North Atlantic Insurance Company Ltd v Nationwide General Insurance Company Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Cooke |
| Judgment Date | 13 March 2003 |
| Neutral Citation | [2003] EWHC 449 (Comm) |
| Docket Number | Case No: 2002/570 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 13 March 2003 |
[2003] EWHC 449 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mu Justice Cooke
Case No: 2002/570
Mr M Crane QC and Mr L Tamlyn (instructed by Richards Butler) for the Claimant.
Mr D Mildon QC and Mr G Davis (instructed by Charles Russell) for the Defendant No. 1. The Second Defendant did not appeal and was not represented.
Mr J Hirst QC and Mr N Calver (instructed by Barlow Lyde & Gilbert) for Defendant No. 3
Mr A Zacaroli (instructed by Mayer Brown Rowe & Maw LLP) for Defendant No. 4
Hearing dates : 3rd March-6th March 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.
The Honourable Mr Justice Cooke
Introduction
In this matter a number of insurance companies seek direction fro the Court in relation to their participation in an underwriting Pool, known as the Rutty Pool, operated by ME Rutty Underwriting Agency in London ("the Rutty Agency"). Maurice Rutty was the driving force of the underwriting agency which operated from 1 st August 1962 until 31 st December 1967. During that period all the current parties to the action participated in the Pool as did FAI Insurances Ltd which is in liquidation but has agreed to be bound by the decisions made in this action. Two of the existing parties are also the subject of formal insolvency proceedings namely the Claimant (NAIC) which is in provisional liquidation and the Fourth Defendant (AFG), which is in administration Australia. Both were represented at he hearing and adopted essentially similar arguments. Of the solvent Pool members, the First and Third defendants "Nationwide" and "Wustenrot" were separately represented. The Second Defendants did not appear but also agreed to be bound by the result. The disputes which have arisen are essentially concerned with the effect of the insolvency of one or more of the Pool members in the context of the re-insurance protections obtained by the Rutty Agency for members of the Rutty Pool.
The affairs of NAIC were always linked with those of the Rutty Agency. Mr Rutty himself used to work for NAIC as an underwriter until 1962, before leaving to set up the rutty Agency, NAIC was a member of the Rutty Pool and when that Pool ceased writing business, the rutty Agency continued to write business for NAIC until 1979. In that year NAIC purchased the shares in the Rutty Agency, took on several of its key employees and handled the run-off of NAIC's liabilities and those of the Rutty Pool. The authority of the Rutty Agency to act on behalf of the Pool members in respect of the 1962 to 1966 years was cancelled in May 1996 and the authority to act for the 1967 year was cancelled in July 1997. The Rutty Agency company was dissolved in 2000.
The Agency Agreements
Each of the Pool members entered into an Agency agreement with the Rutty Agency in essentially similar terms, covering various years between 1962 and 1967 in which they participated. There was one form of agreement for the years up to 1966 (the First Agency Agreement), with various addenda, save that Nationwide's agreement took a slightly different form, as appears later in this judgment. Nationwide was a member of the Pool between 1962 and 1966 alone, whereas the others signed a further agency agreement in 1967 (the Second Agency Agreement), which superseded their prior agreement in respect of the 1966 year and operated for the 1967 year also. It will be apparent from the existence of this dispute that the business underwritten by the Rutty Agency was long tail in nature.
The First Agency Agreement made between the Rutty Agency and the members of the Pool, covering period between 1 st August 1962 and 31 st December 1996 was the subject of additional addenda. The NAIC Agency Agreement, made on the 1 st August 1962, which can be used for illustrative purposes, included the following terms:-
"Whereas the Agency has been incorporated in order to carry on the business of an underwriting agency .. and it has been agreed that it should enter into agreements with the Company and with the other Companies listed in the First Schedule hereto in the terms of this Agreement."
