Assicurazioni Generali SpA v CGU International Insurance Plc and Others

JurisdictionEngland & Wales
JudgeGavin Kealey QC sitting as a Deputy High Court Judge
Judgment Date02 May 2003
Neutral Citation[2003] EWHC 1073 (Comm)
Docket NumberCase No: 2002 Folio 5641
CourtQueen's Bench Division (Commercial Court)
Date02 May 2003

[2003] EWHC 1073 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Gavin Kealey Qc Sitting As A Deputy High Court Judge

Case No: 2002 Folio 5641

Between:
Assicurazioni Generali SpA
Claimant
and
CGU International Insurance PLC And Others
Defendant

Mr. Stephen Hofmeyr QC & Mr. John Bignall (instructed by Holman Fenwick & Willan) for the Claimant

Miss Sioban Healy (instructed by Hill Taylor Dickinson) for the Defendants

Hearing date : 28 March 2003

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Gavin Kealey QC sitting as a Deputy High Court Judge

INTRODUCTION

1

There is before the Court an application dated 12 th December 2002 by the Claimant, Assicurazioni Generali SpA ("Generali"), for summary judgment pursuant to CPR Part 24 against the seven Defendants. The Defendants are ILU reinsurers which, to the extent of their respective proportions, reinsured Generali under a contract of reinsurance contained in Declaration slip number 1 to a broker's open cover described as a "Construction Risk Cover, Direct or Reinsurance" to which the Defendants and Lloyd's syndicates subscribed. In the action, Generali claims as reassured sums that it asserts are due from the Defendants arising from a settlement concluded by Generali in relation to a claim under an original insurance policy issued by Continental Insurance Company ("CIC") to, among others, Pirelli Cables Inc. ("Pirelli") as original assured. Generali reinsured the cover issued by CIC 100%, CIC effectively fronting for Generali. Generali entered into the settlement in the sum of Canadian $4 million. The Lloyd's syndicates, which also subscribed to the broker's open cover and reinsured Generali under the terms of the Declaration slip as co-reinsurers with the Defendants, approved the settlement and have paid to Generali their proportion of Generali's claim without dispute. The Lloyd's syndicates, therefore, are not parties to this action.

2

Generali's application for summary judgment is in two alternative parts. In the first part, Generali applies for judgment in the sum of Can$2,291,123.20 plus interest and costs. In the second part, Generali applies for judgment on the true construction of the "follow the settlements" provision to be found in its contract of reinsurance with the Defendants. In its Application Notice, by reference to an attached draft order, it offers the Court three alternative meanings to be attributed to the follow the settlements provision, with each of which the Defendants disagree, and asks for summary judgment according to the preferential order in which those three alternatives have been set out. I shall turn to these three alternatives, to which Generali has referred elsewhere as its primary, secondary and tertiary constructions, in due course. It is perhaps sufficient to say at this stage that the first crucial issue between the parties is the proper construction of the follow the settlements provision.

THE FACTS

3

There is little significant dispute between the parties in relation to the essential background facts.

4

Pirelli was employed as contractor by Hydro Quebec to supply and install three single armoured high density submarine power cables between the north bank of the St Lawrence River and the Île aux Coudres in Quebec, Canada. On 24 th February 1997, Pirelli approached Generali requesting a quotation for EAR cover for the project. In 1997, Generali had a relationship with CIC, partly embodied in a Canadian Quota Share Reinsurance Agreement effective from 1 st January 1996, by which CIC agreed to front risks in Canada for Generali. As evidenced by a facsimile dated 15 th May 1997 from Generali to CIC's agents, Lombard Insurance Company, Generali in due course received a firm order from Pirelli for EAR insurance cover and arranged that CIC should issue the original policy of insurance to Pirelli as a front for itself in consideration of a fronting fee of 11% of the premium. The policy issued by CIC provided cover for the project and named as assureds Hydro Quebec as principal and/or Pirelli as contractors and/or their sub-contractors and/or suppliers.

5

The cover provided by CIC as a front for Generali was "works" cover for the transportation, temporary storage, installation, testing and maintenance of the cables, and included a further "Maintenance Guarantee" period of 24 months from the date of "taking over". Under Section 1, Material Damage, the policy issued by CIC provided the assured with an indemnity

"if at any time during the period of cover the [cables] or any part thereof shall suffer any unforeseen and sudden physical loss or damage from any cause, other than those specifically excluded, in a manner necessitating repair or replacement"

Among the Special Exclusions to the Material Damage protection were:

"(c) loss or damage due to faulty design, defective material or casting, bad workmanship other than faults in erection;

(d) wear and tear, corrosion, oxidation, incrustation."

