Noble Assurance Company v Gerling-Konzern Genereal Insurance Company (UK)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Toulson |
| Judgment Date | 22 February 2007 |
| Neutral Citation | [2007] EWHC 253 (Comm) |
| Docket Number | Case No: 2006 FOLIO 1156 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 22 February 2007 |
[2007] EWHC 253 (Comm)
Lord Justice Toulson
Case No: 2006 FOLIO 1156
IN THE HIGH COURT OF JUSTICE
QUEEN's BENCH DIVISION
COMMERCIAL COURT
Richard Jacobs QC, David Foxton QC and Stephen Houseman (instructed by Fulbright & Jaworski International LLP) for the Claimants
John Lockey QC (instructed by Kennedys) for the Defendant
Hearing date: 11, 12 December 2006
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.
The Application
On 9 November 2006 I granted a temporary injunction to the claimants, on a without notice application, to restrain the defendant from taking further steps to prosecute proceedings begun against the claimants in the United States District Court for the District of Vermont. The claimants seek the continuation of that order; the defendant opposes the application and says that the order ought not to have been granted.
The parties
The first claimant (“Noble”) is a subsidiary of the second claimant (“Shell”) and is its captive insurer. Noble's principal place of business is in Vermont. Shell is a Delaware corporation with its principal place of business in Wilmington, Delaware.
The defendant (“Gerling”) is an international reinsurance company with a UK branch which has its principal place of business in London.
The Noble/Shell Policy
For the period between 1 July 1997 and 1 July 2000, Noble issued a policy of insurance number NB-GL-9707–015–01 (“the Noble Shell Policy”) which provided coverage for various entities beyond Shell itself. The coverage included a number of wholly or partly owned limited liability entities (or “LLEs”).
The policy provided cover against liability for events, exposure to conditions or use of the insured's products, causing personal injury or property damage.
Clause 5 (o) provided:
“Arbitration
Any dispute under this Policy shall be finally and fully determined in London, England under the provisions of the English Arbitration Act of 1950, as amended and supplemented …”
It is common ground that this should be construed as a reference to the Arbitration Act 1996.
Clause 5 (q) provided:
“Governing Law and Interpretation
This Policy shall be governed by and construed in accordance with the internal laws of the State of New York, except in so far as such laws may prohibit payment in respect of punitive damages hereunder and except in so far as such laws pertain to regulation by the Insurance Department of the State of New York of insurers doing business or issuance or delivery of policies of insurance within the State of New York; provided, however, that the provisions, stipulations, exclusions and conditions of this Policy are to be construed in an even handed fashion as between the Insured and the Company; without limitation, where the language of the Policy is deemed to be ambiguous or otherwise unclear, the issues shall be resolved in the manner most consistent with the relevant provisions, stipulations, exclusions and conditions (without regard to authorship of the language, without any presumption or arbitrary interpretation or construction in favour of either the Insured or the Company and without reference to parol evidence).”
The Gerling Contract
Gerling provided Noble with a $50 million layer of reinsurance, subject to an excess of $100 million, under a contract of reinsurance number 509/DL210497 (“the Gerling Contract”). Gerling originally participated as a direct excess insurer of Shell, but the contract was converted into a reinsurance policy by endorsement number 6 which provided:
“Quota Share Reinsurance and claims control (QSRCC)
It is hereby understood and agreed that this Policy is amended from a direct insurance and shall operate as a 100% quota share reinsurance of Noble Assurance Co.
Notwithstanding the above, all provisions of the underlying Policy, including Conditions relating to Notice of Occurrence and Claim …. shall apply to this Policy as though this Policy was a direct insurance”.
Endorsement 10 also stated that:
“The insurance provided by this Policy shall follow all the terms and conditions of Underlying Umbrella Policy number NB-GL-9707–015–01 issued by Noble Assurance Company.”
Equilon and OPL
On 15 January 1998 Shell and Texaco formed a joint venture known as Equilon Enterprises LLC (“Equilon”) to amalgamate their down stream assets in the western United States. Shell owned a 56% stake in Equilon. One of Texaco's assets, held through a subsidiary, was a 37.45% equity interest in Olympic Pipeline Company (“OPL”). OPL owned a pipeline that transported gasoline products about 400 miles from a refinery north of Seattle (owned by Atlantic Richfield Company or “ARCO”) to Portland, Oregon. Texaco's interest in OPL was transferred to Equilon on 1 April 1999.
