AstraZeneca Insurance Company Ltd v XL Insurance (Bermuda) Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Flaux J |
| Judgment Date | 28 February 2013 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 28 February 2013 |
Queen's Bench Division (Commercial Court).
Flaux J.
Paul Stanley QC and Geraint Webb (instructed by DAC Beachcroft LLP) for the claimant.
David Edwards QC and David Scorey (instructed by Clyde & Co LLP) for the defendants.
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 [1997] CLC 1561; [1998] CLC 920.
Enterprise Oil Ltd v Strand Insurance Co LtdUNK [2006] EWHC 58 (Comm); [2006] 1 CLC 33.
Feuer v Menkes Feuer (1959) 8 AD 2d 294.
Hill v Mercantile & General Reinsurance Co plc [1996] CLC 1247; [1996] 1 WLR 1239.
Hooley Hill Rubber & Chemical Co Ltd v Royal Insurance Co LtdELR [1920] 1 KB 257.
Lumbermens Mutual Casualty Co v Bovis Lend Lease Ltd [2005] 2 CLC 617.
Luria Bros v Alliance AssuranceECAS (1986) 780 F 2d 1082.
MDIS Ltd v SwinbankUNK [1999] 1 Ll Rep 98; [1999] CLC 1800 (CA).
Omega Proteins Ltd v Aspen Insurance UK LtdUNK [2010] EWHC 2280 (Comm); [2010] 2 CLC 370.
P&O Steam Navigation Co v YouellUNK [1997] 2 Ll Rep 136.
Post Office v Norwich Union Fire Insurance Society LtdELR [1967] 2 QB 363.
Redbridge LBC v Municipal Mutual Insurance Ltd [2001] Ll Rep IR 545.
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.
Wasa International Insurance Co Ltd v Lexington Insurance CoUNK [2009] UKHL 40; [2009] 2 CLC 320; [2010] 1 AC 180.
West Wake Price & Co v ChingWLR [1957] 1 WLR 45.
Yorkshire Water Services Ltd v Sun Alliance & London Insurance Ltd [1997] CLC 213.
Insurance — Reinsurance — Captive insurer of pharmaceutical group — Bermuda Form liability insurance — Policy subject to English law — Parties waived arbitration clause in reinsurance — Seroquel personal injury class action — Claim for indemnity from defendant reinsurers in respect of settlement sums and defence costs — Whether policy responded where insured settled arguable liability or only when insured established actual legal liability — Insuring clauses in liability insurances (or reinsurances) governed by English law to be construed as providing cover against actual liability as distinct from alleged liability in absence of clear wording to the contrary — Settlement not establishing such liability — Insured could recover defence costs only where actual legal liability demonstrated.
This was the trial of two preliminary issues concerning the construction of a liability insurance policy on the Bermuda form but governed by English law.
The claimant was the captive insurer of a major worldwide pharmaceutical group (AZ). The defendants were insurance companies incorporated in Bermuda which specialised in the provision of high level or catastrophe excess of loss insurance and reinsurance.
The claimant provided liability insurance cover to AZ, including to US and Canadian companies in the group. The insurance included a layer of £133,333,333 excess of £365 million, based on a Bermuda Form (XL004).
The resolution of disputes under a Bermuda Form policy was usually by London arbitration before three arbitrators, but on the basis that the contract of insurance or reinsurance was expressly governed by New York law. However, the present policy contained an endorsement subjecting it to English law.
Numerous plaintiffs in the United States and Canada had brought proceedings or joined lawsuits alleging that Seroquel, a drug manufactured by AZ, had caused them personal injury. The claimant 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 only one case had been litigated to a full trial and that resulted in a verdict for the defence. Other claims had been dismissed summarily.
AZ had paid out US$786 million in legal costs defending the claims and US$63.7 million in settlements (representing on average about US$20,000 per plaintiff). The claimant had indemnified the insureds in respect of the legal costs incurred in defending the claims and in respect of about 50% of settlement sums paid.
