Lincoln National Life Insurance Company v Sun Life Assurance Company of Canada [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Toulson,Mr Justice TOULSON |
| Judgment Date | 26 February 2004 |
| Neutral Citation | [2004] EWHC 343 (Comm) |
| Docket Number | Case No: 2003 Folio 575 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 26 February 2004 |
[2004] EWHC 343 (Comm)
The Honourable Mr Justice Toulson
Case No: 2003 Folio 575
IN THE HIGH COURT OF JUSTICE
COMMERCIAL COURT
QUEENS BENCH DIVISION
Mr Ian HUNTER QC (instructed by CMS Cameron McKenna) for the Claimant
Mr Dominic KENDRICK QC and Mr Jawdat KHURSHID (instructed by Barlow Lyde & Gilbert and Clifford Chance LLP) for the Defendants
Hearing dates: 2–3 December 2003
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 TOULSON:
The claimant ("Lincoln") appeals under section 69 of the Arbitration Act 1996 against part of an interim final award of Mr John Rowland QC, Mr Brian Wood and Mr Anthony Robinson ("the Lincoln arbitrators") by which they found that the defendants ("Sun/Phoenix") were entitled to be indemnified by Lincoln in respect of certain reinsurances known as the Unicover whole account reinsurances.
The appeal raises questions about the effect on the dispute between Sun/Phoenix and Lincoln of findings made in an earlier arbitration between Sun/Phoenix and Cigna Reinsurance Company of Europe SANV ("Cigna"). They matter in this case because the legal position between Sun/Phoenix and Cigna had an important bearing on the legal position between Sun/Phoenix and Lincoln. They also involve a question of law of wider interest.
The points of law on which permission to appeal was given were:
(a) whether the Lincoln arbitrators were free to depart from the determination of rights and obligations between Sun/Phoenix and Cigna set out in an award of Mr Nicholas Legh-Jones QC, Mr Gordon Cornish and Mr Bryan Kellett ("the Cigna arbitrators") dated 14 March 2002;
(b) whether in determining for themselves what rights Sun/Phoenix had against Cigna, the Lincoln arbitrators were right to conclude that the coverage provided by Cigna was to be found partly in writing and partly in an oral agreement.
Lincoln also seeks to challenge the award of the Lincoln arbitrators under section 68 of the Act on the ground of serious irregularity.
Background
In 1996 Mr John Cackett established an underwriting agency called Centaur Underwriting Management Limited ("Centaur") in Bermuda. Centaur acted as agent for Sun/Phoenix in respect of a portfolio of accident and health business, including workers compensation and occupational accident ("occ/acc") business.
The programme was protected by various layers of whole account reinsurance contracts. Lincoln underwrote a layer of US$90,000 in excess of US$10,000 in respect of risks attaching during the period from 1 October 1996 to 31 December 1997 ("the Lincoln reinsurance"). This was done by two slips. The only point of present importance is that the general conditions included the words "Net Retained Lines Clause". No particular form of wording was agreed, but before the Lincoln arbitrators the parties were content to proceed on a basis of one of the common forms, which the arbitrators set out as follows:
This Agreement applies only to that part of the Original Policies which the Reinsured retained net for their own account and in computing the Ultimate Net Loss, only loss or losses in respect of such Net Retained part of the Original Policies shall be included.
The amount of Reinsurers' liability in respect of loss or losses shall not be increased by reason of the inability of the Reinsured to collect from any other reinsurers whether specific or general, any amounts which may have become due from them whether such inability arises from the insolvency of such other reinsurers or due to the cancellation of such other reinsurance by the Reinsured or by such other reinsurers for whatever reason or for any reason whatsoever.
Shortly before the expiry of the Lincoln reinsurance, Centaur underwrote seven whole account reinsurances protecting the personal accident pool managed by Unicover Managers Inc. of New Jersey ("the Unicover whole account reinsurances"). They were placed with Centaur through Unicover's brokers Rattner Mackenzie Limited. They replaced earlier policies and were to run for three years from 1 December 1997.
There is no dispute that at the time when they were underwritten the Unicover whole account reinsurances formed part of Centaur's whole account protected by the Lincoln reinsurance.
