Skandia International Corporation v NRG Victory Reinsurance Ltd Commercial Union Assurance Company Plc v NRG Victory Reinsurance Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Woolf Mr,Potter1,May L JJ. |
| Judgment Date | 16 March 1998 |
| Court | Court of Appeal (Civil Division) |
| Date | 16 March 1998 |
Court of Appeal (Civil Division).
Lord Woolf Mr, Potter1 and May L JJ.
Jonathan Sumption QC and George Leggatt QC (instructed by Clifford Chance) for the reinsurers.
Dominic Kendrick QC and Andrew Wales (instructed by Clyde & Co) for the insurers.
The following cases were referred to in the judgment of Potter LJ:
British Dominions General Insurance Co Ltd v DuderELR [1915] 2 KB 394.
Charter Reinsurance Co Ltd v Fagan [1996] CLC 977; [1997] AC 313.
Forsikringsakteieselskabet National of Copenhagen v Attorney GeneralELR [1925] AC 639.
Hill v Mercantile and General Reinsurance Co plc [1996] CLC 1247; [1996] 1 WLR 1239.
Insurance Company of Africa v Scor (UK) Reinsurance Co LtdUNK [1985] 1 Ll Rep 312 (CA).
London County Commercial Reinsurance Office Ltd, ReELR [1922] 2 Ch 67.
Toomey v Eagle Star Insurance Co LtdUNK [1994] 1 Ll Rep 516.
Reinsurance — Insurers settled claims in Texas following judgment against them — Whether insurers entitled to recover settlement sums from reinsurers — Whether insurers could show that settlements were within terms of original policies.
This was an appeal by reinsurers (“NRG”) from a judgment of Clarke J ([1997] CLC 1561) giving summary judgment against them in favour of plaintiff insurers for sums claimed under excess of loss reinsurance contracts made with NRG.
The plaintiffs insured Exxon under a general corporate excess (GCE) insurance policy. After the Exxon Valdez oil spill Exxon claimed for the clean-up costs under both s. 1 and 3 of the GCE policy so as to be able to exceed the limits of indemnity under either section, notwithstanding policy wording which on its face prevented recovery of s. 3 losses under s. 1. The insurers settled the s. 1 claim on the basis of advice as to the likely outcome of proceedings before a Texas jury despite the insurers' case on the policy wording. Exxon's claim under s. 3A of the policy was excluded from the settlement and when it came to trail in Texas it succeeded. The insurers appealed but later compromised that appeal. The insurers claimed the sums paid under the first settlement agreement from reinsurers under excess of loss treaties on the XL market standard form. The reinsurances contained follow the settlements clauses in the form of the “aviation settlements clause 1987” providing that settlements should be binding on reinsurers providing such settlements were within the terms and conditions of the original policies. Clarke J gave summary judgment in favour of the insurers for the settlement sums, on the basis that they had proved that they would have been held liable under the GCE policy by a court of competent jurisdiction (the Texas court) and thereby established the necessary liability under the original policy. The reinsurers appealed.
Held, allowing the appeal:
1. The judge was right that if the Texas court as a court of competent jurisdiction had given judgment for Exxon despite the insurers having advanced all reasonable defences, the insurers would have established their liability under the original policy for the purposes of indemnity by the reinsurers under the reinsurances, and NRG would have had no arguable defence for O. 14 purposes that the insurers were not liable to Exxon.
2. The judge was wrong in the absence of a judgment of the Texas court to rely on evidence of what the outcome of a trial in Texas would have been. In the absence of such a judgment it was for the judge to form his own view of whether or not an arguable defence had been shown by the reinsurers that the insurers were not liable to Exxon under s. 1 of the GCE policy according to the applicable law and rules of construction. Had the judge embarked on the question whether the insurers were liable to Exxon under s. 1 he could not have failed to find that there were strong arguments that they were not. The follow the settlements clauses required the insurers to demonstrate actual legal liability under the GCE policy and the judge was wrong to treat the evidence as to the likely outcome in the Texas court as equivalent to an actual verdict. There was evidence before the judge which obliged him to assume that under English law NRG would have an arguable defence that the plaintiffs were not liable to Exxon under s. 1 of the GCE policy. He should not have relied on evidence which predicted that the outcome of the Texas proceedings would not be arrived at according to law.
