Following the recent decision in Royal & Sun Alliance Insurance Limited and Ors v Equitas Insurance Limited [2025] EWHC 2704 (Comm) (“Equitas”), James Breese and Arjun Dhar of Stewarts’ Policyholder Disputes team consider the extent to which (re)insureds may claim interest in addition to the indemnity owed.

There have been some helpful clarifications in recent judgments that confirm that interest is available to policyholders as a matter of principle. Policyholders and their advisers should not overlook the likely entitlement to claim interest, particularly in claims that are taking time to resolve.

In Equitas, the High Court confirmed that the courts will take a restrictive approach to disallowing interest under insurance policies. The court also clarified the legal principles to apply in an award of interest and the burden of proof that a (re)insured must discharge to justify an award of compound interest.

Equitas – the facts

RSA insured BOC Group Plc for worldwide third-party liability under a set of global master policies from October 1981 to September 1985. From the mid-1980s, BOC was subject to ‘toxic tort’ claims in the USA, causing it to incur extensive defence costs and pay out substantial sums in damages. Some of these sums were successfully claimed under the RSA master policies.

RSA purchased five excess of loss reinsurance policies on a facultative basis. These were ‘back-to-back’ policies, meaning that the requirements for liability in the reinsurance policies mirrored those in the master policies. These reinsurance policies were transferred by the original insurers to the defendant, Equitas.

This case predominantly concerned reinsurance issues that were determined on the specific facts of this case. This article does not address those fact-specific issues, which are considered in a separate article to be published shortly. Rather, here we focus on the interest issue in Equitas and look at comparable decisions.

RSA claimed compound interest at common law on all sums awarded to it or alternatively, simple interest under section 35A of the Senior Courts Act 1981. Equitas resisted this claim, arguing that RSA had delayed in particularising and pursuing the claim and that compound interest was an inappropriate remedy in this case.

Interest issue – the decision in Equitas

The judge held that a restrictive approach must be taken to disallowing interest.

He stressed that the basic rule, that interest runs from the date of the loss, is, as a principle, neither arbitrary nor technical. Instead, it reflects the fact that the insurer has, in an insurance contract, undertaken an obligation to hold the insured harmless against the loss and is in breach by failing to pay as at the date of the loss. He also pointed out that an award of interest is compensatory, not penal.

The defendant reinsurer made two key arguments that the judge rejected:

1. First, it argued that if there was to be an award of interest, then it should not run from before RSA had properly particularised the quantum of its claim. The judge applied analysis from existing case law that a court should disallow interest only where the claimant’s fault has displaced the defendant’s fault as the “predominant cause” of the claimant being kept out of their money. In this case, (i) Equitas had opposed an award of interest on principle, and (ii) neither asserted nor proved that the reason it had not paid RSA was a lack of knowledge of the amount due. Therefore, it could not be said that any failure by RSA to particularise the quantum of its claim was the “predominant cause” of Equitas’s non-payment.
2. Second, Equitas argued that interest should not be awarded for the period between 1997 and 2017 during which the parties had agreed a standstill. In doing so, it implied that reinsurers had been altruistic in agreeing to the standstill, and to award interest would demonstrate that no good deed goes unpunished. The judge rejected this argument, branding it “jocular”. He pointed out that in that period, reinsurers retained the use of monies that would otherwise have been paid to their insured.

The judge concluded that an award of interest was appropriate.

Compound interest

There was a further issue as to whether RSA was entitled to simple or compound interest.

The judge reviewed key cases in the development of this area of law, including quoting from Equitas Ltd v Walsham Brothers & Co Ltd, in which Mr Justice Males (as he then was) described an award of compound interest as an appropriate component of measuring damages in circumstances where, in an attempt to mitigate a claim, a claimant had to resort to commercial borrowing to replace the money lost.

The judge held that there was no default rule for compound interest in a commercial case. However, compound interest would be awarded if the facts pleaded and proved were sufficient to justify the inference that such an award reflected the claimant’s actual loss.

He cited Walsham, in which it had been shown that cash flow was critical to the claimant. The claimant had been under considerable pressure to ensure prompt collection of claims and to fund claims where payments had not yet been made by reinsurers.

In this case, RSA pleaded no facts in support of its claim for compound interest. RSA sought to rely solely on its position as an insurer and general market mechanics.

The judge held that this was an insufficient basis to claim compound interest. Instead, he awarded simple interest at 2% above the Bank of England base rate from the date of each respective loss.

While compound interest was not awarded in this case, this appears to be only because RSA did not plead a factual basis that would allow the court to make such a finding. The decision is nevertheless useful for demonstrating how (re)insureds may recover compound interest.

Other authorities

In Equitas, the judge conducted a review of the key authorities. We analyse those cases in a fuller separate article that will be published shortly. For the purposes of this article, we consider other recent decisions on interest awards.

