Ian Crane v Hannover Ruckversicherungs-Aktiegesellschaft
| Jurisdiction | England & Wales |
| Judge | Mr Justice Walker: |
| Judgment Date | 19 December 2008 |
| Neutral Citation | [2008] EWHC 3165 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2006 Folio 1031 |
| Date | 19 December 2008 |
[2008] EWHC 3165 (Comm)
IN THE HIGH COURT OF JUSTICE
COMMERCIAL COURT
QUEEN'S BENCH DIVISION
Mr Justice Wwalker
Case No: 2006 Folio 1031
Mr David Edwards QC and Mr Jawdat Khurshid (instructed by Sedgwick Detert, Moran & Arnold) for the claimant
Mr Mark Templeman QC and Mr Andrew Neish (instructed by CMS Cameron McKenna) for the defendant
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.
Hearing dates: 1, 3, 7–10, 14–16, 22 April 2008
Approved Judgment
THE HON MR JUSTICE WALKER
Introduction
Legion Insurance Company (“Legion”) provided casualty insurance to businesses in the United States of America (“U.S.”). Legion was a subsidiary of Mutual Risk Management Ltd of Bermuda (“MRM”– an abbreviation which I shall use to refer not only to Mutual Risk Management Ltd but also to its predecessor companies and to the Mutual Risk Management group of companies along with their predecessors). The policies written by Legion often included cover against liabilities under statutes passed by individual states for the benefit of those injured at work. This cover was known as Workers Compensation Act cover (“WCA cover”). It was standard for such cover to comprise two sections. Section A gave cover for statutory benefits in respect of death or bodily injury arising from an accident at the place of work and during working hours. Section B gave cover for payments in respect of an employer's fault-based liability for an accident killing or injuring an employee. Legion's policies also often provided, among other things, general and automobile liability cover.
Many of the policies written by Legion were classified by it as “traditional Insurance Profit Centre” business. The book of business comprising these policies was known as the “Mainframe Account,” and reinsurance arrangements designed for this book of business were known as the “Mainframe Treaty” or “Main Treaty.” I shall refer to policies falling within this book of business as “Mainframe policies”. Certain other policies were the subject of separate reinsurance arrangements known as the “Cessions Treaty.” The book of business comprising these policies was known as the “Cessions Account” and I shall refer to such policies as “Cessions policies.”
The defendant, which I shall refer to as “Hannover”, is a German reinsurance company. In 1998 and in previous years it underwrote a proportion of two excess of loss reinsurance policies giving cover to Legion for its liabilities in respect of business allocated to the Mainframe Account. I shall generally refer to such reinsurance policies, directly protecting the Mainframe Account, as “the Mainframe XL contracts” and to those who underwrote them as “the Mainframe XL reinsurers”. The policies underwritten in 1998, and those who underwrote them, I shall refer to as “the 1998 Mainframe XL contracts” and “the 1998 Mainframe XL reinsurers.” Other companies underwriting the 1998 Mainframe XL contracts included First Excess & Reinsurance Corporation (through Core Managers Incorporated) and TIG Reinsurance Company. The 1998 Mainframe XL contracts were in force from 1 October 1998 onwards and reinsured the net excess liability of Legion resulting from loss occurrences under Mainframe policies allocated to underwriting years commencing during that period. Each of them included both specific excess cover and aggregate excess cover:
i) The first such reinsurance policy (“the First 1998 Mainframe XL contract”) as regards specific cover required Legion to declare a retention for each coverage of not less than $100,000 and provided cover for the difference between the retention and a maximum specific ultimate net loss of $1m. As regards aggregate cover it set out a formula by which Legion was to determine for each insured program an annual aggregate attachment point (“AAAP”), and it provided cover for up to $1.25m of aggregate ultimate net loss in any one account year in excess of the AAAP.
ii) The second such reinsurance policy (“the Second 1998 Mainframe XL contract”) provided specific cover for up to $1m of the amount by which a specific ultimate net loss exceeded $1m. It provided aggregate cover for up to $1.25m of the amount by which aggregate ultimate net losses in any one account year exceeded the total of the AAAP and $1.25m.
