Re Sovereign Marine and General Insurance Company Ltd and other companies

JurisdictionEngland & Wales
CourtChancery Division
JudgeMR JUSTICE WARREN,Mr Justice Warren
Judgment Date12 July 2007
Neutral Citation[2006] EWHC 1335 (Ch),[2007] EWHC 1781 (Ch)
Docket NumberCase No: 1611, 1618, 1621, 1622, 1624, 1626, 1628, 1629, 1630, 1632, 1633, 1635, 1647 and 1648 of 2006,Claim Nos. 1611,1618,1621-1622,1624-1626,1628-1630,1632-1635,1647 and 1648 of 2006
Date12 July 2007

[2006] EWHC 1335 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Mr Justice Warren

Claim Nos. 1611,1618,1621-1622,1624-1626,1628-1630,1632-1635,1647 and 1648 of 2006

In The Matters Of(1)Sovereign Marine & General Insurance Company Limited
(2) Allianz Cornhill Insurance Plc
(3) Allianz Marine & Aviation (france) (a Company Incorporated In France)
(4) Atlantic Mutual Insurance Company (a Company Incorporated In The State Of New York)
(5) Continental Reinsurance Corporation International Limited (a Company Incorporated In Bermuda)
(6) Greyfriars Insurance Company Limited
(7) Heddington Insurance (u.k.) Limited
(8) Hibernian General Insurance Company Limited (a Company Incorporated In Ireland)
(9) Mitsui Sumitomo Insurance Company (europe) Limited
(10) The Ocean Marine Insurance Company Limited
(11) Oslo Reinsurance Company (uk) Limited
(12) Sovereign Insurance (uk) Limited
(13) Sphere Drake Insurance Limited
(14) The Sea Insurance Company Limited
(15) Tokio Marine Europe Insurance Limited
(16) Wausau Insurance Company (u.k.) Limited (the Scheme Companies)
and
In The Matter Of The Companies Act 1985

Mr Gabriel Moss QC, Mr Jeremy Goldring, and Mr Daniel Bayfield (instructed by Sidley Austin) for the Applicant Companies Nos. 2,3,4,5,7,8,9,10,11,13,14,15, and 16.

Mr Richard Snowden QC (instructed by Lovells) for the Applicant Companies Nos.1,6 and 12.

Mr Richard Sheldon Q C and Miss Hilary Stonefrost (instructed by Covington and Burling for the Opposing Creditors)

Hearing dates: 27th,28th of April and 2nd, 3rd, 4th, and 5th May 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.

MR JUSTICE WARREN Mr Justice Warren

Introduction

1

I have before me applications by 16 insurance companies ("the Scheme Companies") for, in the case of each Scheme Company, an order convening a meeting of creditors to consider, and if thought fit, to approve a scheme of arrangement pursuant to section 425 Companies Act 1985 ("section 425" and "CA 1985").

2

The first applicant, Sovereign Marine & General Insurance Company Limited ("Sovereign") is insolvent and already subject to a scheme ("the Original Sovereign Scheme") under section 425. All the other Scheme Companies are solvent. Two of them, Greyfriars Insurance Company Limited and Sovereign Insurance (UK) Limited ("the Sovereign Subsidiaries"), are wholly owned subsidiaries of Sovereign. Two of them, Allianz Marine & Aviation (France) ("Allianz Marine") and Hibernian General Insurance Company Limited ("Hibernian"), are incorporated and regulated in, respectively, France and Ireland. Two others, Atlantic Mutual Insurance Company ("Atlantic") and Continental Reinsurance Corporation International Limited ("Continental"), are incorporated and regulated in, respectively, New York and Bermuda. Richard Snowden QC appears for Sovereign and the Sovereign Subsidiaries. Gabriel Moss QC, Jeremy Goldring and Daniel Bayfield appear for the other Scheme Companies ("the Solvent Companies"). Richard Sheldon QC and Hilary Stonefrost appear for a number of objectors ("the Opposing Creditors") which I will identify later.

3

Sovereign is a wholly owned subsidiary of the Willis group. Until 1991, all of the Scheme Companies underwrote insurance and reinsurance business in pooling arrangements ("the WFUM Pools") through underwriting agents in the Willis group called Wills Faber (Underwriting Management) Limited ("WFUM"), Devonport Underwriting Agency Limited ("DUAL") and Willis Faber & Dumas Limited ("WF&D"). In 1991, they ceased accepting new WFUM Pools business and went into run-off. Since 1998, the run-off has been administered by PRO Insurance Solutions Limited ("PRO").

