Commercial Union Assurance Company Plc v NRG Victory Reinsurance Ltd
| Jurisdiction | England & Wales |
| Judge | LORD WOOLF, MR,LORD JUSTICE POTTER,LORD JUSTICE MAY |
| Judgment Date | 16 March 1998 |
| Judgment citation (vLex) | [1998] EWCA Civ J0316-6 |
| Date | 16 March 1998 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | QBCM1 97/1412 CMS3 |
[1998] EWCA Civ J0316-6
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(MR JUSTICE CLARKE)
Royal Courts of Justice
Strand
London WC2
The Master of the Rolls
(Lord Woolf)
Lord Justice Potter
Lord Justice May
QBCM1 97/1412 CMS3
QBCM1 97/1412/CMS3
MR J SUMPTION QC and MR G LEGGATT QC (16.3.98) (Instructed by Messrs Clifford Chance & Co, London EC1A 4JJ) appeared on behalf of the Appellant.
MR D KENDRICK QC and MR A WALES (Instructed by Messrs Clyde & Co, London, EC3M 1JP) appeared on behalf of the Respondents.
For the reasons given in the judgment of Lord Justice Potter which has been handed down, this appeal will be allowed.
INTRODUCTION
In this appeal the defendant/appellant reinsurers ("NRG") appeal against the judgment of Mr Justice Clarke delivered in the Commercial Court on 1st August 1997 whereby he gave summary judgment in favour of the plaintiffs under RSC Order 14 in two actions ("the Commercial Union action" and "the Skandia action") in which the plaintiffs claimed for sums alleged to be due under sixteen excess of loss reinsurance contracts made with NRG.
THE FACTS
The background facts are that on 24th March 1989 the tanker Exxon Valdez ran aground in Prince William Sound Alaska, thereby causing a major spillage of oil which led to heavy environmental damage and necessitated a huge clean-up operation. The tanker's owners, Exxon Shipping Company had Protection & Indemnity cover in respect of their liability for spillage of $400 million in excess of US$ 210 million and recovered the full amount insured from their P & I club. The owners of the cargo of oil were the parent company of the ship owners, Exxon Corporation ("Exxon"). Exxon made claims under a General Corporate Excess Insurance Policy ("the GCE Policy"). The plaintiffs were among the insurers who subscribed to the GCE Policy. It was placed through brokers in the London Market and comprised a Lloyds Policy, a UK Companies' Policy and a policy led in the Scandinavian market, all in materially identical terms. The plaintiffs in the Commercial Union action subscribed to the UK Companies' Policy and the plaintiffs in the Skandia action subscribed to Scandinavian-led policy; however, no further distinction need be drawn between them.
THE GCE POLICY
The Addendum to the GCE Policy described the Interests insured as:
Section One
Property of the Assured or property held in trust for others for which they have responsibility or elect to insure (including but not limited to Hulls and Machinery, Cargo Drilling Rigs Offshore Platforms Pipe Lines Construction Risks and Onshore Property of every description) including Costs of Control, Removal of debris and/or Residual Structure and Liabilities and Directors and Officers and Fidelity Coverages.
Section Three
All liabilities in respect of Assured's World-wide Operations and all as per form.
Section 1 provided coverage under Article VII (INTEREST AND COVERAGE) on the following terms:
For each loss occurrence covered by this Policy the Insurers agree with the Insured to pay or to pay on their behalf subject to the Basis of Recovery Article VIII:
1. All losses incurred by the Insured as a result of physical loss or damage to Property of any kind or description owned by the Insured or property of others held in trust or for which the Insured may have assumed responsibility, or for which the Insured may have an obligation to insure repair or replace …
4. All sums which the Insured pays or incurs as costs or expenses on account of:
(a)……….
(b) Removal of or attempted Removal of Debris or Wreck of Property and/or Residual Structure covered hereunder …… (emphasis added)
Section 1 Article VIII(2)(BASIS OF RECOVERY: CARGO AND STOCK) provided:
(a) Recovery for any loss hereunder shall be determined as follows:
(i) for crude oil..
