CGU International Insurance Plc v AstraZeneca Insurance Company Ltd
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE CRESSWELL |
| Judgment Date | 01 December 2005 |
| Neutral Citation | [2005] EWHC 2755 (Comm) |
| Docket Number | Case No: 2005Folio366 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 01 December 2005 |
[2005] EWHC 2755 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr Justice Cresswell
Case No: 2005Folio366
Christopher Butcher QC and Stephen Kenny (instructed by Lovells) for the Claimants
Alistair Schaff QC and David Edwards (instructed by Mayer, Brown, Rowe and Maw LLP) for the Defendant
Hearing dates:
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr. Justice Cresswell:
The appeal
This is an appeal by Reinsurers as claimants (following permission granted on 8 November 2005) under section 69 of the Arbitration Act 1996 from the Partial Award on Preliminary Issue made on 6 April 2005 ("the Award") by Mr Kenneth Rokison QC, Mr Richard Outhwaite and Mr T Richard Kennedy (made on the relevant issues by a majority, Mr Kenneth Rokison QC dissenting) on the following questions of law:
(1) By reference to which substantive law is AZICL's liability to Garst to be determined?
(2) By reference to which substantive law is the Reinsurers' liability to AZICL under the Reinsurance Contract to be determined?
(3) In relation to the latter, what is the effect of the "follow the fortunes" provision in Article 12?
By agreement a challenge by Reinsurers under section 68 of the 1996 Act (alleged serious irregularity) was stayed pending judgment in relation to the appeal.
Introduction
The claim the subject-matter of the arbitration arises under a number of Policies of Reinsurance written by the claimants, whereby they agreed to reinsure the defendant, AstraZeneca Insurance Company Limited ("AZICL"), in respect of its liabilities under an Excess Liability Policy issued to AstraZeneca Plc on behalf of itself and its worldwide subsidiaries. The Policy issued by each of the Reinsurers was in identical terms.
The parties agreed that the Tribunal should hear and determine a preliminary issue concerning the law to be applied to the question whether or not there was a loss under the underlying Excess Liability Policy in respect of which AZICL was entitled to be indemnified.
The Background to the Underlying Insurance and the Reinsurance
AstraZeneca Plc, a UK Corporation, is one of the largest bioscience corporations in the world. It is engaged in the development, manufacture and distribution of pharmaceutical, agrochemical and other chemical specialist products. It has a large number of subsidiaries worldwide, most of which are wholly-owned, but some of which are owned on a 50/50 basis with Royal Vanden Have Group through a jointly owned company, Advanta BV. A number of AstraZeneca's subsidiaries are located in the United States, including Garst Seed Company ("Garst"), a company incorporated in Delaware with its headquarters and principal place of business in Iowa.
In 1997, AstraZeneca decided to restructure the worldwide property damage, business interruption and liability insurance of the group through the defendant its wholly-owned "captive" AZICL, which is also a UK corporation. To that end, the broker, Sedgwick, prepared a folder, entitled "Zeneca 1997 Property and Liability Underwriting Presentation".
The introductory page of the underwriting presentation stated:
"Zeneca is seeking to restructure its key insurance programmes of property damage/business interruption and general liability this year (1997). The most significant change is the proposal to put these covers onto a three-year, combined aggregate basis."
Below they said:
"The additional benefits of this approach are to:
1. enhance the consistency of coverage, particularly in the liability programme …
2. establish long-term contractual relationships with a number of important insurance markets who we believe not only provide the level of security requisite for a company of Z's stature but also will be in tune with the Group's risk management philosophy
3. through the establishment of partnerships, promote enhanced working relationships that go beyond the normal round of annual renewal negotiations
4. put in place an insurance programme that more effectively matches Z's risk profile."
Sedgwick approached RSA and CGU as potential leading underwriters. Terms were agreed, and Sedgwick produced a slip in mid-September. This was headed: "Type of Reinsurance: First Loss Quota Share" and under "Interest":
"Section 1: Material Damage and Business Interruption, and
Section 2: General Liability
All as defined in the respective master and underlying Local Policies, and for 100% of that proportion of the liability imported into the Zeneca worldwide programmes as agreed between the Reinsured and the leading Reinsurer."