By April 1998 Mr Cackett was aware that the premium income estimates for the Unicover whole account reinsurances were rocketing. He made various unsuccessful attempts to obtain specific reinsurance for them. Centaur already had a programme of occ/acc insurances protecting workers' compensation and occ/acc business introduced to Centaur by the brokers Stirling Cooke Brown ("SCB"). This programme had been arranged by SCB in October 1996 and renewed for twelve months from 1 October 1997. The broker at SCB was Mr Jeff Butler. The programme was in three layers. The lowest layer and 50% of the second and third layers were underwritten by John Hancock Mutual Life Insurance Co of Boston USA. The other 50% of the second and third layers was subscribed by Odyssey Re (London) Limited ("Odyssey").
Mr Cackett was not happy with Odyssey as security and in March 1998 had asked Mr Butler to replace it. Mr Cackett also had the idea of seeking to broaden the occ/acc reinsurance programme so that it would no longer be restricted to business placed through SCB but would cover all occ/acc business underwritten by Mr Cackett, including particularly the Unicover whole account reinsurances.
On 28 August 1998 Mr Butler had a meeting with Mr Paul Minter, the senior underwriter of Cigna. Mr Butler obtained Mr Minter's oral agreement to reinsure the defendants in respect of certain occ/acc business ("the Cigna reinsurance"). No slip was scratched at the meeting, and the Cigna arbitrators later commented in their award:
A clearer warning of the dangers inherent in departing from the traditional procedure of writing reinsurance business in reliance on written information and slip subscription can scarcely be imagined.
At the meeting Mr Minter said that he wanted the business to be placed with Cigna under an existing lineslip held by SCB, under which personal accident risks were declared to Cigna by an employee of SCB, Mr Alan Bird, on off slips for acceptance by a Cigna underwriter. On a later date or dates Mr Minter initialled four off slips presented to him by Mr Bird and a number of endorsements to Centaur's occ/acc programme. On their face, their effect was that Cigna agreed to reinsure the defendants under the occ/acc programme in place of Odyssey (for whom Cigna agreed to front) and the programme was widened to cover the defendants' portfolio of occ/acc business emanating from all sources.
The Lincoln and the Cigna reinsurances both contained arbitration clauses.
In December 1998 disputes arose between Cigna and Sun/Phoenix which were referred to arbitration and resulted in the Cigna award. The award was in two parts, a dispositive part and accompanying reasons. The dispositive part included the following:
1. WE DIRECT that our REASONS for this Award are set out in the document annexed hereto and shall be considered as part of this Award.
2. WE HOLD that in August/September 1998 [Cigna] became bound to the Occ/Acc Covers by becoming a party to four contracts of reinsurance, two with the Phoenix Claimants and two with the Sun Claimant.
3. WE HOLD and DECLARE that [Cigna] has validly and properly avoided the contracts of reinsurance by which it participated in the occ/acc programme on the grounds of misrepresentation and non-disclosure in the placement of these occ/acc covers by SCB on behalf of the claimants.
4. WE HOLD that, subject to our decision in (3) above, all the numbered risks in respect of which the claimants sought an indemnity under the occ/acc covers were reinsured by [Cigna] with the exceptions of risks numbered 132 and 191–192.
The Unicover whole account reinsurances were among the risks in respect of which indemnity had been claimed and were numbered 158–164.
In the Lincoln arbitration the main issue was whether Lincoln had been entitled to avoid the Lincoln reinsurance for misrepresentation and non-disclosure by Centaur. Lincoln failed on that issue and there is no appeal from the arbitrators' award in that regard. At a late stage of the arbitration Sun/Phoenix served a counterclaim for a declaration that Lincoln was obliged to indemnify them in respect of the Unicover whole account reinsurances. Lincoln contended that these were excluded from indemnity under the Lincoln reinsurance by the net retained lines clause.
There was some argument about the proper interpretation of that clause. Sun/Phoenix contended that recovery under the Lincoln reinsurance would not be precluded by the net retained lines clause in a case where the putative other reinsurance had been avoided. The Lincoln arbitrators rejected that argument. They held (at paragraphs 118 to 119) as follows:
The amount of [Lincoln's] liability in respect of losses under the 90 excess 10 whole account reinsurance is not to be increased by reason of [Sun/Phoenix's] inability to collect from another reinsurer amounts that would, but for a successful avoidance by that reinsurer, otherwise have become due…The issue in the present arbitration is whether, but for Cigna's successful avoidance, part of the losses under the Unicover reinsurances would have been recoverable from Cigna.
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