Commercial Union Assurance Company Plc v NRG Victory Reinsurance Ltd [QBD (Comm)]

JurisdictionEngland & Wales
JudgeClarke J.
Judgment Date01 August 1997
CourtQueen's Bench Division (Commercial Court)
Date01 August 1997

Queen's Bench Division (Commercial Court)

Clarke J.

Commercial Union Assurance Co plc & Ors
and
NRG Victory Reinsurance Ltd

Dominic Kendrick QC and Andrew Wales (instructed by Clyde & Co) for the plaintiffs.

Jonathan Sumption QC and George Leggatt QC (instructed by Clifford Chance) for the defendants.

The following cases were referred to in the judgment:

Du Pont de Nemours & Co v AgnewUNK[1987] 2 Ll Rep 585.

Hill v Mercantile & General Reinsurance Co plc[l996] CLC 1247; [1996] 1 WLR 1239.

London County Commercial Reinsurance Office LtdELR[1922] 2 Ch 67.

Insurance Reinsurance Exxon sued insurers in Texas on claims under global corporate excess (GCE) policy arising out of Exxon Valdez oil spillage Insurers settled claims under GCE policy Reinsurers under Excess of loss treaties declined to pay on ground that insurers were not liable to pay exxon under GCE policy Whether insurers established that they were liable to exxon under GCE policy.

These were applications by the plaintiff insurers seeking summary judgment under RSC, O. 14A in two actions in which they made claims under 16 excess of loss reinsurance contracts made with the defendant (NRG).

The plaintiff insurers subscribed to a global corporate excess (GCE) insurance policy under which Exxon Corporation claimed in relation to clean-up costs arising out of the Exxon Valdez oil spillage. Exxon commenced proceedings under the GCE policy in Texas. The insurers settled part of Exxon's claim for $300m; another claim proceeded to trial and the jury decided in effect that the insurers were liable to Exxon for $250m (on top of a deductible of $210m). The reinsurances provided for the reinsurers to pay all losses howsoever and wheresoever arising which might be sustained by the reassured. The defendant refused to pay its proportion of the sums which the plaintiffs had paid under the settlement agreement, on the ground that the plaintiffs were under no liability to Exxon under the GCE policy.

Held, giving judgment for the plaintiffs:

The plaintiff insurers were entitled to succeed against NRG under the contracts of reinsurance. They had proved their loss against NRG in the same way as Exxon had proved it against them. There was no exclusive jurisdiction clause in the underlying insurance and it was reasonably foreseeable by the parties that the insured would sue in the forum which seemed most favourable to it. The risks reinsured by the reinsurers included liability established in courts other than the English courts, provided only that any such court was a court of competent jurisdiction and the plaintiffs took all defences available to them. If liability was established in Texas, as a court of competent jurisdiction, the liability of the insurer was whatever was established in the Texan court. There was no suggestion that the insurers did not seek to advance in Texas all the points which NRG wished to make as reasons why there was no liability under the GCE policy. There was evidence that if the action had continued it would have succeeded and Exxon would have substantiated the amount of its claim. The settlement of $300m was reasonable and represented less than the amount for which the insurers would have been held liable by the court in Texas, which was a court of competent jurisdiction.

JUDGMENT

Clarke J:

The plaintiffs seek judgment under RSC, O.14 in two actions in which they make claims under 16 excess of loss reinsurance contracts made with the defendants (NRG). In the first action (the Commercial Union action) there are six plaintiffs. In the second action (the Skandia action) there are two plaintiffs.

The background facts are as follows. On 24 March 1989 the tanker Exxon Valdez ran aground in Prince William Sound in Alaska, with the result there was a major spillage of oil which in turn led to an extensive clean-up operation. The vessel was owned by Exxon Shipping Co and the cargo was owned by its parent Exxon Corp. The shipowner had P & I cover in respect of its liability for spillage of US$400m in excess of US$210m and recovered the full amount insured from its P & I club. In addition Exxon Corp made claims under a Global Corporate Excess insurance policy (the GCE policy) The plaintiffs are among the insurers who subscribed to the GCE policy. It was placed through brokers in the London market and the wording was, as I understand it, drafted by CT Bowring & Co (Insurance) Ltd. The GCE policy in fact comprised three policies, a Lloyd's policy, a UK companies policy and a policy led in the Scandinavian market. The plaintiffs in the Commercial Union action subscribed to the UK companies policy and the plaintiffs in the Skandia action subscribed to the Scandinavian led policy. All the policies were however in materially identical terms.

