Court considers characteristics of late insurance pay-out in grain fraud claim

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A commodities trading company, which was conned in a grain storage fraud, has succeeded in securing a disputed insurance pay-out but has lost its claim for compensation for late settlement of its claim.  This is the first case to consider how insurers should compensate their clients for, and what constitutes, unreasonably delay settling a claim under section 13A of the Insurance Act 2015.

Quadra Commodities bought grain from Agroinvest Group which was stored in warehouses in Ukraine, paying for the grain when it received a receipt from the warehouse. It transpired that the warehouses were involved in a fraud where the same parcel of grain was pledged to multiple traders, so there was insufficient grain to go around to make deliveries.

Quadra notified its losses to its insurers, which disputed the claim.  The insurer argued that Quadra did not have an insurable interest in the goods and there was no physical loss of property.  Subsequently, Quadra not only pursued its claim but claimed compensation for delay in the insurance pay-out which it said had damaged its business.

The Court decided that Quadra did have an insurable interest in the grain and ordered the insurer to settle the claim.  It then needed to decide whether the insurer had unreasonably delayed payment and should compensate Quadra for the delay.

The judge concluded that a reasonable amount of time for an insurer to investigate, evaluate and pay a complex claim of this nature would be about a year from the notice of loss.  However, he decided that the insurer had had reasonable grounds for disputing the claim and was not liable to pay compensation for late payment while the dispute was ongoing.

James Burgoyne of Brunel Professions said: “In some ways, this was a disappointing outcome for policyholders. Coverage decisions in professional indemnity insurance claims often take a long time, and whilst complex or delicate situations need time to investigate and properly consider, it often seems that there is a lack of expedition and decisiveness in the approach taken by insurers. This is frustrating for policyholders, who have shown support to an insurer in selecting them against their competitors and paying them sizeable premiums. The best that might be said of the present decision is that at least there is now some precedent to show the court’s approach to these issues.

Reports about the case have been published by CMS Law-Now and Fenchurch Law.

Professionalindemnity.com is owned by Brunel Professions, which is a leading professional indemnity insurance broker in the UK. Click here to get a quote or call 0345 450 1074 to speak to a broker.

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