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Berkshire Hathaway Specialty Insurance
Berkshire Hathaway Specialty Insurance

Court refuses last-minute trade credit extension

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Financial company Greensill has failed in last-minute NSW Supreme Court action taken to avert the expiry of trade credit insurance policies that had provided $4.6 billion in cover.

Greensill sought continuing insurance for two policies that had run from February 22 2019 to March 1 2021, arguing that a letter sent on September 1 didn’t provide the necessary 180 days’ notice of an intention not to renew.

The firm maintained that policy wordings required cover to be renewed if notice wasn’t given in time.

The court documents name BCC Trade Credit, Tokio Marine Management (Australasia) and IAG’s Insurance Australia (IAL) as defendants. IAG previously owned 50% of BCC, which was acquired by Tokio Marine in 2019. The action sought an injunction requiring IAG to provide on-going cover.

Greensill’s business involves providing working capital under arrangements where it acquires accounts receivable from clients. It argued that without the insurance some clients could become insolvent and that 50,000 jobs, including more than 7000 in Australia could be at risk.

But Justice James Stevenson said consequences for IAG if it was forced to provide ongoing cover would also be very serious, as it had been operating on the basis that the policies would end.

“The potential prejudice for IAL is to be exposed to claims, potentially in very large amounts, for which it has no reinsurance cover,” he said.

Justice Stevenson says evidence suggested that until around February 25 Greensill understood the September notice sent by Tokio Marine was valid and the policies would expire, and it had unsuccessfully looked for alternate cover through its broker.

“Nonetheless, relief was only sought within hours of cover expiring,” he said. “I found Greensill’s delay in bringing the matter to court, when it has known of the underwriters’ position since the middle of last year, and by 1 September at the very latest, to be a factor weighing against granting interlocutory relief.”

An IAG spokesman said the insurer had sold its BCC interest, and exited a number of agencies that sold niche products, as part of a decision to focus on its core general insurance interests.

“As part of the sale, Tokio Marine agreed to underwrite BCC’s trade credit insurance going forward,” he said. “This agreement was designed to ensure that IAG had no further economic interest or exposure to trade credit insurance.”

The decision is available here.