Municipal Mutual Insurance Ltd v Sea Insurance Company Ltd
| Jurisdiction | England & Wales |
| Judge | Hobhouse,Brooke L JJ,Sir John Vinelott |
| Judgment Date | 26 March 1998 |
| Date | 26 March 1998 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Hobhouse and Brooke L JJ and Sir John Vinelott.
Stephen Tomlinson QC and David Bailey (instructed by Dibb Lupton Alsop, Liverpool) for the reinsurers.
Alexander Layton QC and Timothy Lord (instructed by Watmores) for Municipal Mutual Insurance.
The following cases were referred to in the judgment of Hobhouse LJ:
Andersen v MartenELR [1908] AC 334.
Axa Reinsurance (UK) plc v Field [1996] CLC 1169; [1996] 1 WLR 1026.
Keene Corn v Insurance Co of North AmericaECAS (1981) 667 F 2d 1034.
Knight v FaithENR (1850) 15 QB 649.
Stonewall Ins Co v Asbestos Claims Management CorpECAS (1995) 73 F 3d 1178.
Thorman v NHICUNK [1988] 1 Ll Rep 7.
Insurance — Reinsurance — Plaintiff insurer covered port authority under policy renewable annually — Reinsurance effected under time contracts of 12 months' duration — Port held liable for damage to cranes by pilfering and vandalism over period of years — Whether plaintiff could aggregate loss caused by individual acts of pilfering for presentation to reinsurers — Whether different reinsurance years could be liable for same damage.
This was an appeal by reinsurers from a judgment of Waller J ([1996] CLC 1515) in favour of the plaintiff insurers (“Municipal”).
Municipal insured the Port of Sunderland for many years under a policy renewable and renewed annually. The defendant reinsurers reinsured the plaintiff under time contracts of 12 months' duration. Cranes left at the port by a company called Concorde were vandalised by a succession of individual acts of pilferage. In an action by Concorde against the port, defended by Municipal, Judge Stephenson held that the port was liable and that the bulk of the damage occurred between March 1987 and September 1988. Municipal paid out £3,159,401.56 in damages and interest, expenses and the port's and Concorde's costs. Municipal sought to recover that sum from the defendant reinsurers. It treated its claim as a single claim (the port's claim against it) and apportioned that claim one-sixth, two-thirds and one-sixth between the reinsurance contracts for 1986–87, 1987–88 and 1988–89, subject to deduction of an excess in each year, and split those amounts between the defendant reinsurers in proportion to the lines they had written. The claim was subsequently refined to include an element of aggregation between the three years and reduce the impact of the excesses. The reinsurers denied liability. Waller J held that Municipal having indemnified the port for the compensation paid to Concorde was entitled to present a single claim to the reinsurers. The original insurance and reinsurance were intended to be back to back and the plaintiff was entitled to recover in relation to the 1987–88 year when loss and damage was held to have occurred. If another reinsurance year was answerable as well there would be a right of contribution between those liable. The judge allowed the plaintiff to amend to bring its whole claim within the 1987–88 year, less the excess deductible of £500,000, and gave judgment for £2,659,401.56. The reinsurers appealed.
Held reducing the amount of the judgment in favour of Municipal:
1.For each policy year under each reinsurance contract the excess was to be applied to the aggregation of the physical loss and damage which arose during that year. The wording of the underlying insurance imported into the reinsurance contracts applied the excess of £500,000 to compensation payable in respect of any one occurrence or series of occurrences “consequent on or attributable to one source or original cause”. There was a clear unifying factor in all the losses suffered by Concorde, namely the port's want of care and inadequate system for protecting the cranes. The acts of pilferage and vandalism were a series of occurrences attributable to a single source or original cause. (Axa Reinsurance (UK) plc v Field[1996] CLC 1169, [1996] 1 WLR 1026applied.)
2.The judge failed to give effect to the essential annual character of each reinsurance contract. The right approach was to see to what extent the plaintiff had established that it was entitled to recover from the relevant defendants under each of the three contracts. Applying the wording of the original policy to each reinsurance contract it was necessary to ask whether or not the relevant physical loss or damage arose during the relevant period of cover. The judge appeared to have concluded, wrongly, that the reinsurance might cover liability in respect of loss or damage which did not occur during the period of the reinsurance and that the same liability might be covered under the reinsurance for different periods. The judge's suggestion that there could be contribution between the reinsurers liable in different years was mistaken. The plaintiff's alternative approach to the application of the excesses also could not be sustained.
