Astrazeneca Insurance Company Ltd v Xl Insurance (Bermuda) Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Christopher Clarke,Lord Justice Briggs,Lord Justice Moore-Bick |
| Judgment Date | 20 December 2013 |
| Neutral Citation | [2013] EWCA Civ 1660 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2013/0824 |
| Date | 20 December 2013 |
[2013] EWCA Civ 1660
Lord Justice Moore-bick
Lord Justice Briggs
and
Lord Justice Christopher Clarke
Case No: A3/2013/0824
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEENS BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE FLAUX
2011 FOLIO 1047
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Paul Stanley QC and Mr Geraint Webb QC (instructed by DAC Beachcroft LLP) for the Appellant
Mr David Edwards QC and Mr David Scorey (instructed by Clyde & Co) for the Respondent
The AstraZeneca group of companies is a major worldwide pharmaceutical group. The group (hereafter "AZ") includes the US company AstraZeneca Pharmaceuticals LP ("AZPLP") and the Canadian company AstraZeneca Canada Inc ("AZC"). AstraZeneca Insurance Company Ltd, the claimant and now appellant (hereafter "AZICO") is the captive insurer of AZ. It provided insurance cover to AZ, including AZPLP and AZC, for the period of 36 months from 1 January 2001 to 31 December 2003, including for a layer of £ 133,333,333 excess of £ 365 million. The policy by which it did so ("the Policy") is agreed to have been based on form XL004, together with amendments effected by Endorsements to that Policy.
Each of the defendants, and now respondents, (hereafter "the reinsurers"), both of which are incorporated in Bermuda, agreed to reinsure AZICO for a 50% share in respect of the insurance provided by AZICO under the Policy. In the case of ACE Bermuda, the second respondents, that was subject to a limit of $ 100 million per occurrence. The reinsurance contracts covered the period 31 December 2000 to 31 December 2003. AZICO had agreed to provide cover to AZ in accordance with commitments which had been obtained from the reinsurers.
The factual background to the preliminary issues which have led to this appeal are set out in the following paragraphs of the judge's judgment:
" 6 …………From 1997, AZ manufactured, marketed and sold in the United States and Canada through the US and Canadian companies in the Group, a second generation atypical antipsychotic drug under the name "Seroquel" which was approved by the United States Food and Drug Administration ("the FDA") on 26 September 1997. At all material times, the label for Seroquel approved by the FDA contained information about weight gain and diabetes.
7 On 28 August 2003 a putative class action (Zehel-Miller) was filed against AZPLP in Florida in which the plaintiffs alleged (i) that Seroquel caused personal injury; (ii) that Seroquel was defective; and (iii) that there had been a failure by AZPLP to provide adequate warning. The Complaint in that action was first notified to the claimant on or about 11 September 2003. By a letter dated 1 December 2003, AZPLP issued the claimants with a Notice of Integrated Occurrence pursuant to Article V of the Policy.
8 Since that action was commenced, numerous plaintiffs in the United States and Canada have brought proceedings or joined lawsuits against AZ alleging that Seroquel has caused them personal injury. As at 31 October 2012, the claimant has settled claims presented by AZ for legal costs incurred in defending the claims and for settlements made in respect of the claims made against AZ of some £83.5 million excess of £365 million. It would appear that in only one of the cases has the matter been litigated through to a full trial and that resulted in a verdict for the defence. Other claims have been dismissed summarily.
9 The vast preponderance of what AZ has paid out represents legal costs incurred in defending the claims, US$786 million, as against US$63.7 million paid out in settlements (representing on average, including settlements agreed in principle, about US$20,000 per plaintiff). The claimant insurer has indemnified AZPLP and AZC in respect of the legal costs incurred in defending the claims (referred to as "Defense Costs" in the Policy …."). It has also indemnified those insureds in respect of about 50% of settlement sums paid, but declined to indemnify in respect of the other 50% on various grounds, such as that the claims relate to injuries caused by Seroquel sold after the date of the Notice of Integrated Occurrence. The claimant claims in the present proceedings that it is entitled to be indemnified by the defendants pursuant to the reinsurance contracts, in respect of all sums it has paid in respect of settlements and Defense Costs, within the relevant layer. The defendants deny any such entitlement to an indemnity."
