DR Insurance Company v Central National Insurance Company of Omaha [QBD (Comm)]

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
JudgeMartin Moore-Bick
Judgment Date29 September 1995
Date29 September 1995

Queen's Bench Division (Commercial Court)

Martin Moore-Bick QC (sitting as a deputy High Court judge)

Dr Insurance Co
and
Central National Insurance Co of Omaha (in rehabilitation) & Ors

Michael Crane QC (instructed by Richards Butler) for the plaintiff.

Gavin Kealey QC (instructed by D J Freeman) for the first and second defendants.

The following cases were referred to in the judgment:

Amicable Society for a Perpetual Life Assurance Office v Bolland (Fauntleroy's Case) (1830) 4 Bli (NS) 194.

Archbolds (Freightage) Ltd v S Spanglett LtdELR[1961] 1 QB 374.

Bates v Barrow Ltd[1995] CLC 207.

Bedford Insurance Co Ltd v Instituto de Resseguros do BrasilELR[1985] QB 966.

Beresford v Royal InsuranceELR[1938] AC 586.

BP Exploration Ltd v HuntWLR[1976] 1 WLR 788.

Browning v MorrisENR(1778) 2 Cowp 790.

Cavalier Insurance Co, ReUNK[1989] 2 Ll Rep 430.

Citadel Insurance Co v Atlantic Union Insurance Co SAUNK[1982] 2 Ll Rep 543.

Cleaver v Mutual Reserve Fund Life AssociationELR[1892] 1 QB 147.

Cromie v MooreENR[1936] 2 A11 ER 177.

DR Insurance Co v Seguros America BanamexUNK[1993] 1 Ll Rep 120.

Enimont Overseas AG v RO Jugotanker Zadar (The Olib)UNK[1991] 2 Ll Rep 108.

Finnish Marine Insurance Co Ltd v Protective National Insurance CoELR[1990] 1 QB 1078.

Gulf Bank KSC v Mitsubishi Heavy Industries LtdUNK[1994] 1 Ll Rep 323.

Insurance Corp of Ireland v Strombus International Insurance CoUNK[1985] 2 Ll Rep 138.

MB Pyramid Sound NV v Briese Schiffahrts GmbH & Co (The Ines)UNK[1993] 2 Ll Rep 492.

Overseas Union Insurance Ltd v Incorporated General Insurance LtdUNK[1992] 1 Ll Rep 439.

Parker (Harry) Lid v MasonELR[1940] 2 KB 590.

Phoenix General Insurance Co of Greece SA v Halvanon Insurance Co LtdELR[1988] QB 216.

Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran[1994] 1 AC 438.

Spiliada Maritime Corp v Cansulex LtdELR[1987] AC 460.

Insurance Reinsurance contracts Illegality Service out of jurisdiction Takeover of insurance company Claims for indemnity Summons for declaration that contracts void due to illegality by predecessor in title Application to set aside leave to serve out Whether claim to annul or otherwise affect a contract Whether appropriate to order service out Rules of the Supreme Court, O.11, r. 1(1)(d).

This was an application by the first and second defendants to set aside an order made ex parte which gave the plaintiff leave to serve out of the jurisdiction.

The plaintiff insurance company, DR, was the successor in title to certain reinsurance business originally written by Elkhorn Reinsurance Co which wrote business through the agency of Stetzel Thomson & Co Ltd. DR as successor received claims from cedants and turned to other members of the syndicate as retrocessionaires to indemnify it for their share. Certain of the retrocessionaires successfully resisted liability on the grounds that both the underlying reinsurances and the consequent retrocessions had been written by Elkhorn through Stetzel Thompson in contravention of the Insurance Companies Act 1974 and were therefore illegal and void.

In November 1993 the first and second defendants, insurance companies incorporated in Nebraska, attempted to commence arbitration proceedings against DR in Nebraska under certain of the contracts of reinsurance to which DR had succeeded. DR then issued the summons in this action seeking a declaration that the contracts to which it had succeeded were void due to illegal conduct of its predecessor in title in contravention of the Insurance Companies Act 1974. Judgment was given to DR in the arbitration on the grounds of public policy although DR had not raised the defence that the contracts were illegal. DR then applied for leave to serve the summons in this action out of the jurisdiction. Shortly thereafter the first and second defendants commenced proceedings in New York seeking to enforce the contracts.

The issues were whether the claim was within the scope of RSC, O.11, r. l(1)(d)namely that it was brought to annul or otherwise affect a contract and whether on the grounds of public policy there were no serious issues to be tried.

