The Supreme Court has ruled against Emo Oil Limited in a dispute over whether the insolvency of a customer occurred within the period covered by its catastrophe credit insurance policy.
Emo Oil, an importer and distributor of oil products, held a policy with Sun Alliance and London Insurance plc covering aggregate losses arising from the insolvency or protracted default of insured buyers. The final policy period ran to August 31, 2002.
On August 29, 2002, Emo Oil presented a petition seeking the winding up of customer Dev Oil & Gas Limited. The High Court made the winding-up order on September 11, after the insurance period had expired. Emo Oil alleged a net loss of €647,990.72 after VAT.
The policy defined insolvency by reference to events including a court making an order for winding up. Emo Oil nevertheless relied on section 220(2) of the Companies Act 1963, under which a court winding-up is deemed for certain legal purposes to commence when the petition is presented.
The High Court accepted that argument and held that Dev Oil's insolvency occurred on August 29, within the policy period.
The Supreme Court reversed that decision. Mr Justice Kearns said the dispute turned on interpretation of the insurance contract, not on the statutory rules governing the legal consequences of a liquidation.
The court held that the policy wording was unambiguous. It referred specifically to an order for winding up being made. The statutory rule which retrospectively treats a liquidation as commencing from the petition date principally protects creditors and validates certain insolvency-related acts; it did not alter the meaning of the parties' insurance contract.
The court also accepted the insurer's argument that Emo Oil's interpretation could expose an insurer to claims long after a policy expired because a winding-up petition might be delayed, contested, abandoned or ultimately refused.
The preliminary issue was therefore decided against Emo Oil and the insurer's appeal was allowed.