Equitas Insurance Ltd v Municipal Mutual Insurance Ltd
| Jurisdiction | England & Wales |
| Judge | Sir Jack Beatson,Lady Justice Gloster |
| Judgment Date | 04 May 2018 |
| Neutral Citation | [2018] EWCA Civ 991 |
| Docket Number | Case No: A3/2017/1278 |
| Court | Court of Appeal (Civil Division) |
| Date | 04 May 2018 |
[2018] EWCA Civ 991
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM LORD JUSTICE FLAUX
SITTING AS A JUDGE ARBITRATOR
IN THE MATTER OF THE ARBITRATION ACT 1996
IN THE MATTER OF AN ARBITRATION
AND IN AN ARBITRATION CLAIM
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Gloster
Vice-President of the Court of Appeal, Civil Division
and
Sir Jack Beatson
Case No: A3/2017/1278
Colin Edelman QC and Keir Howie (instructed by Norton Rose Fulbright) for the Appellant
Alistair Schaff QC and Tim Kenefick (instructed by Cooley (UK) LLP) for the Respondent
Hearing dates: 14 December 2017
Judgment Approved
Introduction
This is an application made by Equitas Insurance Limited (“the applicant” or “Equitas”) under s.69 of the Arbitration Act 1996 (“the 1996 Act”) for permission to appeal against the arbitration award dated 7 April 2017 (“the Award”) of Flaux LJ (sitting as a judge-arbitrator) (“the Tribunal”), in which he resolved all of the issues in favour of the reinsured, Municipal Mutual Insurance Limited (“the respondent” or “MMI”).
The background to the arbitration is set out at [1–10] and [31–41] of the Award and need not be repeated here. It suffices to say by way of overview that the dispute raises questions concerning the treatment of mesothelioma claims for the purposes of certain contracts of employers' liability (“EL”) reinsurance; and more specifically
i) whether MMI is entitled to present each outwards reinsurance claim to any single triggered reinsurance contract of its choice (i.e. whether it may ‘spike’ the claims); and
ii) if so, how the resultant rights of recoupment and contribution, arising from the Supreme Court decision in International Energy Group Ltd v. Zurich Insurance plc UK Branch [2016] AC 509 (“ IEG”), are to be calculated.
Mr Colin Edelman QC and Mr Keir Howie appeared on behalf of the appellant, Equitas. Mr Alistair Schaff QC and Mr Tim Kenefick appeared on behalf of the respondent, MMI.
The issues arising from the Award which are relevant to this application for permission to appeal
The relevant issues determined by the Award, so far as the application for permission to appeal is concerned, are the three issues articulated at [42(1), (2) and (4)] of the Award which are as follows:
i) Is MMI to be treated as having settled the inwards claims on the basis that each EL policy on risk was contributing a pro rata share of the loss being paid by MMI (“implied allocation issue”)?
ii) If not, is the basis on which MMI is presenting its reinsurance claim contrary to the duty of utmost good faith or an implied contractual duty requiring MMI to present its reinsurance claims in good faith (“good faith issue”)?
iii) If MMI is entitled to present its reinsurance claim as it has, what rights of contribution and recoupment do the reinsurers, who are called upon to pay the claim, acquire against any other reinsurers who were also on risk for the claim, and against MMI in respect of any deemed “self-reinsurance”; and how do those rights fall to be calculated? In particular, should they be calculated using:
a) the ‘from the ground up’ pro rata method of apportionment taking into account the first layer of retention in every year of reinsured exposure, as Equitas contends; or
b) the ‘independent liability’ method as MMI contends (“recoupment and contribution issue”)?
The Award
The Tribunal concluded that:
i) MMI was entitled to ‘spike’ each reinsurance claim to any applicable year of reinsurance cover of its choice; and
ii) the rights of recoupment and contribution acquired by the reinsurers to whom a claim was ‘spiked’ should be calculated using MMI's methodology.
Implied allocation issue
At [71] Flaux LJ held that MMI was entitled contractually to present the entire claim to any one year's reinsurance policy, albeit acknowledging that there would need to be equitable contribution and recoupment to iron out unfairness and anomalies. That, he stated, necessarily followed from the decision of the majority in IEG that each insurance contract covering the insured for the period of exposure was 100% liable.
He further held at [79] that the “decision of the majority [in IEG] demonstrate[d] [that] the [ Barker v Corus UK Ltd [2006] AC 572 (“ Barker”)] apportionment exercise [did] not come into play in determining the liability of the insurers under the inwards contracts of insurance.” In his view, if Barker apportionment did not affect the joint and several liability of insurers under each triggered inwards contract, there was no “principled basis for concluding that it should nonetheless dictate the issue of the liability of the reinsurers and, indeed, every principled basis for concluding that it should not.”
Good faith issue
At [101–102] Flaux LJ determined that the duty of utmost good faith was limited, in a claims context, to a duty not to act dishonestly in connection with the making of a claim. In his judgment, given that Equitas rightly eschewed any allegation of subjective want of good faith in this case, no question of breach of the duty of good faith as a matter of English law arose. It was his view that it was no part of the function of an arbitration tribunal to extend the scope of the post contractual duty of good faith, a fortiori where the House of Lords had held it to be limited in that way.
He formed the view at [104] that the English cases on which Equitas relied, which involved the exercise of a contractual discretion or power, were simply of no relevance, because MMI had an absolute contractual right to present the whole of its ultimate net loss to any reinsurance policy it chose. He held at [107] that there was no room for the implication of any term or application of some obligation of good faith in this context.
He held at [109] that, even if, contrary to the conclusion he had reached, there were some duty of good faith in relation to the allocation of the settlements to particular reinsurances, or some implied term that a decision to allocate should be Wednesbury reasonable, he was quite satisfied that there was no breach of duty or of any such implied term in this case.
Recoupment and contribution issue
Finally, having determined that MMI was entitled to ‘spike’ each reinsurance claim to any applicable year of reinsurance cover of its choice, he dealt with the dispute between the parties as to how the process of contribution and recoupment should be achieved at [111].
He held at [118] that there was nothing in the existing authorities, and specifically IEG, which assisted on the issue of retentions. He rejected at [118–120] Equitas' submission that the equitable rights of contribution and recoupment which the majority recognised in IEG had anything to do with the doctrine of subrogation.
At [121] he accepted MMI's method as correct. That method involved apportioning the loss for which the ‘spiked’ reinsurance contracts were liable between the retentions and the various layers of reinsurance in each of the applicable years of reinsurance cover, in proportion to: (a) the amounts that would have been borne by each such layer or retention if the whole of the claim had been presented to each relevant year, and (b) the relative amount of exposure which occurred in each relevant year. That approach employed the ‘independent liability’ method which had been applied in the liability insurance context in double-insurance situations as regards how retentions should be dealt with.
At [126] he held that this approach appeared to accord with fundamental fairness. He was also persuaded by the fact it was the approach which had recommended itself to the market at least in relation to policy years after 1984. ACOD [Accident Circle Occupational Disease] (B) was a standard market clause for use when liability was established on an exposure basis which was included in MMI's reinsurance contracts with effect from 1 January 1984.
Statutory grounds for permission: S.69 of the 1996 Act
In order for permission to appeal to be granted against an arbitration award, the application must satisfy the test which is laid out in s.69 of the...
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