Charter Reinsurance Company Ltd v Fagan
| Jurisdiction | UK Non-devolved |
| Judge | Lord Goff of Chieveley,Lord Griffiths,Lord Browne-Wilkinson,Lord Mustill,Lord Hoffmann |
| Judgment Date | 22 May 1996 |
| Judgment citation (vLex) | [1996] UKHL J0522-4 |
| Date | 22 May 1996 |
| Court | House of Lords |
[1996] UKHL J0522-4
Lord Goff of Chieveley
Lord Griffiths
Lord Browne-Wilkinson
Lord Mustill
Lord Hoffmann
House of Lords
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT IN THE CAUSE
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend Lord Mustill and for the reasons he gives I too would dismiss this appeal.
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend Lord Mustill and for the reasons he gives I too would dismiss this appeal.
My Lords,
For the reasons given in the speech by my noble and learned friend Lord Mustill I too would dismiss this appeal.
My Lords,
This appeal turns on the meaning of the words "actually paid" in three contracts of reinsurance. The question is whether the words prescribe that no sum will be paid by reinsurer to reinsured in respect of a loss, or more accurately that no sum will be brought into the balance of account between the two parties, until the reinsured has paid out a sum of money to the person whose claim against him has brought the reinsurance into play. At first sight this seems the shortest of questions, requiring a very short answer: and so in the end it proves to be. But the instinctive response must be verified by studying the other terms of the contract, placed in the context of the factual and commercial background of the transaction. I will therefore go straight to the nature of the business and to the terms of the contract in which it was embodied, concentrating for the moment on only one of the three policies, namely policy no. X 20693/5386.
By this contract two syndicates, represented in these proceedings by Mr. P. F. Fagan ("the syndicates") reinsured for small percentages of a total line Charter Reinsurance Co. Ltd. ("Charter") in respect of Charter's whole account for losses occurring during the calendar year 1989. The contract formed part of a programme which also comprised "specific reinsurances" taken out with others on four of Charter's accounts viz., Non-Marine LMX: Non-Marine International: Marine: and Aviation. These accounts were reinsured in a series of tranches to limits of, respectively, £23m., £11m., £32.25m. and £31.5m. Above these reinsurances of separate accounts were the levels of whole account reinsurance with which two of the three contracts in suit were concerned. Above a retention of £100,000, there were successive layers of £2.9m., £2m., £2.5m. and £2.5m. Policy no. 5386 insured the second of these layers, for £2m. excess of £3m. and one of the other policies sued upon covered the fourth layer up to £7.5m. For the purposes of the present litigation it is assumed that a series of major casualties arising from perils insured under the policy have caused valid claims to be made against Charter under policies issued by it to other reinsured or insured companies or syndicates ("the inward policies"). These claims are so large as to exhaust all the reinsurances comprising the specific accounts of the programme, and to encroach upon the relevant layers of whole account reinsurance. The problem arises from the fact that Charter is in provisional liquidation, being unable to pay its debts as they fall due, and these debts include claims under the inward policies. For their part, the syndicates do not for present purposes dispute that all the requirements of a valid claim against them by Charter are present, save only one: that Charter have not paid, and cannot pay, the inward claims which they have reinsured. Thus, say the syndicates, Charter have no cause of action under the reinsurance.
The practical importance of this defence, if sound, is obvious; and its implications have been multiplied by the levels of financial frailty experienced in the London insurance market in recent years. Across the market as a whole very large sums depend upon it, and the litigation from which this appeal stems has been brought in practice, if not in form, as a test case. The proceedings take the shape of an action by Charter for a summary declaration that payment by way of transfer of funds or other means of satisfaction by Charter under the inward policies was not a condition precedent to the liability of the syndicates. Within a very few months it proved possible to obtain the opinion of the Commercial Court in the shape of a meticulous and thoughtful judgment of Mance J., granting a declaration in those terms. Upon recourse to the Court of Appeal this decision was upheld by a majority, Staughton L.J. dissenting. The syndicates now appeal to this House.
This being, I believe, a sufficient summary of the dispute I turn to policy no. X 20693/5381. It is important to quote its terms at some length.
For ease of reference I have added numbers and letters, and have placed in italics the words around which the controversy revolves.
