Validity of prize indemnity insurance

On Wednesday 16 January, CMS Cameron McKenna successfully acted for a number of Lloyd's contingency insurers on proceedings brought against an Indian electronics retailer, Baron Electronics.

During the 1999 Cricket World Cup, Baron Electronics sought insurance in the London market to cover its liability to its customers under a sales promotion of AIWA products. The promotion offered cash refunds to those customers buying AIWA items during the promotional period (these refunds were based on the performance of the Indian cricket team during the Cricket World Cup). The contracts of insurance were expressly subject to English law and jurisdiction.

India was knocked out during the early stages of the Cup, hence no claims were due under the policies.

In order to remit the premium to Insurers in London, it was necessary to make an application to the Reserve Bank of India to obtain permission to that effect. In support of the application there was a requirement to submit a Certificate from the GIC (General Insurance Company of India) confirming that such insurance was not available in India. The GIC and the Ministry of Finance refused to grant the relevant Certificate on the basis that the AIWA promotion was tantamount "to gambling and any prize given out arising out of this gambling cannot be considered to be a financial loss to Baron Electronics (…) such a prize cannot be treated as a subject matter of insurance."

In England, however, insurers were able to enforce the contracts under English law. The Court confirmed that the contingency/prize indemnity contracts in issue are proper contracts of insurance and not gambling or wagering contracts. The judgement will have to be enforced in India and will be a significant embarrassment to the GIC.

For further information on this case, please contact Maria Diaz-Rodriguez by e-mail at [email protected] or on +44 (0)20 7367 3933.