose from ‘damage’ as defined in the policy; the insurers’ lawyers disputed the meaning of the word ‘damage’ in the context of the loss/es. After more than two years of the matter being pinged back and forth between lawyers for each party, the broker referred the matter to Flaxmans for an expert evaluation of the scope of cover and reasonableness of insurers’ position on the claim.
It was particularly complicated because the subject matter, being pharma, necessitated a level of understanding of the physics and chemistry of the losses that went further than most insurance or legal experts have and that, in fact, was the root of the conundrum. It was not necessary to prove the science of the cause of the loss but that is what had been the sole focus of the claim dispute for over two years.
Focus on insurance not on science
Rather, the focus should have been on what the insurance was sold as being intended to do based upon the understanding of the inherent risks by the insurer at the time it was sold. That was evidenced by a paper trail that the Insured and broker had prudently kept. By applying our particular root and branch insurance-practitioner investigating expertise it was possible to persuade the insurers that the definition of ‘damage’ was not the most appropriate basis upon which to determine their coverage obligations; and they eventually accepted it.
The lessons learned from this case are many but the key points of interest to most readers will be:
- Insurance policy wordings are rarely adaptable from one purpose to another without losing some of the certainty of coverage intended by the adaptations. That is because the interpreter of the claims (lawyer or loss adjuster – but rarely the originator of the policy wording) will rely upon their familiarity with the base-original wording and overlook the intentions of the adaptations.
- It is never possible to foresee every eventuality when underwriting a new class of business. There is an old saying in insurance, which is probably so old that most people today have not heard of it: “You can forecast one hundred things that might give rise to a claim but in all probability it will be something you did not foresee that actually happens.” This is why ‘good faith’ in insurance is so important because, for over three hundred years it has given the industry a way to say “I think we would have intended to pay that claim if we had ever thought of it – and so we will.” It is what the customer expects of respected insurers and what gives the industry a good name.