Will the Supreme Court’s ruling in Teal spell the end for the hold harmless fiction?

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In an appeal from Teal Assurance v WE Berkeley Insurance [2012] Lloyd’s Rep IR 315, heard in mid-June 2013, the Supreme Court has the opportunity to consider and perhaps jettison the hold harmless fiction, which forms the current basis of liability of insurers in indemnity policies. Although the fiction has little to recommend it, the implications of its removal for the ability of assureds to obtain damages for late payment by their insurers merit consideration.

The ‘hold harmless’ principle is a legal fiction that characterises an insurer’s obligation as a promise to protect the assured from loss from an insured peril. But this is an obligation the insurer cannot fulfil: in reality, the insurer cannot prevent the occurrence of an insured peril (for example the sinking of a ship or a factory fire). The fiction also contradicts ordinary perceptions of the function of insurance (i.e. to compensate the assured for loss resulting from an insured event)…

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