Feasey v Sun Life Assurance Company of Canada and Another; Steamship Mutual Underwriting Association (Bermuda) Ltd v Feasey
| Jurisdiction | England & Wales |
| Judge | Lord Justice Waller,Lord Justice Dyson,Lord Justice Ward |
| Judgment Date | 26 June 2003 |
| Neutral Citation | [2003] EWCA Civ 1106,[2003] EWCA Civ 885 |
| Docket Number | Case No: A3/2002/1165 A3/2002/1220 |
| Court | Court of Appeal (Civil Division) |
| Date | 26 June 2003 |
[2003] EWCA Civ 885
Lord Justice Ward
Lord Justice Waller
and
Lord Justice Dyson
Case No: A3/2002/1165
A3/2002/1170
A3/2002/1220
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
Mr Justice Langley
Royal Courts of Justice
Strand,
London, WC2A 2LL
Julian Flaux QC; Mr David Lord (instructed by Lovells) for the Appellant
Dominic Kendrick QC; Mr Simon Kerr (instructed by Clifford Chance) for the Respondents
Anthony Boswood QC; Mr Richard Handyside (instructed by Richards Butler) for Steamship
This is an appeal from the judgment of Langley J given on 17 May 2002. That judgment is now reported at [2002] EWHC 868 (Comm). Only certain points are live on the appeal. By his judgment Langley J decided that Steamship Mutual Underwriting Association (Bermuda) Limited ("Steamship") had an insurable interest in relation to a contract of insurance made between it and syndicate 957. He further found that in relation to the reinsurance of Syndicate 957 by Sun Life Assurance Company of Canada ("Sun Life") and Phoenix Home Life Mutual Insurance Company ("Phoenix") there was no non-disclosure or misrepresentation entitling Sun Life and Phoenix to avoid the reinsurance policy. He further found however that in relation to one period of the reinsurance Centaur Underwriting Management Limited ("Centaur") had purported to write the same for Sun Life and Phoenix 50:50 when they had no authority to write for Phoenix. Syndicate 957 argued that Centaur had written the same 100% for Sun Life but the judge ruled against Syndicate 957 on that issue.
The non-disclosure and misrepresentation aspects have been abandoned on the appeal. The point which has taken up the greatest proportion of time on the appeal is the insurable interest point. A much shorter time was spent dealing with the authority point. That point is dealt with in the judgment of Dyson LJ with which I agree. I will deal with the insurable interest point.
How does the Insurable Interest point arise?
Steamship insured the liabilities of their members for personal injury or death. In about June 1995, rather than entering into a conventional reinsurance with Syndicate 957, Steamship and Syndicate 957 entered into a Personal Accident and Illness Master Lineslip Policy. The aim was to cover the liability of Steamship to its members. Under the Master Lineslip the syndicate agreed to pay fixed benefits to Steamship in respect of bodily injury and/or illness sustained by a person (an original person) who was engaged in any capacity on board a vessel or offshore rig, entered by a member with Steamship. That Master Lineslip was renewed from time to time. In particular, in about May 1998, it was renewed in respect of losses occurring on declarations attaching during three consecutive periods of 12 months from 20 February 1997 and, later, in respect of losses occurring on declarations attaching during the period 20 February 2000 to 20 February 2001.
Syndicate 957 reinsured its liability under the Master Lineslip. That reinsurance for the years February 1998 to February 2000, was 50% with Sun Life and 50% with Phoenix. That reinsurance was negotiated by brokers acting for Syndicate 957 and Centaur who were authorised at this stage to write for those two companies in the above proportions. On 1 October 1998 Centaur's authority to write new business for Phoenix ceased. The brokers negotiated an extension of reinsurance with Centaur for a further year on 29 October 1998. It is that negotiation which gives rise to the authority point and the question whether Centaur was agreeing to take 100% for Sun Life.
It is Sun Life who have taken the point that Steamship had no "insurable interest" in the lives and wellbeing of the original persons, when entering into the Master Lineslip for the three years from February 1997 and after. They contend that the insurance is illegal by virtue of section 1 of the Life Assurance Act 1774. In the alternative Sun Life assert that Steamship are seeking to claim more than the value of any insurable interests they had, and are not entitled to do so by virtue of section 3 of the same Act.
