C v D

JurisdictionEngland & Wales
JudgeMaster of The Rolls
Judgment Date05 December 2007
Neutral Citation[2007] EWCA Civ 1282
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: A3/2007/1697

[2007] EWCA Civ 1282


Master of the Rolls

The Right Honourable Lord Justice Longmore and

The Right Honourable Lord Justice Jacob

Case No: A3/2007/1697

2007 FOLIO 540







Mr Jonathan Hirst QC & Mr Robert Howe (instructed by Robin Simon LLP) for the Appellant

Mr Bernard Eder QC & Mr Stephen Houseman (instructed by Allen & Overy LLP) for the Respondent

Hearing dates: 29 th & 30 th October 2007

Lord Justice Longmore

Lord Justice Longmore



This appeal is, as far as I am aware, the first time that this court has had the opportunity to consider the Bermuda Form which has emerged in the last 15 years or so, partly as a response to the problem of diminution in liability insurance capacity in the United States in the later part of the 20 th century. The striking feature of the form is that it requires the parties to arbitrate in London but provides for the proper law of the insurance contract to be the internal laws of New York. No doubt this represents a balancing of the conflicting interests of the insured on the one hand and liability insurers on the other. The authors of the standard work on the topic put the matter rather starkly when they say:—

“The liability insurance crisis of the mid-1980's was viewed by many insurance people at the time as largely attributable to decisions by American judges and juries which expanded tort liabilities and broadened insurance coverage, both beyond what insurers believed was contemplated when they wrote and sold the policies. To address this problem, the decision-making process on disputes with policyholders was moved from the United States court system to London arbitration.” See Liability Insurance, The Bermuda Form by Jacobs, Masters and Stanley (2004) para 1.25.

It may be true that the impetus for London arbitration may have arisen from a certain disenchantment with the expansionist scope of American jury and judicial decision-making but it might equally be true that the selection of New York law as the proper law of the contract may show a certain disenchantment with the substantive law of insurance in England, a matter which the Law Commission is currently addressing, see Joint Consultation Paper LCCP No. 182.

The Contract


The defendant (and appellant) was the liability insurer of the claimant New Jersey Company for 3 years between 1 st November 1997 and 1 st November 2000. The occurrence limit and the aggregate limit was US$100 million excess of $190 million. The policy was a claims made policy written on the Bermuda Form. The claimant was the named insured but the definition of the insured included any subsidiary, affiliate or associated company of the claimant as listed in the Schedule to the Policy. That list included 303 companies incorporated outside the United States of America so the policy offered world-wide cover. Various sections of the document deal with various matters under the head of “Insuring Agreements”. Section I deals with coverage but it is Section V with which this appeal is chiefly concerned. That is headed “Conditions” and there is then an alphabetical list of conditions to which the policy is subject e.g. (a) “Premium” (d) “Notice of Occurrence and Claim” (m) “Cancellation” and (n) “Currency”. Conditions (o) “Arbitration” and (q) “Governing Law and Arbitration” then provide as follows:—

“(o) Arbitration

Any dispute arising under this Policy shall be finally and fully determined in London, England under the provisions of the English Arbitration Act of 1950 as amended …

If the party … notified of a desire for arbitration shall fail or refuse to nominate the second arbitrator … the party who first served notice of a desire to arbitrate will … apply to a judge of the High Court of England for the appointment of a second arbitrator … In the event of the failure of the first two arbitrators to agree on a third arbitrator … any of the parties may … apply to a judge of the High Court of England for the appointment of a third arbitrator ….

The Board shall, within ninety (90) calendar days following the conclusion of the hearing, render its decision on the matter or matters in controversy in writing … In case the Board fails to reach a unanimous decision, the decision of the majority of the members of the Board shall be deemed to be the decision of the Board and the same shall be final and binding on the parties thereto, and such decision shall be a complete defence to any attempted appeal or litigation of such decision in the absence of fraud or collusion.”

(Condition (y) is then a Service of Suit clause pursuant to which the insurer agrees (1) that, if it does not pay any amount claimed to be due under the policy, it will submit to any court of competent jurisdiction in the United States and (2) that process may be served in New Jersey.)

“(q) Governing Law and Interpretation

This policy shall be governed by and construed in accordance with the internal laws of the State of New York, except insofar as such laws may prohibit payment in respect of punitive damages hereunder and except insofar as such laws pertain to regulation by the Insurance Department of the State of New York of insurers doing insurance business or issuance or delivery of policies of insurance within the State of New York; provided, however that the provisions, stipulations, exclusions and conditions of the policy are to be construed in an even-handed fashion as between the Insured and the Company; without limitation, where the language of this policy is deemed to be ambiguous or otherwise unclear, the issue shall be resolved in the manner most consistent with the relevant provisions, stipulations, exclusions and conditions [without regard to authorship of the language, without any presumption or arbitrary interpretation or construction in favour of either the Insured or the Company and without reference to parol evidence].”

The Reference to Arbitration


During the policy period various claims were asserted against the claimant and a subsidiary with significant operations in Europe. The claimant paid damages and expenses in respect of these claims, considerably in excess of the policy limits, and made demand for payment under the policy which the defendant refused. On 2 nd May 2005, the claimant initiated arbitration against the defendant in London. The Tribunal's terms of appointment dated 31 st August 2005 and signed by the parties and by the Tribunal included the following:—

“2. Appointment of Tribunal

(a) The parties confirm their acceptance that the Tribunal composed of … has been validly established in accordance with Article V of their Insuring Agreements …


… Applicable Law

(a) Pursuant to Article V(q) of the Agreement, the law governing the insurance policy is the law of the State of New York, USA.

(b) Pursuant to Article V(o) of the Agreement, the juridical seat of the arbitration is London, UK. Accordingly the law governing the arbitration itself [lex arbitri] is the English Arbitration Act 1996, as amended and supplemented, regardless of whether meetings and hearings take place elsewhere in the interest of saving costs or convenience.”


The defendant raised four defences to the claimant's claim for indemnification. The first related to the scope of Endorsement number 5 to the policy; the second related to late notice; the third related to misrepresentations and/or non-disclosure prior to the inception of the insurance; and the fourth was a defence labelled as the “paediatric defence”. That defence consisted of the defendant's allegation that the claimant had breached a purported duty of good faith and fair dealing under New York law and/or had violated public policy in relation to the alleged promotion by the claimant the use of its product by children.


By Procedural Order No. 3 dated 20 th February 2006, the Tribunal ordered that issues relating to the first three defences should be heard first and the “paediatric defence” should be deferred until later. The rationale for this was explained in the order since, if the claimant obtained an award which amounted to the full $100 million policy limit in relation to adult use, the paediatric use issue would no longer require determination. It was only if all the first three defences failed and the recoverable sum, without taking into account the paediatric use, was less than $100 million that the Tribunal would need to make any further determination. It has not yet been possible to determine whether the policy limit will be fully utilised in respect of adult use but it seems to be increasingly likely.


A hearing took place between 4 th and 12 th October 2006 to deal with the first three defences. Sixteen witnesses attended the hearing for cross-examination and there were extensive post hearing submissions. The Tribunal issued its Partial Award on 13 th March 2007, ruling that the claimant succeeded in full on its claim under the policy and that it was entitled to recover, dismissing each of the defendant's first three defences and related claims for relief. The claimant was also awarded interest and costs. The Partial Award also provided that the paediatric defence would only be considered if the claimant could not establish that it had exhausted the policy limits, without including losses attributable to paediatric use. The parties were invited to seek to agree the quantum of the claims which the Tribunal had held were covered...

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