Astrazeneca Insurance Company Ltd v XL Insurance (Bermuda) Ltd and Another

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
JudgeThe Hon Mr Justice Flaux,The Honourable Mr Justice Flaux
Judgment Date28 February 2013
Neutral Citation[2013] EWHC 349 (Comm)
Date28 February 2013
Docket NumberCase No: 2011 FOLIO 1047

[2013] EWHC 349 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

The Honourable Mr Justice Flaux

Case No: 2011 FOLIO 1047

Between:
Astrazeneca Insurance Company Limited
Claimant
and
(1) XL Insurance (Bermuda) Ltd
(2) ACE Bermuda Insurance Ltd.
Defendants

Mr Paul Stanley QC and Mr Geraint Webb (instructed by DAC Beachcroft LLP) for the Claimant

Mr David Edwards QC and Mr David Scorey (instructed by Clyde & Co LLP) for the Defendants

Hearing dates:15 th 16 th 17 th January 2013

Approved Judgment

The Hon Mr Justice Flaux The Honourable Mr Justice Flaux

Introduction and background

1

There are two preliminary issues for determination by the court (set out at [12] below) involving the construction of a liability insurance Policy. The claimant in these proceedings is, as its name suggests, the captive insurer of the AstraZeneca group of companies, a major worldwide pharmaceutical group (referred to for convenience hereafter as "AZ"). The defendants are insurance companies incorporated in Bermuda which specialise in the provision of high level or catastrophe excess of loss insurance and reinsurance. The claimant provided liability insurance cover to AZ, including to the US and Canadian companies in the AZ group, AstraZeneca Pharmaceuticals LP ("AZPLP") and AstraZeneca Canada Inc. ("AZC") respectively, 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. Although there is no policy wording for that liability insurance, it is common ground that the insurance was to be on essentially the same terms as the expiring policy, which was on a form based on XL004, together with amendments effected by Endorsements to that Policy.

2

Each of the defendants agreed to reinsure the claimant for a 50% share in respect of that insurance provided by the claimant under the Policy, subject to the second defendant's limit of US$100 million per occurrence. The reinsurance contracts covered the period 31 December 2000 to 31 December 2003. It is common ground that although the parties to these proceedings are the insurers and reinsurers, what the court has to consider in relation to the preliminary issues is the construction of the underlying insurance Policy between AZ and the claimant.

3

XL004 is a so-called Bermuda Form liability insurance. 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).
5

The present Policy contains a critical difference from the standard Bermuda Form. By Endorsement 14 to the Policy which took effect from inception of the expiring Policy on 30 September 1997, the insurance was to be subject to English law, with various provisos considered in more detail below. The parties have also waived the arbitration clause in the reinsurance and conferred jurisdiction on the Commercial Court in respect of the current dispute. It follows from what I have said that this is the first occasion on which issues of construction of the Bermuda Form have come before the English Commercial Court. However, because of the express choice of English law as the governing law, New York law plays no part in the construction of this particular Policy. To the extent that Mr Paul Stanley QC for the claimants sought to contend that part of the "matrix" or "background" which this court should consider in construing the Policy was that the Bermuda Form is conventionally governed by New York law and that, somehow, the court should be influenced in construing the Policy by how the New York courts or New York law would approach the issues of construction, that contention is misconceived and heretical, for reasons I elaborate below.

6

The factual background for the purposes of the preliminary issues is essentially common ground and can be shortly stated. 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, although, save where the context requires otherwise, I will refer to these as "defence costs"). 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 defence costs, within the relevant layer. The defendants deny any such entitlement to an indemnity.

10

It is a striking feature of this case that, as recorded in [17] of the Reply and [8] of the List of Issues, the claimant does not advance a positive case that AZ 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, that being the test as a matter of English law for whether the insured has demonstrated, on a balance of probabilities, that it was under an actual legal liability to the third party whose claim it settled: see per Aikens J (as he then was) in Enterprise Oil Ltd v Strand Insurance Co Ltd [2007] Lloyd's Rep IR 186 at [72] (referred to hereafter as Enterprise Oil).

11

So it is that the claimant contends in this case that the Policy provides an indemnity not only where the insured establishes an actual legal liability in that sense but where the insured settles an arguable liability. The defendants however contend that the Policy (and hence the reinsurance) only responds where there is actual legal liability. There are a number of issues in dispute between the parties and defences raised by the defendant reinsurers, but it is clear that the core issues in dispute concern whether the Policy responds to actual legal liability or to settled alleged liability and, correspondingly, whether the Policy indemnity in respect of Defense Costs is only incurred where actual legal liability can be demonstrated by the insured or constitutes a free-standing entitlement to indemnity irrespective of whether...

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