Munich Re Capital Ltd (suing as the sole corporate member of Munich Re Syndicate 457 at Lloyd's) v Ascot Corporate Name Ltd (as sole corporate member of Lloyd's Syndicate 1414)
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Carr |
| Judgment Date | 25 October 2019 |
| Neutral Citation | [2019] EWHC 2768 (Comm) |
| Date | 25 October 2019 |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2018-000791 |
[2019] EWHC 2768 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Carr
Case No: CL-2018-000791
Mr Gavin Kealey QC and Mr Shane Sibbel (instructed by Elborne Mitchell LLP) for the Claimant
Mr Jawdat Khurshid QC and Ms Sandra Healy (instructed by Kennedys Law LLP) for the Defendant
Hearing date: 3 rd October 2019
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.
Introduction
This is a dispute between two Lloyd's insurers as to the proper construction of a Facultative Excess of Loss Reinsurance policy with unique market reference B08752011L6J5119 and dated 10 May 2011 (“the Reinsurance Policy”). By that policy, the Defendant (“Ascot”), as the only subscribing reinsurer and slip leader, reinsured the Claimant (“Munich Re”) in respect of the latter's exposure under an underlying policy between Munich Re (and others) and Chevron Corporation (“Chevron”) and its (many) project partners and contractors in respect of two projects (“the Insurance Policy”). One of those projects was a very substantial offshore construction project in the Gulf of Mexico known as Project Bigfoot.
The Insurance Policy, with unique market reference B0823EE1100211 and dated 10 February 2011, was an Offshore Construction All Risks policy on (amended) WELCAR 2001 Offshore Construction Project Policy terms (“the 2001 WELCAR terms”). It provided cover to Chevron against all risks of physical loss and/or physical damage to each part, item or portion of Project Bigfoot. The Reinsurance Policy incorporated all of the terms and conditions of the Insurance Policy. It is common ground that it was intended to be “back-to-back” with the Insurance Policy.
As set out in more detail below, Munich Re agreed to extend the period of the Insurance Policy. However, apparently through oversight on its own part and/or that of its broker, it omitted at the same time to (seek to) extend correspondingly the period of the Reinsurance Policy.
Following losses on Project Bigfoot in 2015, Munich Re paid Chevron some US$26 million in respect of its portion of liability on claims. The losses were accepted as a construction loss under the all risks “Project Period” as defined in the Insurance Policy.
Munich Re now seeks to recover by way of indemnity from Ascot under the more limited “Maintenance Period” provision in the Reinsurance Policy:
i) the relevant proportion of its payment out on Chevron's claim (after deduction of excess), which amounts to approximately US$14.5million;
ii) the relevant proportion of fees and expenses incurred of approximately US$3million, which amounts to approximately US$145,800.
Ascot has declined to provide such an indemnity. It contends that Munich Re's construction of the Reinsurance Policy leads to cover where none was intended; it is a construction that Munich Re is forced to adopt only because of Munich Re's failure to extend the Reinsurance Policy in line with the Insurance Policy.
The issue before the Court is thus the nature, scope and application of the cover provided by Ascot under the Reinsurance Policy in the “Maintenance Period”, being the 12-month period following the expiry of the “Project Period”.
Background and events giving rise to claims under the Insurance Policy on Project Bigfoot
The Bigfoot oilfield was discovered in 2005, some 220 miles offshore in the Gulf of Mexico and 220 miles south of New Orleans, in about 5,200 feet of water depth. Project Bigfoot involved the creation of an extended Tension Length Platform (“eTLP”), an oil and gas drilling facility developed from the basic TLP concept of tensioning a buoyant hull to anchor plates on the sea floor using steel tendons between the hull and piles driven into the seabed. It was to be constructed in South Korea, Gulf of Mexico and Texas, wet towed to site and then installed.
The facts to be assumed for present purposes can be summarised briefly as follows. The eTLP was made of a large number of substantial components, including:
i) The hull, initially built in South Korea and dry towed to an inshore heavy lift site in the Gulf of Mexico;
ii) The topsides, initially constructed in Texas and barged to the inshore heavy lift site in the Gulf of Mexico for mating to the hull;
iii) The piles and 16 tendons, initially fabricated at the inshore heavy lift site in the Gulf of Mexico and barged to the offshore site.
