The High Court has ruled that a contractual liability cap applies to contractual interest but not to statutory interest.
As a result of this ruling statutory interest may push payments above a contracts liability limit. However contractual interest on late payments would take up part of the liability cap and thus reduce the non-interest sum.
The case in question was between Markerstudy Insurance Group and Endsleigh Insurance Services. Markerstudy claimed £14 million because of Endsleigh’s behavior in paying unnecessary sums on claims, delays on administration tasks and other factors. The contract had a liability cap of £3.9 million however Markerstudy argued that it would not be fair to restrict them to this limit as in effect they would be penalised for any delays in Endsleigh making the payment.
As part of his ruling Mr Justice David Steel said: “Statutory interest is of a different character. It is not a ‘liability in contract’ but a discrete statutory liability arising from the exercise of the Court’s discretion…Accordingly, in my judgment, it is excluded from the cap.”