Faraday Reinsurance Company Ltd v Howden North America Inc. and Another

JurisdictionEngland & Wales
JudgeTHE HONOURABLE MR JUSTICE BEATSON,Mr Justice Beatson
Judgment Date01 November 2011
Neutral Citation[2011] EWHC 2837 (Comm)
Docket NumberCase No: CLAIM NO. 2010 FOLIO 1454
CourtQueen's Bench Division (Commercial Court)
Date01 November 2011

[2011] EWHC 2837 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

The Honourable Mr Justice Beatson

Case No: CLAIM NO. 2010 FOLIO 1454

Between:
Faraday Reinsurance Co Ltd
Claimant
and
(1) Howden North America Inc
(2) Howden Buffalo Inc
Defendants

John Lockey QC (instructed by Barlow Lyde & Gilbert) for the Claimant

Richard Jacobs QC (instructed by Covington and Burling LLP) for the Defendants

Hearing date: 7 October 2011

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.

THE HONOURABLE MR JUSTICE BEATSON Mr Justice Beatson

Introduction

1

In this application, issued on 17 July 2011, the defendants apply to set aside service out of the jurisdiction, pursuant to an Order granted by David Steel J. Although both Howden North America Inc ("HNA") and Howden Buffalo Inc are named as defendants, there is in fact only one corporate entity because, on 1 September 2010, Howden Buffalo Inc changed its name to Howden North America Inc, and I shall refer to both as HNA. It does so because of the existence of proceedings in Pennsylvania concerning HNA's insurance cover for asbestos liabilities.

2

The underlying dispute concerns three excess layer policies written by General Star International Indemnity Ltd ("GSIIL") in respect of "Howden Group Ltd and/or subsidiary companies". The period of insurance under the first policy was 22 July 1998 to 31 May 1999, under the second it was 1 June 1999 to 31 May 2000, and under the third it was 1 June 2000 to 31 May 2001. With effect from 30 November 2010 all policies written by GSIIL, including these, were transferred to the claimant, Faraday Reinsurance Co Ltd ("Faraday") pursuant to section 111(1) of the Financial Services and Markets Act 2000.

3

The second and third policies contain choices of English law and jurisdiction. Mr John Lockey QC, on behalf of Faraday, submitted that there was an implied choice of English law in the first policy and that English law is the law with the closest connection to that policy.

4

Faraday issued proceedings on 6 December 2010. It did so after receiving a letter dated 23 August 2010 on behalf of HNA from Charterbrook Associates LLC ("Charterbrook") giving notice of occurrences which it was said may entitle Howden to claim under the second and third policies. A later letter dated 14 January 2011 from Covington & Burling LLP ("Covington") clarified that HNA also intended to refer to the first policy.

5

HNA's coverage litigation in Pennsylvania has been in progress since 2003, and related mass tort proceedings have been on foot since 1999. Until very recently, GSIIL and Faraday have not been involved. The ultimate underlying substantial issue between the parties arises because of the differences of approach by the Pennsylvania courts and the English courts. The first difference is whether exposure to a hazardous condition is itself an injury. Under English law (see Bolton MBC v Municipal Mutual Insurance Ltd [2006] 1 WLR 1492) it is not, but under the laws of United States jurisdictions including Pennsylvania, a theory of multiple triggers of periods of insurance from exposure to manifestation has been followed: see the authorities based on Keene Corporation v Insurance Corporation of North America 667 F2d 1034 (1981), and in Pennsylvania, J.H. France Refractories v All State Insurance Co 626 A2d 502 (1993).

6

The second difference is that, in English law, but not in the relevant United States jurisdictions, the period clause is a fundamental provision of an insurance policy: see Municipal Mutual Insurance Ltd v Sea Insurance Company Ltd and others [1998] Lloyd's Rep. IR 421 at 435–6–"the stated period of time is fundamental and must be given effect to"–and Wasa International Insurance Co v Lexington Insurance Co [2009] UKHL 40 at [3], [39], [74] and [77]. There is also a difference between English and Pennsylvania law as to the relevant principles of the conflict of laws because the English approach to determining the applicable law is concerned only with the circumstances at the time of contracting, whereas the evidence is that the approach in Pennsylvania permits consideration of factors applicable at the time of the dispute.