Held, allowing the application and setting aside the order for leave to serve out:

1. The effect of the assignment had been to create contractual rights and liabilities directly between the parties to the action. The word contract in O.11, r. l(1)(d)was wide enough to cover contractual rights and liabilities which had become vested in one or other of the parties in this way.

2. Although the plaintiff had set out to show that the contract never existed the scope of the word contract in the rule was wide enough to include agreements, such as those between the parties, which were clearly entered into with the intention to create legal relations.

3. The public policy considerations, that the court would not lend its assistance to one who relied on his own wrongdoing and that a party should perform bargains entered into with good faith, weighed in favour of the defendants. Therefore it was not an appropriate exercise of the court's discretion to order service out of the jurisdiction.

JUDGMENT

Martin Moore-Bick QC: I have before me a summons issued by the first and second defendants under RSC, O.12, r. 8 seeking to set aside an order made by Potter J ex parte on 11 February 1995 giving leave to serve out of the jurisdiction and the subsequent service of the proceedings. The first and second defendants are both insurance companies incorporated in Nebraska which are currently in rehabilitation under the direction of the third defendant. The third defendant, was not represented before me and has taken no part in the proceedings.

The background to the application, is as follows. The plaintiff, DR Insurance Co (DR), is the successor in title to certain reinsurance business originally written by Elkhorn Reinsurance Co (Elkhorn) in the London market in 1979 and 1980. Between about 1975 and 1981 Elkhorn was a member of a syndicate of reinsurers which wrote business through the agency of Stetzel Thomson & Co Ltd. Each member of the syndicate entered into an agreement with Stetzel Thomson which, inter alia, enabled risks to be accepted by any single member of the syndicate and automatically retroceded to the other members in their various proportions. The present proceedings relate to three contracts of reinsurance entered into by Elkhorn in 1979 and 1980 fronting for the syndicate as a whole, one in favour of the first defendant and two in favour of the second defendant. Treaty Wordings, to which I shall have to refer in more detail later, we're eventually signed in the early part of 1983. In September 1983 Elkhorn was sold by its parent company, National Distillers and Chemical Corp, to Delta Holdings Inc. As part of the arrangements surrounding that sale the business written by Elkhorn through Stetzel Thomson was transferred from Elkhorn to the plaintiff DR, a new company formed for that purpose, ownership of which was retained by National Distillers. That transfer of business was effected by an agreement of bulk reinsurance dated 30 September 1983 to which I shall also return.

In due course DR as successor to Elkhorn received claims from cedants under various fronted risks and itself turned to the other members of the syndicate as retrocessionaires to indemnify it for their shares. Most of the syndicate members appeared to have accepted liability, but some did not and during 1989 and 1990 DR brought a number of actions in this court in an attempt to obtain recoveries. Certain of the retrocessionaires resisted liability on the grounds that both the underlying reinsurances and the consequent retrocessions had been written by Elkhorn through Stetzel Thomson in contravention of the Insurance Companies Act 1974 and were therefore illegal and void. In one of the consolidated actions, DR Insurance Co v Seguros America Banamex and DR Insurance Co v Imperio Compania de SegurosUNK[1993] 1 Ll Rep 120, Mr Adrian Hamilton QC held that that defence succeeded. I am told that to date four retrocessionaires in all representing about 20 per cent of the total syndicate capacity have relied on that illegality as justification for not settling claims by DR.

Elkhorn itself subsequently went into liquidation. In 1986 Central and Protective who wished to pursue claims under the contracts which are the subject of this action were referred by the liquidator to DR. There were various exchanges between the parties to which I must refer again in due course, but although they received an initial without prejudice payment, both Central and Protective were ultimately unsuccessful in their attempts to persuade DR to accept liability for their claims. In November 1993, therefore, they attempted to commence arbitration against DR under certain of the treaties which provided for arbitration to take place in the city in which the reinsured's head office was located, in that case Omaha, Nebraska. DR's response was to commence proceedings before the District Court of Lancaster County, Nebraska seeking a declaration that the arbitration agreements were void as being contrary to the public policy of Nebraska, or unenforceable on the grounds that the claims were time-barred. On 10 January 1995 judgment was given in favour of DR on the grounds that the arbitration clauses were contrary to public policy and void; no decision was made on the issue of time bar. DR did not in those proceedings raise any allegation that the contracts which Central and Protective sought to enforce by arbitration were void for illegality. After conclusion of the argument before the District Court, but before judgment had been given, DR issued the writ in this action on 18 December 1994 seeking relief by way of declaration that each of the three contracts to which it refers is void and unenforceable as having been effected or carried out in, contravention of the Insurance Companies Acts 1974-1982. The application for leave to serve the defendants out of the...

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