The Noble Shell Policy had two endorsements relating to LLEs, endorsement 12 headed “Limited Liability Endorsement – General” and endorsement 13 headed “Limited Liability Endorsement – Specific”.
Endorsement 13 provided:
“In consideration of the premium charged, it is understood that the following Limited Liability Endorsement shall form part of this Policy NB-GL-9707–015–01.
1. Each entity listed below and each Subsidiary thereof shall be an Insured under the Policy subject to the limits, retentions, terms, conditions and exclusions in the Policy and set forth below.
…
3. Any LLE in which the Named Insured after 1 January 1998 acquires more than 5% or less than 100% of the equity and to whom the reinsured hereon issues a Policy which is not otherwise an insured and which does not meet the criteria set forth in paragraph 2 above shall be an Insured under the Policy provided that ….”
The LLEs listed in the endorsement included Equilon.
The Gerling Contract contained substantially reciprocal endorsements. These were originally endorsements 11 and 12, but they were replaced by endorsements 17 and 18 prior to the events giving rise to the dispute. Gerling endorsement 17 mirrored Noble Shell endorsement 12, and Gerling endorsement 18 mirrored Noble Shell endorsement 13.
The Accident
On 10 June 1999 there was a rupture of the pipeline owned by OPL near Whatcom Creek in Bellingham, Washington, with a resulting fire and explosion. ARCO claimed against its business interruption insurers for $500 million. After settlement of the claim, ARCO and its insurers joined in claiming against Equilon and OPL. Equilon agreed to settle for $200 million. OPL was bankrupt and paid nothing.
Equilon's coverage under the Noble Shell Policy was limited to 56% of the sum insured, being the same proportion as Shell's stake in Equilon. So Noble agreed to pay $112 million and claimed from Gerling 56% of the sum reinsured under the Gerling Contract, amounting to $28 million. Gerling refused to pay the full amount but paid $14 million. It argued that it had provided reinsurance in respect of Equilon but not OPL, and that Equilon and OPL were each severally liable for 50% of the underlying claims compromised in the ARCO settlement. Gerling paid $14 million direct to Shell on or about 24 January 2005.
Meanwhile on 5 October 2000, i.e. 15 months after the accident, Noble issued to Equilon a Certificate Policy, number NB- SP-9808–032–01, providing cover for the period from 1 January 1999 to 31 December 1999.
The arbitration
While the settlement negotiations with ARCO were proceeding, on 4 January 2005 Noble and Gerling entered into a written agreement headed “Agreement to Arbitrate Dispute” (“AAD”).
Clause 1 recited various matters, including the following:
“d. ARCO and its insurers brought a law suit against Equilon and OPL in the United States District Court for the western district of Washington seeking to recover alleged losses of approximately $500 million…
e. The plaintiffs and Equilon have entered into settlement negotiations with the purpose of settling, if possible, the litigation.
f. Noble believes that the Gerling contract fully reinsures, and provides 100% coverage for, that proportion of the prospective settlement that Noble would pay in the layer between $100 million and $150 million… In Noble's view, Gerling's contribution to the settlement of the litigation should be its full layer, $28 million (56% of $50 million).
g. Gerling disputes Noble's position and maintains that OPL is not a covered entity under the Gerling contract, and, therefore, it is required only to pay its share of that portion of the settlement that can apportioned to the liability of Equilon.
h. Both Noble and Gerling desire the settlement of the litigation to go forward, and to preserve for arbitration their dispute as to whether Gerling must reimburse Noble its full layer of $28million.”
By clause 3 the parties agreed, among other things, as follows:
“a. If the litigation settles, upon conclusion of the settlement, Noble shall contribute 50%, up to $14 million for the layer comprising Gerling's layer of $28 million and Gerling shall contribute 50%, up to $14 million.
b. Neither party shall be deemed a volunteer or in any other manner to be waiving its right to litigate or arbitrate the issue of whether Noble is entitled to full reimbursement of the Gerling layer of $28 million.
c. The parties shall promptly submit this dispute to arbitration in accordance with section V, paragraph (o) of the...
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