The process by which the tendons were to be anchored to the seabed and thereafter connected to the hull involved feeding the tendons through clamp assembly modules (“CAMs”) suspended on the water by temporary buoyancy modules (“TBMs”). The TBMs were to hold the tendons until they were connected to the hull. Munich Re contends that the design, procurement and fabrication of the TBMs and CAMs were completed by 31 December 2013 at the latest. At this point the TBMs with integrated CAMs were despatched to the inshore heavy lift site in the Gulf of Mexico.
By 9 May 2015 all 16 tendons had been anchored to the seabed piles and were awaiting connection to the platform. However, bolts connecting the TBMs to the CAMs failed in 9 of the 16 tendons, causing them to collapse to the seabed between the end of May and the beginning of June 2015. A root cause analysis performed by Chevron concluded that the collapses were caused by the fatigue failure of the bolts in the flange of the CAMs when exposed to loads and forces incidental to the procedures necessary to maintain the tendons in place. Munich Re contends that this was due to faulty and defective construction, material and/or design arising from causes occurring prior to 31 December 2013.
The loss of 9 of the tendons gave rise to substantial claims by Chevron under the Insurance Policy which, as already indicated, were paid out under the all risks “Project Period” as defined in the policy.
The Insurance Policy
Munich Re was the slip leader under the Insurance Policy, and put down a 5% line on 15 April 2011. The written line was subsequently signed down to 4%.
The policy slip incorporated the 2001 WELCAR terms (as amended and agreed between the parties) as follows:
“CONDITIONS:
All risks of physical loss and/or physical damage all as more fully described in the WELCAR 2001 wording (amended) as agreed and as endorsed hereto…”
Having identified the type of insurance (offshore construction all risks) and the parties, the policy slip provided as follows:
“ESTIMATED PERIOD:
PROJECT PERIOD
This Policy attaches 00.01 hours 1 st March 2011 at the address of the Assured and insures in respect of each part, item or portion of the property Insured herein, which is at the risk of an Assured at Inception and thereafter shall cover continuously until 23:59 30 th March 2014 but not beyond 23.59 30 th September 2014. The policy period may be extended at terms and premium to be agreed by the Slip Leaders and agreement parties. All dates are inclusive and at the location of the risk.
Coverage shall attach from the time materials and/or parts come at risk of an Assured including work carried out at contractors and/or sub-contractors and/or manufacturers and/or suppliers premises and all transits (on and offshore) and shall continue during all operations until expiry as defined above.
Subject No Known or reported losses at date of binding slip leader.
MAINTENANCE PERIOD
Coverage shall continue during the maintenance period(s) (subject to the terms, conditions and exclusions in the wording), up to a period of 12 months after expiry of the Project Period.
DISCOVERY PERIOD
The Discovery Period (subject to the terms and conditions in the wording) shall commence on expiry and run for 12 months, concurrently with the maintenance period.”
The definition of the Project Period was an amended version of the relevant definition in the 2001 WELCAR terms which provides materially as follows:
“PROJECT PERIOD
The Policy attaches at (DATE), and insures in respect of each part, item or portion insured herein which is at the risk of an
Assured at inception or which becomes at risk of an Assured after inception and shall cover continuously thereafter until completion of the last part, item or portion of the property insured herein, expected not later than (DATE). The Project Period may be extended at terms and premium to be agreed by the lead Underwriter.”
The expiry dates in the definition of the Project Period chosen by the parties reflected the information in the Underwriting Information Report prepared by Aon Benfield (“Aon”) in January 2011 (“the Underwriting Information Report”). That stated, amongst other things:
“For the purpose of Insurance, the period of cover will commence from April 2011 until final completion of the project and handover to the operational insurances when steady state operations following first oil (expected June 2014) has been achieved when the project team will hand over the facilities to Operations. This is predicted to be latest circa September 2014.”
This explains the absolute cut-off point of September 2014. The range of March to September 2014 is explained by the Project Schedule contained in the report which showed handover of the project to the Gulf of Mexico occurring between Quarter 2 (commencing March) and Quarter 4 (commencing October) 2014, and the statement in the report that the project team was targeting 31 March 2014 for expected first oil in all of their current...
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