Excess Insurance Company Ltd v Mander [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Colman J |
| Judgment Date | 05 May 1995 |
| Date | 05 May 1995 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court)
Colman J.
Gavin Kealey QC and Stephen Kenny (instructed by Humphreys & Co) for the plaintiffs.
Stephen Ruttle (instructed by Norton Rose) for the defendants.
The following cases were referred to in the judgment:
Annefield, TheELR [1971] P 168.
Aughton Ltd v M F Kent Services LtdUNK (1991) 31 Con LR 60.
Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AGUNK [1981] 2 Ll Rep 446.
Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corp LtdELR [1981] AC 909.
Federal Bulk Carriers Inc v C Itoh & Co Ltd & Ors (“The Federal Bulker”)UNK [1989] 1 Ll Rep 103.
Harbour Assurance Co (UK) Ltd v Kansa General International Insurance Co LtdELR [1993] QB 701.
Heyman v Darwins LtdELR [1942] AC 356.
Merak, TheELR [1965] P 223.
Pine Top Insurance Co Ltd v Unione Italiana Anglo Saxon Reinsurance Co LtdUNK [1987] 1 Ll Rep 476.
Skips A/S Nordheim & Ors v Syrian Petroleum Co Ltd & Anor (“The Varenna”)ELR [1984] QB 599.
Thomas (T W) & Co Ltd v Portsea Steamship Co LtdELR [1912] AC 1.
Contract — Incorporation of contractual terms — Reinsurance — Incorporation of arbitration clause — Retrocession containing general incorporation clause — XOL reinsurance treaty with arbitration clause binding on parties after retrocession became binding — Action for indemnity for losses arising under retrocession — Whether retrocession incorporated arbitration clause in XOL treaty — Whether dispute to be referred to arbitration — Whether action to be stayed.
This was an application for an order under s. 4(1) of the Arbitration Act 1950 staying an action on the ground that the matter in issue ought to be referred to arbitration.
Two US insurance companies issued policies to various savings and loans institutions providing cover in respect of misconduct or negligence by their directors or officers. Those companies obtained reinsurance of that portfolio with a number of London reinsurers, including the Alder syndicate at Lloyd's and the first plaintiffs. The Alder eits liability by entering into an excess of loss (“XOL”) treaty with the plaintiffs as reinsurers. The plaintiffs retroceded their liability arising under the XOL treaty to the defendant syndicate under the retrocession. The XOL treaty contained an arbitration clause. The retrocession contained no reference to the arbitration of disputes but included a general incorporation clause. The treaty became binding on the plaintiffs four months after the defendant became bound by the retrocession.
The plaintiffs brought an action in which each claimed an indemnity from the defendant syndicate in respect of losses which had arisen and might subsequently arise under the retrocession and the XOL treaty. The defendant applied for a stay under s. 4(1) of the Arbitration Act 1950 on the ground that the matter ought to be referred to arbitration. The issue was whether the retrocession incorporated the arbitration clause in the XOL treaty.
Held, dismissing the application for a stay of proceedings:
1. As a general rule of construction where terms were to be incorporated from one contract into another, in circumstances in which the contract from which the terms were to be incorporated came into existence after the one into which the terms were to be incorporated, express words of incorporation were required unless the provisions in question were the subject-matter of the incorporated contract. An arbitration clause would not be incorporated unless there were particular background circumstances, such as a course of dealing, which would outweigh the consideration that the arbitration clause was merely collateral to the subject-matter of the incorporated contract.
2. Since there was no binding arbitration agreement in existence at the time when the parties entered into the retrocession, which used general words of incorporation and made no specific reference to the arbitration clause in the XOL treaty, there were no special circumstances to displace the general rule of construction. Accordingly the arbitration clause, being collateral to the subject-matter of the XOL treaty and not yet in existence at the time when the retrocession was entered into, was not incorporated into the retrocession. It followed that there was no basis on which to grant a stay of proceedings under s. 4(1) of the Arbitration Act 1950.