Potter LJ:
In this appeal the defendant/appellant reinsurers (“NRG”) appeal against the judgment of Clarke J delivered in the Commercial Court on 1 August 1997 ([1997] CLC 1561) whereby he gave summary judgment in favour of the plaintiffs under RSC, O. 14 in two actions (“the Commercial Union action” and “the Skandia action”) in which the plaintiffs claimed for sums alleged to be due under 16 excess of loss reinsurance contracts made with NRG.
The background facts are that on 24 March 1989 the tanker Exxon Valdez ran aground in Prince William Sound, Alaska, thereby causing a major spillage of oil which led to heavy environmental damage and necessitated a huge clean-up operation. The tanker's owners, Exxon Shipping Co, had protection and indemnity cover in respect of their liability for spillage of $400m in excess of US$210m and recovered the full amount insured from their P & I club. The owners of the cargo of oil were the parent company of the ship owners, Exxon Corporation (“Exxon”). Exxon made claims under a general corporate excess insurance policy (“the GCE policy”). The plaintiffs were among the insurers who subscribed to the GCE policy. It was placed through brokers in the London market and comprised a Lloyd's policy, a UK companies' policy and a policy led in the Scandinavian market, all in materially identical terms. The plaintiffs in the Commercial Union action subscribed to the UK companies' policy and the plaintiffs in the Skandia action subscribed to Scandinavian-led policy; however, no further distinction need be drawn between them.
The addendum to the GCE policy described the interests insured as:
“Section one
Property of the Assured or property held in trust for others for which they have responsibility or elect to insure (including but not limited to Hulls and Machinery, Cargo Drilling Rigs Offshore Platforms Pipe Lines Construction Risks and Onshore Property of every description) including Costs of Control, Removal of debris and/or Residual Structure and Liabilities and Directors and Officers and Fidelity Coverages.
Section three
All liabilities in respect of Assured's World-wide Operations and all as per form.”
Section 1 provided coverage under art. VII (Interest and coverage) on the following terms:
“For each loss occurrence covered by this Policy the Insurers agree with the Insured to pay or to pay on their behalf subject to the Basis of Recovery Article VIII:
1. All losses incurred by the Insured as a result of physical loss or damage to Property of any kind or description owned by the Insured or property of others held in trust or for which the Insured may have assumed responsibility, or for which the Insured may have an obligation to insure repair or replace…
4. All sums which the Insured pays or incurs as costs or expenses on account of:
(a)…
(b) Removal of or attempted Removal of Debris or Wreck of Property and/or Residual Structure covered hereunder…”(emphasis added)
Section 1, art. VIII(2) (Basis of recovery: Cargo and stock) provided:
“(a) Recovery for any loss hereunder shall be determined as follows:
(i) for crude oil…
(b)…recovery shall also include costs and expenses incurred in defending, safeguarding, recovering, preserving and forwarding the property, as well as costs and expenses in respect of general average, sue and labour, salvage, salvage charges and expenses incurred in removal or attempted removal of debris or wreck or property even if incurred solely as a result of governmental or other authoritative order and the amount of the reasonable extra cost of temporary repair or of expediting the repair, including overtime and the extra cost of express or other rapid means of transportation.” (emphasis added)
Section 1, art. IX, para. 3 excluded from cover under s. 1:
“Loss of, or damage to property, liability for which is imposed on the insured by law, other than such property as may be included under the terms of this policy.”
Section 1, art. IV, para. 3 provided:
“Notwithstanding anything else contained herein to the contrary, there shall be no recovery hereon for liabilities as described under Assured Liability Policy(ies) (as more fully defined and covered under policy numbers 8 KM52362 & O3-036-88 as applicable)…”
Similar words were also contained in art. VII.
It is common ground that the specified policy numbers under para. 3 above were a reference to s. 3 of the GCE policy itself. Thus, on the face of it at least, the policy intended that losses sustained which might otherwise fall within the wording of s. 1, but which were recoverable under s. 3, should not also be recoverable under s. 1.
Section 3A, art. 1, under the heading “Protection and indemnity risks etc.”, covered inter alia:
“(a)(i)…all sums for which the Insured may become liable or incur which are absolutely or conditionally recoverable from or undertaken by The Standard Steamship Owners' Protection and Indemnity Association (Bermuda) Limited and without the application of any limits or excesses contained in the rules of that Association in respect of the vessels and/or craft as per schedule.
(ii) it is further agreed that this insurance is extended to also cover any loss sustained by the Insured or indemnify or pay on behalf of the Insured any sum or sums which the Insured may be obliged to pay or agrees to pay or incurs as expenses, on...
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