Drawing a distinction between liability and quantum disputes – comments on DC Bars Ltd and another v QIC Europe Ltd [2023] EWHC 245

Insurers should properly assess if their defence is one of liability and/or quantum, as it might affect which dispute resolution mechanism is available, especially for policies that provide a multi-tiered dispute resolution regime.

This is re-illustrated in the recent English decision of DC Bars Ltd and another v QIC Europe Ltd [2023] EWHC 245 (“DC Bars”).

Background

In DC Bars, the Claimant operated restaurants in the UK that were affected by the Covid-19 outbreak. They were insured by the Defendant under a policy that provided potential business interruption cover. 

The policy contained business interruption insurance for an occurrence of infectious disease, with a maximum indemnity period of three months. The policy also contained an arbitration clause that provided for quantum disputes to be resolved by arbitration. 

An initial claim was made by the Claimant under the infectious disease cover for business interruption losses. The Defendant accepted that it was liable for this claim and the parties agreed on quantum by applying the maximum indemnity period. Subsequently, the Claimant made three further claims for additional loses. These were disputed by the Defendant, who took the position that the Claimant was not entitled to any further indemnity under the policy following the agreement on the initial claim and the application of the maximum indemnity period. 

The Claimant commenced litigation proceedings in the English commercial court. The Defendant applied to the court seeking a stay of the litigation proceedings, arguing that the arbitration clause in the policy applied and should prevail over the litigation. To make that argument, the Defendant characterised the dispute as one of quantum only, claiming that liability had already been admitted when agreeing the initial claim.

In dismissing the Defendant’s application, the court held that properly characterised, the dispute related to liability. While the Defendant had admitted the initial claim, it had, in effect, disputed that the subsequent claims were covered under the infectious disease cover. Accordingly, the arbitration clause, which applied for quantum only disputes, did not apply. 

The Singapore Position

A similar issue was also before the Singapore court in 2021. In Silverlink Resorts Ltd v MS First Capital Insurance Ltd [2021] 3 SLR 1422, the Plaintiff was the holding company of the Aman Group that owned and managed luxury hotels, including in Phuket. Due to the Covid-19 pandemic, a closure of all the hotels in Phuket and the Phuket International Airport was ordered. 

The Plaintiff claimed under its Industrial All Risk Policy for business interruption losses. The claim was rejected by the Defendant. The policy’s general conditions stipulated a range of dispute resolution clauses:

1. Clause 10 (mediation clause) was expressed to apply to “any dispute, controversy or claim arising out of or relating to this Policy or the breach, termination or invalidity thereof”. 
2. Clause 11 (arbitration clause) applied to “any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination” which cannot be settled pursuant to Clause 10.
3. Clause 13 (jurisdiction clause) applied to “any dispute [that] arises between the Insured and the Insurers regarding the interpretation or the application of [the] Policy”. Under clause 13, parties agreed to submit to the jurisdiction of any competent court in Singapore.

The Plaintiff commenced an action in court, which the Defendant sought to stay in favour of arbitration.  

At first instance, the court dismissed the Defendant’s stay application. The Defendant appealed.

On appeal, in determining which clause applied, the court noted that while the arbitration clause was expressed to apply to all disputes, the jurisdiction clause was narrower in scope and only applied to specific disputes “regarding the interpretation or application of the policy”, which would include the policy interpretation / coverage dispute in this instance. Thus, the jurisdiction clause can be interpreted to have carved out specific disputes from the arbitration clause. The court held that as the dispute did not fall within the scope of the arbitration clause (as questions of policy interpretation had been reserved to the jurisdiction clause), the Defendant was not entitled to a stay of proceedings in favour of arbitration.

Our Analysis

Both decisions above are reminders to properly consider the characterisation of a claim and its defence. They also highlight the importance of carefully drafted jurisdiction / arbitration clauses to reflect the parties’ intended dispute resolution mechanism. 

If parties intend to preserve the confidentiality of proceedings, arbitration would, in most circumstances, be likely preferable to litigation. Arbitral institutions such as the SIAC provide model clauses that can be considered (with any necessary changes made) and  appropriately drafted into the policy. When incorporating dispute resolution clauses into a policy, care must be taken to ensure that they are coherent and consistent.

Please contact the team if you would like to discuss further.