AstraZeneca Insurance Company Ltd v XL Insurance (Bermuda) Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Moore-Bick,Briggs,Christopher Clarke L JJ. |
| Judgment Date | 20 December 2013 |
| Court | Court of Appeal (Civil Division) |
| Date | 20 December 2013 |
Court of Appeal (Civil Division).
Moore-Bick, Briggs and Christopher Clarke L JJ.
Paul Stanley QC and Geraint Webb QC (instructed by DAC Beachcroft LLP) for the appellant.
David Edwards QC and David Scorey (instructed by Clyde & Co) for the respondent.
The following cases were referred to in the judgment:
Bradley v Eagle Star Insurance Co LtdELR [1989] AC 957.
Commercial Union Assurance Co plc v NRG Victory Reinsurance Ltd [1998] CLC 920.
Enterprise Oil Ltd v Strand Insurance Co Ltd [2006] 1 CLC 33.
Feuer v Menkes Feuer Inc (1959) 8 AD 2d 294.
Gan Insurance Co Ltd v Tai Ping Insurance Co LtdUNK [2001] EWCA Civ 1047; [2001] CLC 1103.
Hooley Hill Rubber & Chemical Co Ltd v Royal Insurance Co LtdELR [1920] 1 KB 257.
London County Commercial Reinsurance Office Ltd, ReELR [1922] 2 Ch 67.
Luria Bros v Alliance AssuranceECAS (1986) 780 F 2d 1082.
MDIS Ltd v Swinbank [1999] CLC 1800.
Omega Proteins Ltd v Aspen Insurance UK LtdUNK [2010] EWHC 2280 (Comm); [2010] 2 CLC 370.
Post Office v Norwich Union Fire Insurance Society LtdELR [1967] 2 QB 363.
Structural Polymer Systems Ltd v Brown [1999] CLC 268.
Thornton Springer v NEM Insurance Co Ltd [2000] CLC 975.
Uniroyal Inc v Home Insurance CoUNK (1988) 707 F Supp 1368.
West Wake Price & Co v ChingWLR [1957] 1 WLR 45.
Yorkshire Water Services Ltd v Sun Alliance and London Insurance plc [1997] CLC 213.
Insurance — Reinsurance — Preliminary issues — Coverage — Defence costs — Interpretation of Bermuda form insurance subject to English law — Captive insurer of pharmaceutical group — Insurance on Bermuda form but providing for English law — Personal injury claims in US and Canada in respect of Seroquel — Claimant insurer settling claims and incurring defence costs — Insurer seeking indemnity from reinsurers — Reinsurers denying entitlement to indemnity — Bermuda form not to be construed as if subject to New York law — Claimant only entitled to indemnity under policy if, on the balance of probabilities and assuming correct application of law governing claim to evidence properly analysed, claimant under actual liability for claim — Claimant only entitled to indemnity for defence costs where liable for damages in respect of claim.
This was an appeal by AZICO, the captive insurer of the AstraZeneca group, from a decision of Flaux J ([2013] EWHC 349 (Comm); [2013] 1 CLC 478) on preliminary issues of construction of an insurance policy on the Bermuda form, but subject to English law.
AZICO provided insurance cover to the AZ group, including US and Canadian companies, 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 was a Bermuda form liability insurance, based on form XL004, together with amendments effected by endorsements to that policy. The policy provided that AZICO had no duty to defend. The respondent Bermudan reinsurers agreed to reinsure AZICO for a 50% share.
In August 2003 a putative class action was filed against AZ in Florida relating to personal injuries allegedly caused by the drug Seroquel. The action was notified to AZICO in September 2003. Thereafter numerous plaintiffs in the US and Canada brought proceedings or joined lawsuits against AZ alleging that Seroquel had caused them personal injury. AZICO had 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 appeared that in only one of the cases had the matter been litigated through to a full trial and that resulted in a verdict for the defence. Other claims had been dismissed summarily.
AZICO claimed in the present proceedings that it was entitled to be indemnified by the respondents pursuant to the reinsurance contracts in respect of all sums it had paid in respect of settlements and defence costs, within the relevant layer. The respondents denied any such entitlement to an indemnity.
The judge decided as a preliminary issue that, in order for AZ to recover from AZICO, it was necessary to establish that AZ was legally liable to those who made claims against it in relation to Seroquel, and that it was not sufficient that AZ settled an arguable liability with the consent of AZICO. 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 on the same terms as the underlying insurance so that if AZ had to establish actual liability in order to claim successfully against AZICO, the same applied to any claim by AZICO under the reinsurances.
The judge rejected AZICO's submission that the policy should be construed on the basis that the Bermuda Form was usually governed by New York law under which the policy would provide coverage for liability established by a reasonable and bona fide settlement, irrespective of whether there was an actual legal liability. He held in addition that, under New York law, cases where an insurer had been held bound to indemnify an assured in respect of an alleged liability, without the need to prove it, arose because of a substantive principle of New York law that an insurer who was bound to defend a claim of which he was notified, but who declined to do so, was bound by a good faith and reasonable settlement or a judgment against the insured.
The judge decided secondly that on the wording of the policy AZ was only entitled to an indemnity for defence costs where it established that it was liable for the claim in question.
Held, dismissing AZICO's appeal:
1. As a matter of English law liability policies required the establishment of actual liability and the terms of the policy indicated that it provided an indemnity against actual liability. The wording as a whole and in particular the definitions of “Ultimate Net Loss” and “Damages” related to actual liability. The policy responded when events of a particular character had happened and notice thereof had been given. There had to be an “occurrence”, but the fact that an occurrence might involve matters which were only alleged did not mean that there was cover against that which was alleged, if there was no actual liability. The policy did not provide cover for occurrences. The occurrence was the gateway to coverage. It did not identify that which was to be the subject of indemnity. Personal injuries for which cover was provided did not include alleged personal injuries. The judge was right that AZ was only entitled to an indemnity under the policy if, on the balance of probabilities and assuming a correct application of the law governing the claim in question to the evidence properly analysed, AZ was under an actual liability for the claim.
2. In English law there was, in respect of non-marine liability insurance, no right to recover defence costs. The policy said in terms that the company had no duty to defend and that defence costs covered by the policy were included within and not in addition to the limits of liability of the policy. The only words providing for the recovery of defence costs were the last five words of the definition of damages. Those words could not be regarded as providing a free standing coverage for defence costs in relation to any claim. The judge was right that the effect was that AZ recovered its defence costs if it established that it was or would have been liable for damages in respect of the claim in question; but not otherwise.
Christopher Clarke LJ:
1. 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.
2. 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.
3. 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 ([2013] 1 CLC 478):
“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...
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