Under Special Condition 2, it was provided that:

"Exclusion (c) to Section 1 of this Policy is abrogated in its entirety and it is expressly agreed that in respect of claims for loss or damage to the works where the cause is defective workmanship, material or design, the cover provided by the Policy shall include the cost of repair or replacement of insured items including rectification of such defective workmanship, material or design provided always that the property insured has been lost or damaged as a consequence of such defect. There shall however be no indemnity in respect of:

a)

the additional cost of introducing improvements or corrections in the rectification of the workmanship, material or design responsible for such loss or damage;

b)

the deductible stated in the Schedule in respect of every such claim."

Under Special Condition 3, there was a limited exception to Special Exclusion (d) in the following terms:

"Exclusion (d) of Section 1 is limited to the part of the items to be installed immediately affected and not to any consequences of such wear and tear, corrosion, oxidation or incrustation."

The Maintenance Guarantee was contained in Special Condition 7 and this provided as follows:

"It is agreed that the cover granted under the General Conditions, General Exclusions, Special Conditions and Special Exclusions of this policy is extended to include Maintenance Guarantee for the period specified in the Schedule, to cover solely loss of or damage to the insured items, as per Section 1, resulting from faults in erection, faulty design, defective materials or casting and/or defective workmanship. The period of Maintenance Guarantee shall commence from the date of taking over indicated in the Taking Over or Provisional Acceptance Certificate and shall continue for a period of 24 months thereafter in respect of all insured items."

The off-shore deductible in respect of Section 1 works was 10% of any claim amount, while the deductible in respect of maintenance was 20% of any claim amount.

As indicated above, CIC reinsured 100% of the risk to Generali. Article VI of the Canadian Quota Share Reinsurance Agreement which regulated the relationship between CIC and Generali provided in its first paragraph:

"The liability of the Reinsurer [Generali] shall follow that of the Company [CIC] in every case, and shall be subject in all respects to all the general and special stipulations, clauses, waivers and modifications of the Company's Policies, and any endorsements thereto."

The cover for the Île de Coudres project was the subject of Declaration number 1 to the broker's open cover subscribed to by the Defendant Reinsurers. This Declaration provided as follows:

"TYPE:

Construction Reinsurance.

REASSURED:

Assicurazioni Generali SpA

ORIG. ASSURED:

Hydro Quebec, PCI, as principal and/or Societa Cavi Pirelli SpA and Pirelli Submarine Cables as Contractors and/or their sub-contractors and/or supplier as their respective interests may appear.

….

PERIOD:

From date to be advised until 1 st September 1997 as original. Extensions as original if required.

LOCATION:

Canada or held covered as original.

INTEREST:

Contract work for supply and installation of 3 28 KV EPR armoured power cables each 4.8 Km in length between the north bank of the St. Lawrence River and the Ile aux Coudres and 2,880 m on land cable cut into 15 sections.

SUM INSURED:

Estimated Contract Value CAD 7,008,082.

CONDITIONS:

As original: anything herein to the contrary notwithstanding, this reinsurance is declared and agreed to be subject to the same terms, clauses and conditions, special or otherwise, as the original policy or policies and is to pay as may be paid thereon and to follow without question the settlements of the Reassured except ex-gratia and/or without prejudice settlements. Including deviation and/or change of voyage and/or extension of the original policy, as original.

HERETO:

80%

PREMIUM:

2.5875% of FCV"

8

The Defendants and their co-reinsurers at Lloyd's thus reinsured Generali in respect of 80% of the risk for 2.5875% of the Full Contract Value. Generali has produced evidence that suggests that it retained the balance of 20% for its own account but there is no evidence that this was known to the Defendants at any material time.

9

The cables were installed by about 30 th August 1997, whereupon the 24 month Maintenance Guarantee period commenced. On 30 th August 1998, one of the cables suffered a loss of phase. This, it was later ascertained, arose from abrasion of the cable by friction against rock on the riverbed, to the extent that the internal conductor was...

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