AerCap Ireland Limited v AIG Europe SA and Others [2025] EWHC 2529

In AerCap Ireland Limited, Mr Justice Butcher was presented with similar issues, to which he applied a closely analogous approach.

In Aercap, while Mr Justice Butcher affirmed the position that a court usually exercises its discretion to allow insurers some time to consider their position after a loss, he also said “that should not in the present case in my view, be a very extensive time”. In particular, he held that the nature of the insurance and circumstances of the loss were factors that might mean that “the insured could reasonably expect promptitude from insurers”. He gave the insurers just under six weeks’ respite to account for a reasonable time to consider the loss.

Mr Justice Butcher also considered a nearly identical issue on whether simple or compound interest should be paid to the insureds and arrived at a nearly identical conclusion. He held that it was not the practice of the court, even in a commercial context, to award pre-judgment interest on a compound basis without that being pleaded and proved. Mr Justice Butcher similarly considered the submissions by the insureds inadequate and awarded interest on a simple rather than compound basis.

Sagicor Bank Jamaica Ltd v Seaton [2023] 1 WLR 1759

This was a decision of the Privy Council, with Lord Hodge delivering the court’s judgment. In this case, the court similarly reviewed relevant case law on whether an award of compound interest was appropriate. The court held, applying the judgment of the House of Lords in Sempra Metals Ltd v Inland Revenue Comrs [2008] AC 561, that compound interest could be awarded as damages for breach of contract.

In short, the court’s analysis is that compound interest can be claimed as damages or part of the calculation for loss only if it can be shown that the claimant actually suffered such loss.

Key takeaways

(Re)insureds should not overlook a claim for simple or compound interest when pursuing indemnity from their (re)insurers. The authorities clearly support the view that re(insureds) are entitled to interest on their claims for indemnity on the basis that they will have been left without their funds, potentially for a considerable period while the claim is resolved. As a matter of principle, (re)insurers should not be disallowing interest, save where the facts clearly entitle them to.

Even an award of simple interest can be significant, particularly when interest rates have been higher in recent years. The courts clearly consider it reasonable that (re)insureds should be compensated for being without the funds to which they were entitled. A typical simple interest award of 2% above the Bank of England base rate will add a material sum to high-value claims.

This may be an important tool for policyholders who may have been waiting for their claim to be resolved but who do not have viable claims for additional damages for late payment pursuant to Section 13A of the Insurance Act 2015. While the implementation of s13A in 2016 was supposed to encourage claims to be paid quickly and provide policyholders with an additional remedy for claims that took an unreasonable time to be paid, the limited case law in this area suggests that it will be a high bar to overcome.

The only decisions on section 13A so far (Quadra Commodities S.A. v XL Insurance Company SE and Ors [2022] EWHC 431 (Comm) and Delos Shipholding S.A. and Ors v Allianz Global Corporate and Specialty S.E. and Ors [2024] EWHC 719) both went against policyholders. However, in those cases and in the cases referred to above, the courts have helpfully articulated how claims for damages for late payment and compound interest could succeed, subject to the facts. Attention should therefore be paid to these authorities when such claims are being advanced, so that (re)insureds put themselves in the best position to succeed.

For (re)insurers, the recent decisions in Aercap and Equitas may not come as surprise for many, but we do still see arguments arise as to a (re)insureds’ entitlement to interest. The law is settled. (Re)insurers would therefore do well to consider whether interim payments are due to stop or reduce the interest accruing.

Inflation-adjusted damages: a possibility?

The principles underpinning the courts’ firm support for awarding interest in insurance claims raise the question of how a court would treat a claim for inflation-adjusted damages. This has been a pertinent question for many policyholders in recent years, given the high-inflation environment of the early 2020s. A policyholder who made a claim in 2020 and received a full payout in 2025 would receive funds that would have less purchasing power than they would have had if the payment had been made in 2020, i.e. at the date of the loss. The same compensatory principles that underpin an award of interest also militate in favour of adjusting the value of the damages.

There is support for this in the case law. In Pickett v British Rail Engineering Ltd [1980] AC 136, Lord Wilberforce said: “…Increase for inflation is designed to preserve the ‘real’ value of money: interest to compensate for being kept out of that ‘real’ value. The one has no relation to the other. If the damages claimed remained nominally the same because there was no inflation, interest would normally be given. The same should follow if the damages remain in real terms the same.”

While there is precedent for an adjustment for inflation (including recent precedent in a personal injury context), it has yet to be tested in an insurance claim. It remains to be seen whether the courts would apply these principles in insurance claims, and include adjustment for inflation as another tool alongside compound interest and damages under section 13A of the Insurance Act 2015 for late payment.

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