Municipal Mutual Insurance Ltd v Sea Insurance Company Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Waller J. |
| Judgment Date | 17 April 1996 |
| Date | 17 April 1996 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court)
Waller J.
Alexander Layton QC and Timothy Lord (instructed by L Watmore & Co) for the plaintiff insurers.
Stephen Tomlinson QC and David Bailey (instructed by Alsop Wilkinson) for the defendant reinsurers.
The following cases were referred to in the judgment:
Axa Reinsurance (UK) Ltd v Field[1996] CLC 1,169.
Caudle v Sharp[1995] CLC 642.
Cox v Bankside Members Agency Ltd[1995] CLC 180.
Forsikringsaktieselskapet Vesta v ButcherELR[1989] AC 852.
Hill v Mercantile & General Reinsurance Co plc[1994] CLC 828.
Thorman v New Hampshire Insurance Co (UK) LtdUNK[1988] 1 Ll Rep 7.
Reinsurance third Party Policy indemnity For Compensation Payable To Third Parties For Loss Or Damage To Property Of Third Party Caused By Negligence Of Insured underlying Insurance Policy Renewed Annually reinsurance Contracts as Underlying Placed Annually With Different Reinsurers Or With The Same Reinsurers But Different Percentages insured Compensated Third Party For Damage To Thirdparty's Property Caused By Vandalism Over Period Of Time insurers Paid Insured's Claim After Judgment For Third Party Against Insured insurers Regarded Third Party Claim As Single Loss insurers Failed To Agree With Insured Relevant Policy Year whether Reinsurers Bound By Settlement whether Single Loss Or Series Of Losses whether Single Deductible Applied whether Reinsurance Policies Indemnified Loss Extending Over More Than One Policy Year whether Right Of Contribution Between Reinsurers.
This was an action to recover from reinsurers monies paid as insurers to their insured.
For many years the plaintiff insurers insured the Port of Sunderland Authority (the insured) under a third party policy. The cover included an indemnity for sums up to 5m to which the insured became legally liable to pay in their capacity as harbour authority as compensation for accidental loss of or damage caused to property not belonging tothe insured which was caused by negligence by [the insured] or their servants or employees. The plaintiffs reinsured their liability to the insured, the reinsurance contracts, expressed to be as underlying, being annual contracts either with different reinsurers or reinsurers with different percentages.
A third party made a claim against the insured in respect of compensation for loss or damage caused by vandalism over a period of time to the third party's property. With the plaintiffs approval the insured repudiated liability. The third party brought an action against the insured. The trial judge held that most of the vandalism probably took place between March 1987 and September 1988, and that the insured had been negligent. Judgment was given for the third party for compensation in respect of all occurrences of a series consequent to one original cause, a sum of 1,765,000 plus interest and costs. The plaintiffs paid the insured a total of 3,159,401.56 in respect of the claim.
The plaintiffs sought to recover a proportion of their outlay against the reinsurers for the years 1986-87,1987-88 and 1988-89. The plaintiffs regarded the third party claim as a single loss flowing from [the] insured's failure to exercise proper supervision. The reinsurers denied liability on the grounds that the losses did not occur during the relevant policy years, or the occurrences were individual events to which a deductible under the underlying policy should have been applied and the deductible or excess under the reinsurance applied. The reinsurers further contended that the plaintiffs could not show into which period of reinsurance the claim fell and therefore the claim failed. The plaintiffs contended that the underlying policy was a continuous one covering a number of years.
Held, giving judgment for the plaintiffs in part:
1. In the context of reinsurance the starting point for any potential liability was to consider whether the relevant event giving rise to an obligation to indemnify occurred within the relevant period covered by the reinsurance under which liability was claimed.
2. For the obligation to indemnify to arise the loss or damage to property had to be caused during the policy period. Once an insured became legally liable to pay compensation he should be entitled to recover under the policy on being able to show that the loss or damage arose during the relevant period of the policy.