3.In order to recover Municipal had to satisfy the court that there had been physical loss or damage which had occurred in the year covered by the relevant contract of reinsurance which exceeded the excess applicable. Those were questions of fact not law. On that basis the judge had found against Municipal in relation to the first and third reinsurance contracts and for Municipal on the second. On the findings of Judge Stephenson the value of the loss and damage by vandalism in the 1986–87 year did not exceed the excess and the claim under that contract of reinsurance failed and the claim under the third contract likewise failed. Pilferage and vandalism undoubtedly occurred in the 1987–88 year and a fair assessment of the fraction which probably occurred in that year was two-thirds. Accordingly Municipal was entitled to recover from the defendants who subscribed to the reinsurance in that year in proportion to their lines, after deduction of the £500,000 excess, the sum of £1,606,267.68.
Hobhouse LJ: This is an appeal by the defendant reinsurers from a judgment of Waller J sitting in the Commercial Court ([1996] CLC 1515) in favour of the plaintiffs, Municipal Mutual Insurance Ltd. The trial concerned three facultative reinsurance contracts placed by the plaintiffs with the defendants. Each was contained in or evidenced by a slip presented to the various reinsurers by the Plaintiffs' brokers and initialled for various proportions by the relevant reinsurer's underwriter. There were 12 defendants in the action. Not all of them subscribed to all of the slips. From one year to another the proportions in which they subscribed varied. The judgment which was entered against them was in fact 11 judgments for distinct sums against each of the first 11 defendants. The twelfth defendant, which subscribed to only one of the slips (the first), escaped liability.
Each of the slips was in similar, but not identical, terms. The first was:
| Type: | Legal liability insurance |
| Form: | MAR |
| Original assured: | Port of Sunderland Authority |
| Period: | 12 months at 24 June 1986 |
| Interest: | To cover the legal liability of the Port of Sunderland in their activities as Port Authority |
| Sum insured | Limit: £2,500,000 excess of £500,000 |
| Conditions: | R/I of the Municipal Mutual Insurance Ltd and to follow their settlements. |
| Conditions as underlying Premium: | £4,000 p.a.” |
The second slip was the same except that the period was “12 months at 24 June 1987 inclusive GMT”. The third slip was the same except that the period was “12 months at 24 June 1988 inclusive GMT” and the sum insured was “Limit: £3,500,000 excess of £1,500,000” and the premium was 2,800 p.a.
Each of these slips evidences or contains distinct independent contracts of reinsurance between on the one hand the plaintiffs and on the other each individual reinsurer. Further, each contract is a time contract covering a defined period of 12 months. The contract of original insurance underwritten by the plaintiffs and referred to in the slips was not of the same character. It was a policy whereby the plaintiffs undertook to insure the Port of Sunderland in successive years subject to the payment of annual premiums renewing the cover. The policy issued by the plaintiffs to the Port of Sunderland dated from before and continued until after the three years covered by the reinsurance slips and with which this action is concerned. In 1986 the policy issued by the plaintiffs to the Port of Sunderland was in the following terms (so far as material).
“Third Party Policy
“The insured having applied to the company for insurance, the company undertakes to provide such insurance as hereinafter set out, subject to the terms (which expression shall include the general conditions and exclusions declared to be incorporated herein) of this policy.
The company will indemnify the insured against all sums which the insured shall become liable to pay in their capacity as Harbour Authority for Sunderland as compensation for–
(a) accidental and bodily injury or illness…and/or
(b) accidental loss of or damage caused to property not belonging to nor hired leased or loaned to the insured.
Provided that such injury illness loss or damage is caused by any act of commission or omission negligence or error of judgment by the insured or their servants or employees or other persons for whose acts the insured may be responsible or by any latent deficiency in cranes equipment or port installations or through the failure or omission of the insured or their servants and others for whom they are responsible to properly light or buoy or remove any wreck or obstruction in the waters over which they exercise control or keep channels and approaches properly dredged lighted and buoyed and the waters adjacent to wharves piers quays and berths free of obstructions or through the omission to give appropriate warnings to shipping of any abnormal hazards or in any consequence of any breach...
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