AZICO does not presently put forward a positive case that AZ was liable for any of the claims, assuming a correct application of the law governing the claims to the evidence as properly analysed — the test under English law for determining whether the insured has demonstrated that it was under an actual legal liability to the third party whose claim it has settled: per Aikens J, as he then was, in Enterprise Oil v Strand Insurance Co Ltd [2007] Lloyd's Rep IR 186 at [72]. Nor did AZ put forward such a case to AZICO.
This appeal is brought in respect of the answer which the judge gave to two preliminary issues, which are set out below. The first issue was phrased in a somewhat convoluted manner. The essential question, however, is whether under the Policy it is necessary for AZ, if it is to recover from AZICO, to establish that AZ was legally liable to those who made claims against it in relation to Seroquel, or whether it is sufficient that AZ settled an arguable liability with the consent of AZICO, which, as is common ground, was given. The settlements approved by AZICO were commercial settlements in the sense that they represented a settlement of modest amounts per claim which reflected the risks of litigation. They were not reached on the footing that they represented a reasonable amount in respect of what was an actual liability. The reinsurances were, so far as is presently material, on the same terms as the underlying insurance so that if AZ had to establish actual liability in order successfully to claim against AZICO, the same applied to any claim by AZICO under the reinsurances.
The second issue is whether the reinsurers are liable to indemnify AZICO in respect of Defense 1 Costs, in circumstances where only one claim has proceeded to judgment and in respect of that claim liability was not established.
XL004 is a Bermuda Form liability insurance. The nature of that form of insurance was summarised by the judge in these terms:
" 3…… The Bermuda Form was introduced by insurance companies, primarily in the first instance the present defendants, XL and ACE, when the US casualty insurance market collapsed in 1985. The intention of XL and ACE and of the corporate entities responsible for their initial capitalisation was to achieve a form of policy which would meet the needs for liability insurance of such substantial corporations, specifically those which faced large product liability exposures in the United States, whilst providing "a balanced policy form, aiming to hold the ring fairly between the interests of policyholders and
the interests of investors, as the same industrial corporations were in both roles"[ 1].4 The resolution of disputes under an unamended Bermuda Form Policy is usually by London arbitration before three arbitrators, but on the basis that the contract of insurance or reinsurance is expressly governed by New York law. By this form of dispute resolution, major US companies and their liability insurers and reinsurers are able to have their policy disputes determined outside the United States and without the risk of jury trial, but pursuant to a system of state law for the determination of insurance disputes recognised to be more developed and neutral than that of other states in the United States[ 2]. A substantial number of Bermuda Form arbitrations have taken place in London over the years, but because the insurances or reinsurances in question are governed by New York law, no questions of construction of the Bermuda Form have come before the English Courts on appeal under section 69 of the Arbitration Act 1996 (although this court is the supervisory court under that Act)."
However, the Policy was, by Endorsement 14, made expressly subject to English law. AZICO and the reinsurers waived the arbitration clause in the reinsurance and agreed that the Commercial Court should determine the current dispute. This is the first occasion on which issues of construction of the Bermuda Form have come before the Commercial Court or this Court.
The two preliminary issues which the parties sought to have determined were as follows:
"i) Does the Insured's entitlement to indemnity under the Policy against sums which it pays in settlement of claims, depend on whether the Insured would, on a balance of probabilities, have been liable for the claims in question, assuming a correct application of the law governing the claims to the evidence as properly analysed, so that the Insurer would always be entitled to refuse to approve settlement (or, 'would not be bound to approve settlement', being the formulation suggested by the Reinsurers) when the Insured does not assert (or, 'assert and prove', being the formulation suggested by the Claimant) that it would, on a balance of probabilities, have been liable for the claims in question?
ii) Other than in cases where the Insured's relevant liability is established by judgment of a court of competent jurisdiction, does the Insured's entitlement to indemnity under the Policy in...
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