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"1. REINSURANCE CLAUSE
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This Reinsurance is to pay all losses howsoever and wheresoever arising during the period of this Reinsurance on any Interest under Policies and/or Contracts of Insurance and/or Reinsurance underwritten by the Reinsured in their Whole Account.
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Subject however to the following terms and conditions.
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2.
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(a) LIABILITY CLAUSE
The Reinsurers shall only be liable if and when the Ultimate Net Loss sustained by the Reinsured in respect of interest coming within the scope of the Reinsuring Clause exceeds £3,000,000 or U.S. or Can. $6,000,000 each and every loss and/or Catastrophe and/or Calamity and/or Occurrence and/or Series of Occurrences arising out of one event and the Reinsurers shall thereupon become liable for the amount in excess thereof in each and every loss, but their liability hereunder is limited to £2,000,000 or U.S. or Can. $4,000,000 each and every loss and/or Catastrophe and/or Calamity and/or Occurrence and/or Series of Occurrences arising out of one event.
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(b) WARRANTED Reinsurers hereon to have benefit of Specific Reinsurances as per Schedule attached.
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ULTIMATE NET LOSS CLAUSE
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(c) The term 'Net Loss' shall mean the sum actually paid by the Reinsured in settlement of losses or liability after making deductions for all recoveries, all salvages and all claims upon other Reinsurances whether collected or not and shall include all adjustment expenses arising from the settlement of claims other than the salaries of employees and the office expenses of the Reinsured.
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(d) All Salvages, Recoveries or Payments recovered or received subsequent to a loss settlement under this Reinsurance shall be applied as if recovered or received prior to the aforesaid settlement and all necessary adjustments shall be made by the parties hereto. Provided always that nothing in this clause shall be construed to mean that losses under this Reinsurance are not recoverable until the Reinsured's Ultimate Net Loss has been ascertained.
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(e) Notwithstanding anything contained herein to the contrary, it is understood and agreed that recoveries under all Underlying Excess Reinsurance Treaties and/or Contracts (as far as applicable) are for the sole benefit of the Reinsured and shall not be taken into account in computing the Ultimate Net Loss or Losses in excess of which this Reinsurance attaches nor in any way prejudice the Reinsured's right of recovery hereunder.
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3. PERIOD OF REINSURANCE CLAUSE
This Reinsurance covers Losses Occurring during the period commencing with the 1st January, 1989 and ending with the 31st December, 1989 both days inclusive, Local Standard time at the place where the loss occurs.
…
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4. PREMIUM CLAUSE
The Minimum and Deposit Premium for this Reinsurance shall be U.S.$600,000.00
10% Payable in Sterling, namely £37,500.00 89½% Payable in U.S. Dollars, namely $537,000.00 ½% Payable in Can. Dollars, namely $3,000.00…
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5. CURRENCY CLAUSE
Losses (if any) paid by the Reinsured in currencies other than Sterling, shall be converted into Sterling at the rate of exchange ruling at the date of the settlement of loss or losses by the Reinsured other than losses paid in U.S. or Can. Dollars which will be paid in those currencies.
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6. REINSTATEMENT CLAUSE
In the event of loss or losses occurring under this Reinsurance, it is hereby mutually agreed to reinstate this Reinsurance to its full amount of £2,000.000 or U.S. or Can. $4,000,000 from the time of the occurrence of such loss or losses to expiry of this Reinsurance and that an additional premium shall be paid by the Reinsured upon the amount of such loss or losses when they are settled in the first instance calculated at 100% of the Minimum and Deposit Premium hereunder subject to a further payment hereunder (if any) when the Final Earned Premium is known. Reinstatement premiums to be paid in the currency of loss settlement hereunder for which purpose U.S. or Can. $1.60 = £1.
Nevertheless the Reinsurers shall never be liable for more than £2,000,000 or U.S. or Can. $4,000,000 in respect of any one loss and/or series of losses arising out of one event, nor for more than £6,000,000 or U.S. or Can. $12,000,000 in all."
The case for the appellants concentrates almost exclusively on the words in italics. It is very simple. These words plainly create a condition precedent to any liability of the syndicates. The condition is that Charter shall have "actually paid" under the original policies. If this expression has a natural and ordinary meaning, effect should be given to it. The expression and the words which comprise it do have such a meaning. By no stretch of language can it be extended to cover a situation in which Charter has...
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