7

In the English proceedings Faraday seeks declarations that: (a) the policies by which GSIIL insured Howden are governed by English law and subject to the jurisdiction of the English courts; (b) as a matter of English law, effect must be given to the periods under each policy during which GSIIL was on cover, (c) under section 1 of each policy, Faraday is liable to indemnify HNA for any sums which HNA may become legally liable to pay in respect of claims made against it for damages, costs and expenses in respect or in consequence of personal injury and/or damage to material property only insofar as this happened (or occurred) during (and not before or after) the relevant policy period, and (d) under section 2 of each policy, Faraday is liable to indemnify HNA in respect of legal liability arising out of the matters set out in section 2 only insofar as (i) claims were made against HNA during the relevant policy period or (ii) claims have subsequentlybeen made against HNA which arise out of any circumstances which could reasonably have been expected to give rise to a claim under section 2 of the policy, and of which AG Maclachlan Esq., of Howden Group Ltd, or a person nominated to act on his behalf in his absence shall have become aware during the relevant policy period. The application for permission to serve out was made on 8 March 2011, permission was granted on 9 March, and HNA was served on 1 June.

8

The evidence on behalf of Faraday consists of three statements of Kiran Soar, a partner at Barlow Lyde and Gilbert LLP, respectively dated 8 March, 31 August and 30 September 2011. The evidence on behalf of HNA consists of two statements of Francis Roger Enock, dated 19 July and 23 September 2011, and two statements of William Greaney, dated 23 September and 4 October 2011. Messrs Enock and Greaney are partners at Covington. Mr Enock is an English solicitor based in the firm's London office, who has conduct of these proceedings on behalf of the defendant. Mr Greaney is based in the firm's Washington DC office and is lead counsel in proceedings by HNA pending against Gerling and New Hampshire in the United States Federal District Court's Third Circuit (the "Pennsylvania proceedings").

9

HNA's application for David Steel J's order to be set aside is made on two grounds. First, Mr Richard Jacobs QC on its behalf, challenged the "utility" of these proceedings. He submitted that Faraday has failed to show that the present proceedings are justified and serve a useful purpose. This, he submitted, is because, in the light of a recent change in HNA's position, there is no dispute about the second and third policies which requires resolution. In the case of the first policy, it is because Faraday has instituted these proceedings in order to try and establish issue preclusion on the point in the Pennsylvania court or deference to it in that court, but a judgment by the English court granting the relief sought in these proceedings will not achieve that purpose. Secondly, he submitted that, even if there is justification for the relief sought, Pennsylvania is the appropriate forum for these proceedings because of the longstanding insurance proceedings in Pennsylvania about the dispute between HNA and its many historical insurers. After being served with these proceedings, HNA filed a motion to join Faraday/GSIIL as additional defendants to the most recent, 2011, Pennsylvania proceedings.

10

I first set out the material terms of the three GSIIL policies. I then outline the relevant corporate structures and the nature of the 2003, 2009 and 2011 Pennsylvania proceedings, the background to this application, and summarise the applicable principles.

The terms of the three GSIIL policies

11

The three policies are excess public and products liability policies. They are composite policies. Each identifies the assured as "Howden Group Ltd and/or subsidiary companies" with, in the first two policies, an address in Renfrew, Scotland. In the third policy the same Renfrew address is on the slip. Under the heading "Trading", the policies stated "Glasgow, Scotland and various anywhere worldwide as per policy".

The first policy: No.LH9813364

12

The period of this policy was from 22 July 1998 to 31 May 1999, both days inclusive. The limits of indemnity are £40 million excess £10 million per occurrence and, in respect of products liability and financial loss, in the aggregate annually.

13

The policy was placed in London by Lloyd Thomson Ltd, now JLT, London brokers, and is set out in a London market underwriting slip. The slip refers to London market institutions such as ILU and LIRMA (London Insurers and Reinsurers Market Association), and London's "unique market reference" for numbering risks, although the pro forma containing these references is, save for the policy number, blank. GSIIL subscribed a 10% line on 28 September 1998.

14

The terms of the policy include a number of London market clauses; the Several Liability Notice LSW/1001 (Insurance) clause, and the brokers cancellation clause. GSIIL's stamp uses London market abbreviations, denoting LIRMA as the policy signing and premium collecting office and providing that "NCAD", notice of cancellation at anniversary date. The policy states that liability is "as more fully detailed in the underlying policy wording".

15

The underlying policy provided public and products liability cover of £9 million excess of £1 million. It too is a London market policy, broked and underwritten in...

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