3. Since the policy provided for the compensation for legal liability, and the trial judge ordered the insured to pay to the third party claimant compensation in respect of all occurrences of a series consequent to one original cause, that constituted one claim to which the aggregation clause would apply. For those policy years when a deductible applied, one deductible was to be applied to the total compensation payable by the insured. Legal liability could not in those circumstances be split between the individual acts of vandalism.
4. The plaintiffs had failed to agree with the insured the relevant year of the claim. Had they reached such an agreement the reinsurers would have been bound to follow the settlement. In the absence of a payment attributed to a particular year there was no settlement binding on the reinsurers. (Hill v Mercantile & General Reinsurance Co plc[1994] CLC 828 applied).
5. The reinsurance policies covered the same period as the underlying insurance on terms expressed to be as underlying. Although the policies did not expressly provide for the eventuality that if a policy expired while a loss arising from one event was in progress the insurers would indemnify against the entire loss, the reinsurance covered loss or damage to the property of a third party occurring during the period of the reinsurance. If reinsurers for two relevant years were to become liable for the same loss, there would be a right of contribution as between those liable
6. On the findings of the trial judge loss was established in the policy year 1987-88 but there was insufficient evidence of loss in either of the policy years 1986-87 or 1988-89. The plaintiffs were therefore entitled to recover from the reinsurers that part of the claim which was made in relation to the policy year 1987-88.
Waller J:
In this action the plaintiff (Municipal) seeks to recover from reinsurers what it claims to be the reinsured part of the sum of 3,159,401.56 paid by Municipal to its insured, the Port of Sunderland Authority (Sunderland). Municipal seeks to recover a proportion of its outlay against the reinsurers on each of the slips for the years 1986-87, 1987-88 and 1988-89. What is alleged by Municipal is that they were liable to indemnify Sunderland primarily for compensation paid by Sunderland to a third party, Concorde Coal Company Inc (Concorde) in respect of loss or damage to Concorde's property (which they assert occurred over the period March 1987 to September 1989), and secondarily for costs Sunderland were ordered to pay Concorde or incurred themselves relating to litigation between Sunderland and Concorde. Municipal assert against the reinsurers on the three years that they should be entitled to recover a proportion of their outlay under each of the reinsurances on a time on risk basis.
The basic points taken by all the reinsurers are first that they are only bound to respond to losses occurring during the relevant policy year, and that since liability under the underlying policy was only established in 1992, Municipal's claim falls outside all the policies sued on; second, in the alternative that if the liability of Sunderland related to occurrences during the period March 1987 to September 1989, those occurrences were individual events giving rise to a right of indemnity to which (a) the deductible under the underlying policy should have been applied and/or (b) the deductible or excess under the reinsurance would apply, leading to Municipal being unable to establish claims on the reinsurance; and in the further alternative, if the claim should be construed as one claim, the reinsurers argue that Municipal cannot show into which period of the reinsurance the claim falls, and must therefore fail against all; and the reinsurers finally take points on conditions which they assert were incorporated into the reinsurance policies in relation to the giving of notice to the reinsurers and the reinsurers' liability for costs.
For many years Municipal had insured Sunderland under a third party policy which had been amended from time to time by endorsements. The underlying policy had been renewed for successive periods of insurance and was in force at all material times. By the underlying policy the plaintiff agreed to indemnify Sunderland:
against all sums which the insured shall become legally liable to payas compensation for:
(b) accidental loss of or damage caused to property not belonging to nor hired leased or loaned to the insured
PROVIDED THAT suchloss 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 responsibleor in consequence of any breach of duty whatsoever and arises during any period of insurance under this policy.
The policy provided for a limit of indemnity of:
(a) [5,000,000] in respect of all compensation payable to any claimant or any number of claimants in respect of or arising out of any one occurrence or in respect of or arising out of all occurrences of a series consequent on or attributable to one source or original cause
(b) /Unlimited in respect of any one period of insurance.
(The limit of 5,000,000 was set by an endorsement which took effect on 27 October 1983 [C/17]).
The policy also provided that the plaintiff would:
pay all costs incurred with its written consent in defending any claim or claims and also any costs awarded against the Insured in any proceedings solely for the recovery of...
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