It is not attractive to contemplate that where insurers have carefully crafted a policy which was intended to be enforceable by Steamship, a point on insurable interest could arise. As quoted in The Law of Insurance Contracts 4 th Edition by Professor Malcolm Clarke there is an observation of Mance J in The Capricorn [1995] 1 Lloyd's Rep. 622 at 641 that if insurers
"make a contract in deliberate terms which covers their assured in respect of a specific situation, a court is likely to hesitate before accepting a defence of lack of insurable interest."
Mr Kendrick QC, who argued the appeal with great skill on behalf of Sun Life, accepts that the court's attitude is as stated by Brett MR in Stock v Inglis [1884] 12 QBD 564 at 571 where he said:
"In my opinion it is the duty of a court always to lean in favour of an insurable interest, if possible, for it seems to me that after underwriters have received the premium, the objection that there was no insurable interest is often, as nearly as possible, a technical objection, and one which has no real merit, certainly not as between the assured and the insurer. Of course we must not assume facts which do not exist, nor stretch the law beyond its proper limits, but we ought, I think, to consider the question with a mind, if the facts and the law will allow it, to find in favour of an insurable interest."
Be all that as it may, there is no doubt that the argument on behalf of Sun Life is a formidable one and cannot by any means simply be brushed aside.
The Facts
The facts are set out in detail in Langley J's judgment and there is no appeal therefrom. The important matters of background I summarise from that judgment as follows. In 1994 Syndicate 957 had reinsured Steamship (and other clubs) on a bodily injury "carve out" and mixed indemnity and fixed benefit basis. It seems that in September 1994 Lloyd's announced changes to its risk codes for the 1995 year of accounts. From January 1995 Accident and Health policies could only be classified as Personal Accident Insurance if payments were on a fixed benefit basis. Liability or contingent cover was treated as long tail business for reserving purposes. Personal Accident cover was treated as short tail and so did not require provision of substantial reserves to be held for long periods.
Mr Cackett the underwriter for Syndicate 957 wanted to preserve the substantial 1994 premium income received by the Syndicate from Steamship if he properly could, but also to maintain the PA classification. The PA concept was Mr Cackett's creation. The basic idea was to provide a fixed level of benefit payable on proof of the fact of death, PTD (Permanent Total Disability) or TTD (Temporary Total Disability) of an Original Person with medical expenses payable in addition. The level of benefits could not and would not track with any precision the amount of the actual liability of the member of Steamship or Steamship in respect of the death, PTD or TTD relating to the individual original person. But, it was intended that overall Steamship's recovery under the Master Lineslip should track as closely as possible Steamship's overall exposure.
Langley J demonstrated that in the drafting of the original wording there was a tension between attempting to keep the Master Lineslip within the relevant Lloyd's code, and providing the cover which Steamship desired. It is doubtful to what extent those drafting points can be relevant to the actual construction of the policy but, as Langley J pointed out, it was in that context that the word "liability" in respect of claims as against Steamship became "obligations" of Steamship, wording to which I will have to return. In addition, there was evidently in the draft at one time a provision which provided for "adjustment" and expressly for Steamship to make repayment where it transpired that fixed benefits exceeded the club's liability to a member, but that provision was not maintained.
There was a dispute at the trial whether Steamship were intending to cover legal expenses incurred by virtue of the fixed benefits received. The judge found that the setting of the benefit levels was intended to contribute to Steamship's exposure including legal costs.
The first lineslip providing this new form of cover was effected for the period 20 February 1995 to 20 February 1996. The terms and wording were finally agreed between Syndicate 957 and Steamship in June 1995. The Master Lineslip had been signed earlier for 100% by Mr Cackett on behalf of Syndicate 957 naming Lloyd Thompson as the lineslip holder.
The first declaration under the Master Lineslip was accepted on 16 June 1995. It named Steamship as the insured. It was to pay Steamship benefits "calculated in accordance with the schedule of compensation" contained in the wording for death, PTD or TTD (and medical expenses in relation to TTD only) as defined in the wording. The policy limits were as specified in the schedule of compensation but also subject to a maximum of $1m for any one event and "in a maximum amount recoverable in all equivalent to 250% of the finally adjusted gross premium payable." There was an aggregate deductible of 6.6% of Steamship's net premium income or $1.5m whichever was the greater. A...
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