Like many organisations, Watford Housing Trust (the “Trust”) put specialist insurance in place to deal with the consequences of a cyber-attack. In March 2020, the Trust suffered a massive data breach which resulted in over 1000 claims against it and, in addition to the cyber policy, the costs of dealing with the claim could also be recovered under its professional indemnity and combined insurance policies.
The Trust claimed the costs under its three policies but the insurers denied cover because each policy contained a so-called ‘other insurance clause’ which meant that its losses could only be recovered under each individual policy if the loss exceeded the amount that could be recovered under another policy.
The inclusion of ‘other insurance clauses’ in policies was intended to prevent the fraudulent double recovery of losses under multiple policies but the effect of having similar other insurance clauses in different policies can be that the policies effectively cancel each other out because each claim is dependent upon first recovering under another policy. The interaction of policies in this way is called double insurance.
The Trust issued a claim (Watford Community Housing Trust v Arthur J. Gallagher Insurance Brokers Limited) to establish its entitlement to recover losses. If the Trust could not claim under any policy, the outcome would be unjust because the losses incurred as a result of the cyber-attack would not be recoverable even though the types of loss clearly fell within the wording of the policy.
In order to avoid the Trust being left uninsured, the High Court decided that the other insurance clause in each policy would be interpreted in a way which meant that the clause would not take effect in relation to another policy with a similar clause. This meant the Trust could claim against one policy and then seek to recover any losses exceeding the policy limits under another policy.
The High Court also confirmed that because none of the policies contained provisions limiting recovery to a particular proportion of the total loss, the Trust could decide which policy to claim against first and once it had claimed losses equivalent to the policy limit under one policy, it could claim the balance under another policy. This avoided the insurers arguing that a claim should first be brought against another of the policies before its own policy is engaged.
Alex Haddad (ahaddad@nockolds.co.uk 0203 892 6805) works in the Litigation Department and deals with insurance disputes.