Insurers and insurance lawyers will be familiar with the existing line of case law (beginning with The Italia Express) that establishes at Court of Appeal level (see Sprung v Royal Insurance) that, under English law, an insured is not entitled to recover as damages any consequential losses flowing from an insurer’s failure or refusal to pay a valid claim. Currently, the only remedy for late (or non-) payment of the indemnity is the discretionary award of interest.
The Italia Express relied upon two distinct principles. The first is a general principle of insurance law that insurance is a contract of indemnity which requires the insurer to hold the insured harmless from loss. The theory is that this obligation is breached the moment that the insured suffers loss, so that the nature of the insured’s claim is for unliquidated damages for breach of contract, and not a claim in debt. The second principle, which followed upon the determination that the remedy for breach of the obligation to hold harmless was one sounding in damages, was that the true nature of the claimant’s further claim was for consequential loss that was occasioned by the insurer’s failure to pay damages and the law did not recognise a right to recover damages for the failure to pay damages (see President of India v Lips Maritime).