The claimant claimed to be entitled to be indemnified by the defendants 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 defendants denied any such entitlement. The claimant contended that the policy provided an indemnity not only where the insured established an actual legal liability but where the insured settled an arguable liability. The defendants contended that the policy, and hence the reinsurance, only responded where there was actual legal liability. The preliminary issues were whether the policy responded to actual legal liability or to settled alleged liability and, correspondingly, whether the policy indemnity in respect of defence costs was only incurred where actual legal liability could be demonstrated by the insured or whether it constituted a free-standing entitlement to indemnity irrespective of whether there was any actual legal liability.
Held, ruling accordingly:
1. Any suggestion that the English court construing a contract of insurance expressly governed by English law should be influenced by how New York law would construe the contract because, were it not for the parties' agreed amendment, it would have been governed by New York law, was wholly misconceived and heretical as an approach to construction. The parties had deliberately chosen to provide that the contract was governed by English law rather than New York law so that what New York law might decide in terms of construction was irrelevant. In construing a contract of insurance governed by English law, the English courts would have regard to English authorities, not American authorities where they had formed a different view from that taken by the English authorities. ( Hooley Hill Rubber v Royal InsuranceELR [1920] 1 KB 257 applied.)
2. In any event, in the New York cases where the insurer had been held bound to indemnify the insured in respect of an alleged liability without the need to prove actual liability, that was not because as a matter of New York law a reference to “liability” in the policy was construed as being to alleged as opposed to actual liability, but because of a substantive principle of New York law that, if the insurer was notified of a claim but declined to defend it when under a duty to do so, and the insured then settled that claim, the insurer would be bound by a good faith settlement, without the need for the insured to establish actual liability. That principle of New York law had no application in the present case, there being no duty on a liability insurer to defend under English law as there was in New York law, absent an express contractual obligation. Further, the policy stated in terms that there was no duty on the insurer to defend, thereby demonstrating an intention in any event to exclude whatever might be the position under New York law. (Feuer v Menkes Feuer(1959) 8 AD 2d 294, Luria Bros v Alliance AssuranceECAS(1986) 780 F 2d 1082andUniroyal Inc v Home Insurance CoUNK(1988) 707 F Supp 1368considered.)
3. There was a consistent and well-established line of authority that under English law, in the absence of clear contrary wording in the contract of liability insurance, the insured had to establish that it was under an actual legal liability, not just an alleged liability, to the third party before it was entitled to an indemnity under the contract, and a judgment or settlement did not automatically establish such actual legal liability (although a judgment against the insured might be strong evidence of such liability); it was still open to the insurer to challenge that there was an actual legal liability, in which case it was for the insured to prove that there was. (West Wake Price & Co v ChingWLR[1957] 1 WLR 45, McDonnell Information Systems (MDIS) v Swinbank[1999] CLC 1800, Enterprise Oil Ltd v Strand Insurance Co LtdUNK[2006] EWHC 58 (Comm); [2006] 1 CLC 33andOmega Proteins Ltd v Aspen Insurance UK LtdUNK[2010] EWHC 2280 (Comm); [2010] 2 CLC 370applied.)
4. The insuring clause made it clear that the indemnity provided was in respect of what the insured “pays by reason of liability … imposed by law”. The words “by reason of” indicated that there had to be a clear causal link between what was paid and the liability, and the words “imposed by law” made it clear that there had to be an actual legal liability: an alleged personal injury could not give rise to a liability imposed by law. The fact that other terms of the policy referred to “alleged liability” could not broaden the scope of coverage under the insuring clause. The loss payable clause drew a distinction between ascertainment of loss by settlement or judgment on the one hand and actual coverage under the policy on the other. That was entirely consistent with the insuring clause only providing coverage in respect of actual liability and did not widen the scope of coverage. The fact that the occurrence and integrated occurrence definitions referred to actual or alleged personal injury was readily understandable; where the policy covered against occurrences reported, it followed inevitably that, at the time any notice was given, the insured might only be faced with a series of allegations of personal injury or property damage, without any claim(s) having crystallised into a finding of actual liability. The question whether there was an occurrence or an integrated occurrence did not determine the scope of actual coverage. Thus there was nothing in the policy wording which displaced or extended the coverage provided by the insuring clause. In particular, there was...
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