The territorial scope was "Worldwide."
The slip contained a "Follow the Fortunes" wording, but the title was crossed out by the leader who substituted "Assistance and Co-operation". The relevant part of the wording read:
"The Reinsurer agrees to follow in all respects the fortunes of the Reinsured. Reinsurers hereunder will, however, have the right to and shall be given the opportunity to associate with the Reinsured in the defence and control of any claim, suit or proceedings relative to any loss where the claim or suit involves or appears relatively likely to involve Reinsurers hereunder."
This right is then limited to CGU and RSA as leading underwriters.
The underwriting programme presented to the Reinsurers provided for a three-year policy covering five classes, and so far as property damage, business interruption and general liability were concerned, the first £10 million each loss was to be retained, subject to a £40 million annual cross-class aggregate deductible covering all five classes. Above £10 million, cover was to be provided by the captive, subject to a first excess reinsurance layer.
The policies reinsured included an Excess Liability Policy.
The Excess Liability Policy
The Excess Liability Policy No. L/702939 ("the ELP") issued by AZICL and reinsured by the claimants was in substantially the same terms as the Master Policy, except for the layer covered. The named insured was Zeneca Group Plc (subsequently amended to AstraZeneca Plc), but the insured was defined to include the Named Insured, any subsidiary or owned or controlled company of the Named Insured, or any Joint Venture in which any Insured had an interest, but only if the Insured had sole responsibility for the Joint Venture, or the Insured was obligated or otherwise agreed to provide insurance such as afforded by the Policy to the Joint Venture in its entirety.
Condition D, under the heading "COMPOSITE POLICY", provided as follows:
"It is agreed that this Policy is composite in nature by which is meant that all entities designated as insureds hereunder are each insured severally in respect of their separate interests."
As respects Garst, the effect of this provision was to cause the separate interests of Garst to be insured severally from those of other AstraZeneca subsidiaries.
Condition J, headed "SEVERABILITY OF INTEREST", provided that the insurer would indemnify "each party comprising the insured [including Garst] in the same manner and to the same extent as if a separate policy had been issued to each … ."
Cover was provided in respect of liability to pay "damages on account of (a) Personal Injuries [and] (b) Property Damage …'.
The Excess Liability Policy, like the Master Policy, contained a "USA Service of Suit" clause which provided as follows:
"USA SERVICE OF SUIT
As respects Insureds operating in the United States of America, its territories or possessions, the Company agrees that:
In the event of the failure of the Company to pay any amount claimed to be due hereunder, the Company, at the request of the Insured, will submit to the jurisdiction of a Court of competent jurisdiction within the United States. Nothing in this Clause constitutes or should be understood to constitute a waiver of the Company's right to commence an action in any Court of competent Jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another Court as permitted by the laws of the United States or of any state in the United States.
Service of process in such suit may be made upon the person(s) or firm named in item 10 of the Declarations [Messrs Mendes & Mount of New York City] and that in any suit instituted against them upon this Policy, the Company will abide by the final decision of such Court or of any appellate Court in the event of an appeal."
Neither the Master Policy nor the Excess Liability Policy contained an express choice of law clause.
The Reinsurance Policy
Following the scratching of a slip on behalf of the Reinsurers in September 1997, policy wordings were prepared approximately one year later. The cover was described in the wording as "QUOTA SHARE EXCESS OF LOSS AND EXCESS OF AGGREGATE REINSURANCE AGREEMENT…."
It provided for a limit of £75 million each occurrence (subject to an aggregate limit of £150 million) in excess of a deductible of £10 million each occurrence. The deductible was itself subject to a £40 million annual aggregate limit to be eroded by AZICL's retention under each of the heads of the global programme.
The terms of the wording included the following:
"Article 1
BUSINESS COVERED
Under the terms of Article 2 the REINSURER agrees to...
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