Exxon Corp made claims under sections 1 and 3 of the GCE policy. In the addendum to the policy the interest covered by sections 1 and 3 respectively is described as follows:

Section 1

Property of the Assured or property held in trust for others for which they have responsibility to elect to insure (including but not limited to Hulls and Machinery, Cargo, Drilling Rigs, Offshore Platforms, Pipelines, 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 3

All liabilities in respect of Assured's Worldwide operations all as per form.

In August 1993 the Exxon Corp commenced proceedings against the direct insurers, including the plaintiffs, in a Texas state court. In those proceedings Exxon made claims under both sections 1 and 3 of the GCE policy. Under both sections they claimed cleanup costs arising out of the oil spillage. They also claimed punitive damages for alleged breach of the Texas Insurance Code. The direct insurers brought an action in the Federal Court in New York seeking a declaratory judgment that they were not liable to Exxon Corp under the GCE policy and asking the court to compel arbitration of the claim under section 3B. Exxon Corp accepted that the claim under section 3B should be arbitrated in New York but applied to have the declaratory judgment action dismissed. That application ultimately failed in January 1996.

In the meantime the proceedings in the Texas state court continued towards trial. In October 1995 Exxon Corp sought summary judgment on its claim under section 1 on the basis that the plain meaning of the language in the policy entitled it to coverage for its clean-up costs and expenses. Shortly before that application was to be heard Exxon Corp and the direct insurers under the GCE policy, including the plaintiffs, entered into a settlement agreement dated 15 March 1996. The insurers agreed to pay US$300m and Exxon Corp agreed to the dismissal of that claim from both the Texas and New York proceedings. In these actions the plaintiffs are claiming an indemnity under their reinsurance contracts with the defendant in respect of the defendant's due proportions of the sums which the plaintiffs have paid under the settlement agreement. The amounts claimed are of the order of US$lm in the Commercial Union action and US$417,000 in the Skandia action.

The claim of Exxon Corp under section 3 of the GCE policy proceeded to trial in Texas before the same judge and jury who would have tried the claim under section 1. The claim succeeded. On 10 June 1996 the jury decided in effect that the insurers were liable to Exxon Corp for US$250m under section 3. The jury thus held that the relevant recoverable liability was at least US$460m because there was a deductible of US$210m.

I shall return to the detail of the claims in Texas, so far as necessary, below, but first it is appropriate to refer to the reinsurance contracts and the relevant principles. The contracts of reinsurance, which are excess of loss treaties, are not in identical form. However, it is not, as I understand it, suggested that the words of reinsurance have any different meaning in different contracts. In all but one case they were:

to pay all losses howsoever and wheresoever arising which may be sustained by the Reassured in respect of all business allocated to their Drilling Rig Account.

Some reliance is placed upon particular clauses in the different contracts, but the central issue is common to all the contracts and does not turn on the wording in individual cases.

The central issue is that pleaded in para. 8 of the points of defence in these terms:

8. It is admitted that by a Settlement Agreement and Release dated 15 March 1996 (The Settlement Agreement) insurers under the GCE Policy agreed to pay to Exxon a sum of US$300 million. Paragraph 5 of the Points of Claim is otherwise denied. It is specifically denied that the plaintiffs were under any liability in law to pay a proportion of the said sum or any sum to Exxon pursuant to the terms and conditions of Section 1 of the GCE Policy.

It is common ground between the parties that in order to recover under the reinsurances the plaintiffs must establish that they were liable under the GCE policies. The question is whether they have done so. NRG says that it has an arguable defence that the plaintiffs were under no liability to Exxon Corp under section 1 of the GCE policy. In support of that defence Mr Sumption submitted that the policy was governed by English law and made a number of submissions to the effect that the plaintiffs had a good defence to Exxon Corp's claim. Alternatively he submitted that the policy was governed by the law of New York, but that since it must be presumed that the law of New York and English law are the same the result is the same, namely that the plaintiffs had a good defence to Exxon Corp's claim so that NRG is not liable under the...

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