"2. The Company hereby authorises the Agency to underwrite any Risk whatsoever on its behalf for an amount not exceeding 25% of the limits set out in the Second Schedule hereto and the Company binds itself to accept liability for its share of each risk accepted on its behalf…"
"4. The Agency may at is absolute discretion reinsure the whole or part of any Risks and/or Insurances such as reinsurances being effected for the common account of the Participating Companies and the Company shall bear its proportionate part of the premium paid and expenses incurred in respect of such reinsurances".
The Participating Companies were defined as those companies listed in the first schedule to the Agreement which set out the names of the Pool members with their respective participations, each as an "initial fixed quota share".
The First Agency Agreement went on to set out a system of accounting. All premium received in respect of risks written was to be credited to the Participating Companies after deduction of allowances, taxes and charges and quarterly accounts were to be rendered. "Payment of the balance of such account". In those quarterly accounts, the Pool members were to be debited with 80% of the premiums received which were to be put into a Premium Reserve Fund which was first to be applied in meeting losses and balances and otherwise retained by the Rutty Agency for three years, (during which period the sums could be invested in any investment authorised by law for investment of trust monies), and only remitted to the Pool members one month after the expiry of the third year after making provision for outstanding losses. Income earned on the investments of the Fund was to be paid by the Rutty Agency to the Pool members annually. The Rutty Agency had the right to settle losses and all settlements made by it were to be unconditionally binding on the Pool members. It had the right to take proceedings on behalf of the Pool members also. There were provisions for commission to be payable to the Rutty Agency in accordance with a formula set out which referred to "net premiums less expenses in connection with reinsurance for joint agency account" and "net premiums less expenses in connection with reinsurance for joint agency account" and "claims paid less refunds and recoveries under reinsurance for joint agency account". The Agency Agreement was terminable on 6 months notice or on lesser notice in certain specified circumstances.
Clause 15 of the Agency Agreement provided as follows:-
"15. In the event of the Company going into liquidation becoming insolvent suspending payment entering into any arrangement with its creditors ceasing to carry on business or having a Receiver appointed or making any default hereunder or of notice being given in accordance with Clause 11 to terminate this Agreement no further payments under this Agreement or out of the Premium Reserve Fund shall be made by the Agency to the Company. All sums due or which may thereafter become due from the Agency to the Company shall be retained and held in Trust for the purposes herein mentioned. Thereafter any sums payable by the Company to the Agency in respect of losses or returns of premiums or otherwise shall be debited against and paid out of the Premium Reserve Fund and the balance (if any) of such Fund shall not be paid over to the Company until all its liabilities under this agreement shall have been ascertained and satisfied. In the event of the Premium Reserve Fund proving insufficient to satisfy all such liabilities the amount remaining unsatisfied shall be paid by the Company to the Agency forthwith.
Furthermore it is hereby agreed (in additional to the above provisions and without limiting same) that if and so far as may be necessary to secure the Agency in the event of liquidation either voluntary or compulsory of the Company the Agency have prior charge and lien on the said Premium Reserve Fund and also upon any further money with which the Company may be entitled to be credited under the present Agreement and the Agency shall be secured creditors to that extent."
By Addendum number 1 signed by NAIC in October 1962, Clause 4 of the first Agency Agreement was amended to take the following form:-
"4(a). The Agency may at its absolute discretion reinsure the whole or part of any Risks and/or Insurances such reinsurances being effected for t common account of the Participating Companies and the Company shall bear its proportionate part of the premium paid and expenses incurred in respect of such reinsurances.
(b) It is understood and agreed that the Agency may at its absolute discretion underwrite Risks and/or Insurances in the names of two or more of the Participating Companies where it is deemed to be in the best interests of the Participating Companies so to do. Provided always that the Agency shall effect the necessary apportionment of premium in respect of such risks and/or insurances over all companies in accordance with the proportions listed in the first schedule and that each Company shall bear its proportion in accordance with the First schedule of any loss or losses arising on such risks and/or insurances."
By a later addendum the definition of "net premium" which was to be put into the Premium Reserve Account was defined as the...
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