(b) .. recovery shall also include costs and expenses incurred in defending, safeguarding, recovering, preserving and forwarding the property, as well as costs and expenses in respect of general average, sue and labour, salvage, salvage charges and expenses incurred in removal or attempted removal of debris or wreck or property even if incurred solely as a result of governmental or other authoritative order and the amount of the reasonable extra cost of temporary repair or of expediting the repair, including overtime and the extra cost of express or other rapid means of transportation. (emphasis added)
Section 1 Article IX, Para 3 excluded from cover under section 1:
Loss of, or damage to property, liability for which is imposed on the insured by law, other than such property as may be included under the terms of this policy.
Section 1, Article IV, Para 3 provided:
Notwithstanding anything else contained herein to the contrary, there shall be no recovery hereon for liabilities as described under Assured Liability Policy(ies) (as more fully defined and covered under policy numbers 8 KM52362 & O3-036-88 as applicable) …
Similar words were also contained in Article VII.
It is common ground that the specified policy numbers under paragraph 3 above were a reference to Section 3 of the GCE Policy itself. Thus, on the face of it at least, the policy intended that losses sustained which might otherwise fall within the wording of Section 1, but which were recoverable under Section 3, should not also be recoverable under Section 1.
Section 3A Article 1, under the heading PROTECTION AND INDEMNITY RISKS ETC, covered inter alia
(a)(i) … all sums for which the Insured may become liable or incur which are absolutely or conditionally recoverable from or undertaken by The Standard Steamship Owners' Protection and Indemnity Association (Bermuda) Limited and without the application of any limits or excesses contained in the rules of that Association in respect of the vessels and/or craft as per schedule.
(ii) it is further agreed that this insurance is extended to also cover any loss sustained by the Insured or indemnify or pay on behalf of the Insured any sum or sums which the Insured may be obliged to pay or agrees to pay or incurs as expenses, on account of Removal of Debris or Wreck of Vessels and/or craft as per schedule .. even if incurred solely as a result of governmental or other authoritative order….
(c) … this section of this insurance is also to cover the legal … liability of the Insured … cargo owners for … pollution and/or contamination…
(e) … all legal and/or contractual liability of the Insured arising out of or incidental to or in any way connected with the Insured's marine operations anywhere in the world.
Section 3B Article 1 of the GCE Policy provided that the Insurers agreed:
1. To pay the Insured … all sums which the Insured shall …. incur as expenses by reason of the liability imposed upon the Insured by law or by governmental or other local authoritated order, or assumed by the Insured under contract or agreement on account of ….. 'Property damage' caused by or arising out of each loss occurring during the policy period, anywhere World-wide in respect of …. all transportation activities ….
Section 1, Article VI, Clauses 11 and 12 and identical provisions in Section 3A conferred a choice upon the insured (Exxon) where to take proceedings in the event of dispute. In effect it could choose arbitration in New York (under Clause 11) or litigation in New York (under Clause 12) but there was no exclusive jurisdiction clause or any provision to prevent it issuing and serving proceedings in whatever jurisdiction it chose. Further, in the event of arbitration the arbitrators were entitled to abstain from following strictly the rules of law. To the extent that they did, however, such law was to be exclusively the law of New York. Further in Section 3B, Clause 10, it was provided that in relation to the particular liabilities thereby insured, either party could require the other to submit to arbitration in New York, in which event the arbitrators were also entitled to abstain from following strictly the rules of law.
THE REINSURANCE
The reinsurances in this case are excess of loss treaties on the XL MARKET STANDARD FORM ("the JELC") and short form Schedule. [In fact the JELC terms are incorporated in all but 4 of the 16 reinsurance contracts, but the parties are agreed that the JELC terms should be treated as applicable in all cases for the purpose of the argument before us]. The words of reinsurance in the JELC REINSURANCE CLAUSE (clause 1) are a promise:
1.1 … to indemnify the re-assured in settlement of its net loss … under business accepted by the re-assured as fully described in Section C of the schedule …
1.3 It is a condition precedent to liability under the contract that settlement by the re-assured shall be in accordance with the terms and conditions of the original policies or contracts.
In Section C (as set out in the Cover Note) the business is typically described( the differences as between the various contracts are immaterial) as:
All losses howsoever and wheresoever arising sustained by the Re-assured in respect of all business allocated to their Drilling Rigs Account …
Clause 3.1 of the JELC provides:
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