4

In 1997, Sovereign was placed into provisional liquidation on the ground of insolvency. The Original Sovereign Scheme, which is a "run-off" scheme, was sanctioned in 2000. The run-off of the WFUM Pools has continued to be conducted on a unified basis. Sovereign's Scheme Administrators now wish to close its run-off by entering into a "cut-off" scheme. The terms of the schemes for each Scheme Company are found in the current draft of a comprehensive scheme document ("the Scheme Document"). The Scheme contained in Part II of the Scheme Document encompasses the separate schemes (a "Scheme") for each of the Scheme Companies. The Scheme for each Scheme Company is, technically, a separate scheme and is capable of separate approval and sanction: the Schemes are not inter-dependent although they are conceived as a whole.

5

The proposed "cut-off" Scheme for Sovereign ("the Amended Sovereign Scheme") is an estimation scheme dealing with all of Sovereign's liabilities. The Schemes for the Sovereign Subsidiaries are estimation schemes which will deal with all of their insurance (and other) liabilities. The Schemes for the Solvent Companies are estimation schemes for those companies' liabilities which arise out of the WFUM Pools business other than any UK compulsory liability insurance.

6

The Scheme Document contains in Schedule 1 a history of the WFUM Pools and a description of the business included in the schemes ("the Explanatory Statement") which explains that approximately 50% of the liabilities of the WFUM Pools are liabilities of Sovereign or the Sovereign Subsidiaries and approximately 95% of Sovereign's liabilities and those of the Sovereign Subsidiaries arise out of WFUM Pools business. The Scheme Companies contend that, if there were to be a fragmentation in the administration of the WFUM Pools, there would be many difficulties for policyholders, reinsurers and the Scheme Companies, including the duplication of effort and increased costs to all parties. This is one important factor on which the Solvent Companies will rely in promoting their own Schemes given the promotion by Sovereign and the Sovereign Subsidiaries of the Amended Sovereign Scheme and their own Schemes.

7

Sovereign's application to convene a single meeting of its scheme creditors is not opposed. Similar applications by the Sovereign Subsidiaries were initially opposed but that opposition was withdrawn in the course of the hearing. However, the Solvent Companies, in seeking the summoning of a single class meeting of the scheme creditors of each of the Solvent Companies, are opposed by the Opposing Creditors which are a number of insureds in the WFUM Pools. There are 13 Opposing Creditors: Goodrich Corporation ("Goodrich", a leading manufacturer of tyre and rubber products for most of the last century which divested itself of this business to become one of the world's largest aviation component companies) and three of its corporate affiliates, Textron Inc ("Textron") and six of its corporate affiliates (US industrial manufacturers), Sears Holdings Corporation ("Sears", a leading US retailer) and Exxon Mobil Corporation (a US oil company) each of which has purchased policies known as "occurrence" policies. These policies provide broad prospective coverage against claims relating to the risks covered by the policies (which include asbestos, pollution and health hazard liabilities) if the underlying act or omission that gives rise to the claim happened during the relevant policy period. These claims (known as long tail claims) typically arise and are asserted years or even decades after the claimant's latent exposure to the allegedly hazardous substance. There are other creditors who have communicated their objections to the Scheme Companies or their solicitors but which do not appear before me. Their objections do not raise any issues which have not been fully aired before me.

8

There are two main areas of objection. The first objection is jurisdictional and relates to the position of Allianz Marine and Hibernian. Mr Sheldon submits that the English court has no jurisdiction to sanction a scheme in relation to them and that class meetings should not, therefore, be convened at all. The second is that a single class meeting for each of the Solvent Companies would not be proper; Mr Sheldon submits that there are at least two, and possibly more, classes which are entitled to separate class meetings. Before dealing, in that order, with the objections, I need to deal with the nature of the WFUM Pools business and with some, at least, of the provisions of the proposed Schemes.

The WFUM Pools business

9

The WFUM Pools give rise, as Mr Moss says, to complex inter-relationships between the participants in the underwriting arrangements, policyholders and reinsurers. The history is set out at some length in the Explanatory Statement. The important points are as follows (which I gratefully adopt from the opening written submissions on behalf of the Scheme Companies).

a. Sovereign was incorporated in 1880 and in 1900 it was licensed to undertake general, property, marine, personal and employers' indemnity insurance and reinsurance business. From 1933, Sovereign underwrote principally marine insurance and reinsurance business. In 1954, it began writing aviation insurance and reinsurance business.

b. WF&D (from 1920), its wholly-owned subsidiary WFUM (from 1972) and its affiliate DUAL (from 1982 to 1985) acted as underwriting agents for Sovereign and other insurance companies which together participated in the WFUM Pools.

c. Poor results for the WFUM Pools and, in particular, Sovereign, led the WFUM Pools to cease underwriting in 1991. Sovereign ceased underwriting entirely from 31 December 1991.

d. On 11 July 1997, Sovereign's directors presented a winding up petition on the ground of insolvency and provisional liquidators were appointeThe Original Sovereign Scheme became effective on 5 January 2000. As at 31 December 2005, Sovereign had made scheme payments of about $42...

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