MRM Hancock Ltd (“MRM Hancock”), a broking firm based in London, was – like Legion – a subsidiary of MRM. It acted as Legion's broker in relation to the Mainframe XL contracts. It was instructed both by Legion directly and by Towers Perrin in the U.S. on Legion's behalf. Hannover has made a contingent claim against MRM Hancock (under its current name, Park London Ltd) as a Part 20 defendant in these proceedings. That claim has been stayed by consent. On 2 August 2007 MRM Hancock went into administration. It has played no part in the proceedings before me. My findings in this judgment, and references below to matters being common ground, concern only the position in the proceedings before me.
In 1998 Syndicate 53 at Lloyd's was an aviation syndicate. It wrote other books of business as well, among them personal accident (“PA”) business. This type of business was also known as accident and health (“A&H”). The syndicate's active underwriter in 1998 and 1999 was, and had for some years been, Mr Ian Crane. He is the claimant in these proceedings and sues on behalf of himself and other members of Syndicate 53. I shall refer to it as “the Syndicate” or “Syndicate 53”.
It is common ground that by four excess of loss reinsurance contracts the Syndicate, for its appropriate proportion, agreed to participate in the reinsurance of some, but not all, of those who underwrote the 1998 Mainframe XL contracts. For three of the four contracts the reinsured included Hannover. The remaining proportion of the four excess of loss reinsurance contracts was underwritten by Reliastar Life Insurance Company (“Reliastar”). Each of these four contracts can be described as a retrocession – a reinsurance of a reinsurer. Each of the Syndicate and Reliastar was, for its own proportion, reinsuring aspects of potential liabilities which the reinsured companies had themselves underwritten as reinsurers under the 1998 Mainframe XL contracts.
The Syndicate's involvement in Legion's business in 1998 was not limited to the Mainframe Account. By three excess of loss reinsurance contracts the Syndicate, for its appropriate proportion, agreed to participate in the reinsurance of Legion's Cessions Account. These three contracts were not retrocessions, for the Syndicate was reinsuring aspects of potential liabilities which Legion had underwritten as a direct insurer. The Syndicate was asked to quote rates for a fourth contract reinsuring the Cessions Account, and duly did so, but in the event this did not come to fruition.
A feature common to all seven of these contracts was that they did not apply to all classes of business. They extended to one class only, which was in essence section A of WCA cover. By 1998 underwriters in the A&H market in London had for some years been providing to American casualty underwriters reinsurance limited to this single class. The cover thus provided was effectively carved out of the wider cover in the casualty policies, and it was accordingly known as “WCA Carve-out”, or simply “Carve-out” reinsurance. I shall generally refer to it as “Carve-out cover.” I shall refer to the four retrocessions as “the 1998 Mainframe Carve-outs,” and to the three reinsurances of Legion's Cessions Account as “the 1998 Cessions Carve-outs.” These contracts formed part of the wider reinsurance structures comprising the Main Treaty and the Cessions Treaty. In contemporary documents and in evidence before me, however, the expressions “Main Treaty” and “Cessions Treaty” were often loosely used to refer to particular contracts protecting the Mainframe Account and Cessions Account respectively.
The WCA Carve-out market was highly specialist. It was, however, well known to Mr Crane. He had been introduced to it by a specialist broking firm which by 1998 was known as Stirling Cooke Brown Insurance Brokers Limited (“SCB”). It is common ground that in 1998, as in previous years, MRM Hancock sought Carve-out cover as broker on behalf of Legion, which wanted Carve-out cover directly for its Cessions Account, and also as broker on behalf of some or all of the potential or actual Mainframe XL reinsurers. It is also common ground that in relation to Carve-out cover SCB acted as sub-broker for MRM Hancock.
The 1998 Mainframe Carve-outs applied to occurrences during the period of 12 months commencing on 1 October 1998. The contract wording described the reinsured as Legion “and/or all other Companies which are now or hereafter become part of the Mutual Risk Management, Limited Group… and/or various Reinsurers [of Legion]”. Despite this wording, there is no suggestion that Legion has any claim against the Syndicate, and it has not been suggested that I am concerned with any claim that any reinsurer of Legion other than Hannover may have against the Syndicate. Nor am I concerned with any claim that may be made against Reliastar.
Two of the 1998 Mainframe Carve-outs provided a first and second layer of specific cover, and the remaining two provided a first and second layer of aggregate cover. Hannover was reinsured only under the first specific layer and the two aggregate...
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