Insurance Clause Prevents Thousands of Victims Receiving Compensation

Defective products are covered under statute law by the Consumer Protection Act 1987, which implements a European Community Directive on product liability and enables customers to pursue a remedy against either the manufacturer or the importer (into the EU) of defective goods. Such is the nature of business and the economy of late, several big name retailers have been forced into administration, including Land of Leather. Unfortunately, an allegedly ‘toxic’ batch of sofas supplied by Land of Leather to its customers has given rise to personal injury claims and group litigation after the retail giant closed down in January 2009.

Unable to rely on certain provisions of the Consumer Protection Act 1987 because Linkwise, the manufacturer of the defective sofas, is based in China, those wishing to obtain compensation for their injuries have been forced to claim against Land of Leather’s insurer, Zurich. However, the High Court ruled last week that a breached clause in Land of Leather’s insurance policy with Zurich precludes any prospect of the claimants receiving compensation.

Senior litigation partner, Richard Langton, said: “The contract contains one condition which, if breached, rendered the insurance policy void. This condition was that Land of Leather should not settle claims without permission from the insurer”. Mr Langton continued: “When Land of Leather realised Linkwise sofas were damaging its reputation, it sought compensation from Linkwise and the company agreed to pay Land of Leather $900,000. Zurich was consulted on and agreed to this. But Linkwise then failed to pay up, so Land of Leather went back for more discussions. They slightly changed the terms of the agreement and Linkwise paid the $900,000, but this time Zurich was not consulted, which the insurer said rendered the insurance null and void”.

The personal injury claim was made against Zurich after Linkwise used the anti-mould agent, dimethyl fumerate, to protect the leather on sofas supplied to Land of Leather, Argos and Walmsley Furnishing. Dimethyl fumerate is known to be toxic in small quantities and can cause serious blistering and bleeding of the skin. Since consumers suffered skin burns and breathing problems in five EU countries, dimethyl fumerate has been banned from use in imported products. Nevertheless, the chemical found its way into some of Britain’s largest retail outlets and, subsequently, around 4,000 people in the UK are thought to have suffered injuries after coming into contact with the toxic sofas. In one particularly distressing case, an elderly customer who had sustained severe rashes after coming into contact with a sofa treated by dimethyl fumerate had her pet dog put down after wrongly believing it to be the reason for her condition.

The High Court decision leaves more than 300 customers who had pushed for compensation in limbo; although, legal representatives of the group are expected to challenge the verdict in the Court of Appeal. Mr Langton concluded: “Zurich’s delay in notifying us added insult to injury by making our clients believe they would be paid. Unless this decision is overturned on appeal by the Court of Appeal a great injustice will have been done”. Meanwhile, a spokesperson for Zurich commented: “Zurich remains committed, wherever possible, to the prompt resolution of personal injury claims unaffected by today’s ruling. As the group litigation in relation to such claims is ongoing, it is not appropriate to make further comment at this time”.

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