Equitas Ltd v Allstate Insurance Company
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE BEATSON |
| Judgment Date | 17 July 2008 |
| Neutral Citation | [2008] EWHC 1671 (Comm) |
| Docket Number | Case No: 2008 FOLIO 241 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 17 July 2008 |
[2008] EWHC 1671 (Comm)
IN THE HIGH COURT OF JUSTICE
COMMERCIAL COURT
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand,
London, WC2A 2LL
THE HONOURABLE MR JUSTICE BEATSON
Case No: 2008 FOLIO 241
MR J LOCKEY QC (instructed by Ince & Co) for the Claimant
MR A SCHAFF QC & MRS KERR (instructed by Slaughter & May) for the Defendant
Hearing dates: 17–19 June 2008
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Beatson :
Introduction
On 14 April 2008 the defendant, Allstate Insurance Company (“Allstate”), applied for a stay of all further proceedings in this action brought by the claimant, Equitas Limited (“Equitas”), pending the determination of an arbitration in Texas between Allstate and Highlands Insurance Company, a Texas based company, which went into receivership in November 2003.
This action, filed on 10 March 2008, concerns the scope of a commutation agreement dated 16 December 2004 entered into by the claimant, the underwriting members of Lloyd's reinsured by Equitas Reinsurance Limited in respect of the 1992 and prior years of account, and the defendant, which had reinsured the Lloyd's syndicates. That agreement released and discharged the parties from all liabilities under or related to reinsurance agreements defined in it. It is governed by English law and contains an exclusive English jurisdiction clause.
The dispute between Allstate and Equitas became apparent during the course of the Texas arbitration. That arbitration concerns common account excess of loss reinsurance contracts (the “CAXOL contracts”) Highlands made with Allstate pursuant to its obligations under a number of quota share reinsurance contracts (the “Quota Share contracts”) made between 1977 and 1984. The Quota Share reinsurers included certain Lloyds syndicates. Substantial claims had been made against Highlands by Dynalectron Corporation (the “Fuller-Austin claim”), the Bergstrom Paper Company, and Coltec Industries Inc. After Highlands went into receivership, its Special Deputy Receiver (“SDR”), with the approval of the Texas Receivership Court, entered into funding arrangements with the Quota Share reinsurers to enable the claims to be settled. Early in 2006, and after the claims were settled, Highlands billed the CAXOL reinsurers including Allstate for sums due in respect of the claims. Allstate did not pay any of the invoices and raised a number of objections to the Fuller-Austin claim. On 8 March 2006 it informed Mr Charles Fortune, the Syndicates' US counsel, that as a result of the commutation agreement, it owed no monies to Equitas in respect of Equitas' interest in the common account protection under the CAXOL contracts. On 4 January 2007 Highlands commenced Texas arbitrations in respect of the non-payment of the three claims. On 9 February 2007 the parties agreed to consolidate the arbitrations.
Allstate maintains that the claim in these proceedings, the applicability of the commutation agreement to the Syndicates' interest in the CAXOL contracts, whether the Syndicates were party to those contracts, and whether Highlands can claim and recover in full (including the Syndicates' interest) is the subject of the Texas arbitration, and has been advanced by Equitas through Highlands or by Highlands on Equitas' behalf in that arbitration. Mr Lockey QC, on behalf of Allstate, relied on Equitas' involvement in the selection of Highlands' nominated arbitrator Mr Cole, and in the discussions as to whether, in the light of Highlands' receivership, all or part of Mr Cole's fee might be paid by Equitas. He also relied on Equitas being kept up to date with developments and knowing at the time (or soon after) of positions taken by Highlands, including the parties' statement of the issues (in particular the agreed issues) that arose in the arbitration, and the motion filed by Highlands in October 2007 to dismiss Allstate's commutation agreement defence. Mr Fortune was aware of Highlands' position before the motion to dismiss the defence was filed.
Equitas relies on the exclusive jurisdiction clause in the commutation agreement, the fact that it is not a party to the Texas arbitration, the desirability of resolving the issues between it and Allstate in proceedings to which it is a party, and because further settlements are likely to give rise to the issue in the future. Mr Schaff QC, on behalf of Equitas, submitted that Highlands' obligation to consult it and its awareness of developments in the arbitration, including the motion to dismiss the commutation defence, reflected its status as one of the Quota Share reinsurers, was not unusual, and does not mean that it has forfeited its right to have its dispute with Allstate adjudicated in the contractually agreed form.