Colman J: This is an application for an order under s. 4(1) of the Arbitration Act 1950 staying an action commenced by the plaintiffs. By that action the plaintiffs claim (1) an indemnity to the extent of US$402,243.41 (first plaintiff) and US$301,649.56 (second plaintiff) or for failure by the defendant syndicate to pay sums due by it as reinsurer under a written excess of loss reinsurance agreement contained in a slip signed by the defendant syndicate in August 1983 for the underwriting period 1 August 1983-31 December 1984 inclusive; and (2) a declaration that the defendant syndicate is obliged to indemnify the plaintiffs in accordance with the terms of that reinsurance in respect of losses which have already arisen and losses which may subsequently arise under an excess of loss August 1983 reinsurance agreement as “the retrocession” and to the treaty signed by the reinsured on 8 May 1984 as “the XOL treaty”.
The defendants ask for a stay of these proceedings on the basis that
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(1) the XOL treaty contained an arbitration clause;
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(2) the retrocession incorporated “all terms, clauses, conditions and warranties” of the XOL treaty and therefore incorporated the arbitration clause so as to bind the plaintiffs to submit their claims to arbitration;
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(3) the present action is in respect of matters agreed to be referred to arbitration under the incorporated arbitration clause; and
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(4) there is no sufficient reason why the matter in dispute should not be referred to arbitration in accordance with the agreement.
The plaintiffs' primary point on this application, and the sole issue which I have now to decide, is that the retrocession did not incorporate the arbitration clause in the XOL treaty. If the plaintiffs are wrong on that point they contend that a stay should not be granted because the defendant has no defence to their claims. Indeed, by a further summons the plaintiffs ask for summary judgment in respect of their claims.
The underlying risk which gave rise to the retrocession was a direct insurance portfolio operated by US insurance companies known as CNA and MGIC. Those companies issued policies to various savings and loans institutions providing cover in respect of misconduct or negligence of their directors and officers. CNA and MGIC obtained reinsurance of that portfolio with various London reinsurers, including the Alder Syndicate at Lloyd's and Excess Insurance Co Ltd, the first plaintiffs in these proceedings. The Alder Syndicate in turn reinsured its liability by entering into the XOL treaty with the plaintiffs as reinsurers. The plaintiffs retroceded their liability arising under the XOL treaty to the defendant syndicate under the retrocession.
The retrocession slip, which is said to have been initialled by the defendant on 5 August 1983, contained the following material provisions:
“Retrocedant: various Lloyd's Underwriters and Companies as per schedule.
Original reassured: K F Alder Esq and Others Combined Syndicates and/or Quota Share Reinsurers (if any).
Period: Losses occurring during:
17 Months at 1 August 1983
In the event of non-renewal it is hereby agreed, if requested by the Reassured, to extend this Reinsurance to cover the liability of the Reassured for losses occurring on and after 1 January 1985 in respect of all Policies and/or Contracts (which shall include Line Slips, Covers, Binding Authorities, and the like) written by the Reassured prior to 1 January 1985 until their natural expiry, subject to receipt of not exceeding [tba] % of the premiums ‘Accounted for’ on and after 1 January 1985 in respect of the business hereby reinsured. It being understood and agreed that each annual period shall be deemed a separate Reinsurance.
Type: Excess of loss reinsurance
Class: In respect of all Policies and/or Contracts (which shall include Line Slips, Covers, Binding Authorities, and the like) of Insurance and/or Reinsurance for which premiums are allocated by the Reassured to their so-called Banks and Financial Institution Account Refs:
Ter scope: All losses wheresoever occurring.
Limit: To pay up to £212,500 or US/Can.$425,000 each and every loss, each risk, inclusive of costs.
In Excess of an Ultimate Nett Loss of:
£37,500 or US/Can.$75,000 each and every loss, each risk, inclusive of costs. However, it is a condition of this retrocession that retrocessionaires shall not be liable for the first £850,000 or US/Can. $1,700,000 of losses which would otherwise have been recoverable hereon. Losses to be considered in chronological date order of occurrence.
Reinst: As Original (Unlimited without Additional Premium).
Premium: Calculated @ 17.5% of the Retrocedants Nett Premium payable as original.
Deductions: 10%
General conds: All terms, clauses, conditions and warranties as original and to follow original settlements and/or agreements of the Reassured in all respects.
Any alterations or amendments to original policy (made in good faith) held covered whether notice be given or not.
Wording: Slip Policy Form
Inf: Original slip attached and noted by reinsurers hereon.”
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