Policy obligations must be fulfilled

Euler Hermes UK v Apple Computer BV (Court of Appeal - 4 April 2006)

Euler Hermes UK appealed after its claim for damages against the defendant, Apple Computer BV was dismissed.

Euler, an insurance company specialising in insuring credit risks, sold a policy of insurance to Apple in respect of losses resulting from the failure of trade debtors to pay amounts due.

An exclusion in the policy meant Euler did not have to pay for losses where there was a dispute between Apple and the debtor. There was also an obligation on Apple to take all reasonably practicable measures to collect or realise the monies owed.

The dispute arose after Apple terminated a distributorship agreement with its distributor, Jeraisy Tech in Saudi Arabia. Following this, Jeraisy withheld payment of invoices from Apple, although it did not dispute them, until Apple agreed to pay compensation for the termination of the agreement.

As payment was not forthcoming, Apple claimed the sum of the invoices under their insurance policy. Euler agreed to pay, subject to Apple taking action to determine the validity of its decision not to renew the distributorship agreement in its favour. Apple suggested to Euler that legal action was to be taken but subsequently decided against it as it was not in its commercial interests.

It was held that by agreeing to the terms of the settlement Apple effectively promised it would establish an undisputed right to the debt. By failing to do so it had not met its obligations under the policy and so Euler was entitled to recover damages.

COMMENT: The case serves as a reminder of the need to comply with obligations in insurance policies and settlement agreements, as failure to do so may result in an unrecoverable loss to the policyholder. - Natalie Puce, BLM Manchester.

- These law reports are contributed by insurance law firm Berrymans Lace Mawer (http://www.blm-law.com).

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