The evidence before me consists of a witness statement (dated 16 April 2008) by Mr Noone, Allstate's in house counsel, three statements (dated 17 April, 20 May and 9 June 2008) by Mr Heuvels, a partner of Ince & Co, Allstate's solicitors, two statements (dated 1 May and 12 June 2008) by Mr Michael, a partner of Slaughter and May, Equitas' solicitors, and a statement (dated 1 May 2008) by Mr Fortune, a partner of Day Pitney LLP, the United States firm of attorneys representing the Lloyd's syndicates that were Quota Share reinsurers of Highlands.
I first set out the material provisions of the commutation agreement, the Quota Share contract, and CAXOL contracts. I then set out the background in a broadly chronological way, and the relief sought in the present proceedings.
The contracts
The commutation agreement
The recitals to this state:
“…
(3) Allstate and the Syndicates have entered into various reinsurance agreements (“the Reinsurance Agreements”) as more fully defined in Article 1, below, whereby Allstate reinsured the Syndicates.
(4) There are outstanding claims due from Allstate to the Syndicates.
(5) The Parties desire to terminate the Reinsurance Agreements and fully and finally settle and commute (by means of the payment referred to in Article 2 hereof) all of the rights, privileges, duties, obligations and liabilities under the Reinsurance Agreements, and to fully and forever release and discharge one another with respect to the Reinsurance Agreements.
(6) The Parties do not have a complete list of all contracts constituting the Reinsurance Agreements, and it is not known whether the listed Syndicates in Schedules A & B attached hereto and incorporated herein constitute an exhaustive list of all Syndicates which are parties to the Reinsurance Agreements, as defined in Article 1 below.
(7) Nevertheless, it is the intention of the Parties that pursuant to the terms of this Agreement, all Reinsurance Agreements falling within the definition in Article 1 below, whether currently known or unknown, be fully and finally settled and commuted under the terms of this Agreement.”
The material terms of the agreement are:
“ARTICLE 1. DEFINITIONS
…
B “Reinsurance agreements” shall, subject to the exclusion of reinsurances, reinsurance business and agreements referred to in paragraph C below mean all reinsurance and retrocession treaties and facultative acceptances (collectively “reinsurance”) whereby Allstate reinsured the Syndicates under reinsurances responding to 1992 and Prior Business, the benefit of which have been assigned by the Names to ERL and subsequently assigned by ERL to Equitas under the Equitas Retrocession….”
The treaty reinsurances which have been identified as falling within the definition are listed in Schedule A to the agreement. The facultative reinsurances which are identified as falling within it are listed in Schedule B. Paragraph C of Article 1 states that the agreement does not include the types of reinsurance, reinsurance business or agreements listed in it, which fall outside the definition of Reinsurance Agreements. The first category is “Unknown Facultative Business”. This is stated to be all Facultative Business not listed and identified in Schedule B. Facultative Business is defined in paragraph C. The second excluded category is any reinsurances, reinsurance business and agreements having an inception, anniversary or renewal date on or after 1 January 1985 that were sold by Allstate in 1996 to SCOR US Corporation and/or assumed by Allstate Reinsurance Company Limited through its branch offices in London and Zug and any of their subsidiaries.
By Article 2(A) Allstate undertook to pay Equitas US$14.5 million in consideration of the release. By Article 3:
“(i) … [the parties agreed to] release and forever discharge each other… from any and all liabilities and obligations arising under or related to the Reinsurance Agreements, whether known or unknown, reported or unreported and whether currently existing or arising in the future… [and] acknowledge that full payment… will be complete accord, satisfaction, settlement and commutation all of their respective liabilities and obligations under the Reinsurance Agreements, and
(ii) the Parties acknowledge that most, if not all, of the Reinsurance Agreements are governed by English law. The Parties releasing claims expressly assume the risk that acts, omissions, matters, causes, or things may have occurred which are not known or are not suspected to exist by one or more of them. The Parties to the fullest extent permitted by law hereby waive the terms and provisions of any statute, rule or doctrine of common law which either: (a) narrowly construes releases purporting by their terms to release claims in whole or in part based upon, or arising from, or related to such acts, omissions, matters,...
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