Société Commerciale de Réassurance v Eras International Ltd (formerly Eras (U.K.))
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MUSTILL |
| Judgment Date | 21 November 1991 |
| Judgment citation (vLex) | [1991] EWCA Civ J1121-13 |
| Docket Number | 91/1263 |
| Court | Court of Appeal (Civil Division) |
| Date | 21 November 1991 |
In The Matter Of
[1991] EWCA Civ J1121-13
Lord Justice Mustill
Lord Justice Nourse
Lord Justice Nicholls (Not Present)
91/1263
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(MR JUSTICE WALLER)
Royal Courts of Justice
MR SAMUEL STAMLER, Q.C., and MR GAVIN KEALEY, instructed by Messrs Freshfields, appeared for Howdens.
MR EDWIN GLASGOW, Q.C., MR MARK HOWARD and MR STEWART CATCHPOLE, instructed by Messrs Baker & McKenzie, appeared for TLA and ICC.
MR NICHOLAS LEGH-JONES, Q.C., MR CLIFFORD GILL and MR P. GROSS, instructed by Messrs Lovell White Durrant, appeared for SCOR.
MR NICHOLAS CHAMBERS, Q.C., and MR MARK SMITH, instructed by Messrs Simmons & Simmons, appeared for Clarksons.
This is the judgment of the court, to which all three members have contributed.
A. Introduction
This appeal is concerned with the service of proceedings out of the jurisdiction. All the claims in respect of which service is sought arise from the misfortunes of a reinsurance-led pool, which conferred on various municipal and commercial bodies in the United States cover against what was called environmental impairment liability ("EIL"): namely liability to those who complained that as the result of activities carried on by the assured they have suffered damage to person, property and amenity. The pool has been a disaster for all concerned. The losses are enormous, and everyone concerned is busy blaming everyone else. Inevitably, litigation has ensued on both sides of the Atlantic. The enormity of the losses has been matched by the scale of the litigation. We are told, for example, that discovery of documents will involve hundreds of thousands of documents and that the English trial when it takes place—and there is no doubt that a trial will take place whatever the outcome of this appeal—will occupy upwards of fifty working weeks. The pleadings are scarcely under way, and already occupy several volumes. Even the pruned and re-pruned core bundles produced before us amount to hundreds of pages.
All this may serve to render comprehensible, what at first sight seemed quite extraordinary, that the hearing of interlocutory proceedings under Orders 11 and 16 R.S.C. should have lasted for 14 days at first instance: a duration which must surely be without precedent. Now that we have been confronted with the issues, complex, confusing and difficult as they are, we fully understand this and wish to pay tribute at the outset to the judgment of Mr Justice Waller, produced in a remarkably short space after the conclusion of the argument, which is a masterpiece of compression. Before we make any attempt even to summarise the issues which have arisen before the learned judge and ourselves we must introduce the scheme of the pool and some of the principal participants.
B. The Pool
At the heart of this story is a group of companies, centred in the United Kingdom. Several members of the group are concerned in these proceedings and it may be that in future the differences between them will prove to be of crucial importance. For the present however we shall refer to them collectively as "Clarksons".
In the early 1970's Clarksons perceived the possibility of a new way to write liability insurance against environmental hazards, which had two features. First, the cover presently on offer appeared to give protection only against the consequences of sudden mishaps, and left the assured unprotected where the damage from its operations was of a more insidious nature. Secondly, since there was no claims experience on which a statistical analysis of the risks involved in an insurance against these slow-moving perils could be founded, an entirely new system would be created, involving an a priori rating by scientists of the likelihood that the operations of the assured would give rise to trouble, and also of the likelihood that if such trouble did eventuate its financial consequences would be on one scale rather than another.
Having developed this idea Clarksons wished to put it into practice. Evidently it was thought that for many reasons this could not be effected by any network of primary insurers, each acting as principals in the assessment of risks offered to it, and carrying and reinsuring its own risks on a conventional basis. The idea was therefore that the scheme should be "reinsurance-led"—that is to say that the commercial centre of gravity would repose in a group of reinsurers. The direct cover would be written locally in the United States by "fronting insurers". These would be reinsured, initially as to 100 per cent, by the reinsuring members of the pool. The presence of the fronting companies would be necessary only to comply with American insurance regulations. The business of risk-rating, underwriting and claims handling would be dealt with by the participants in the pool and their delegates, leaving the fronting companies with nothing to do except to collect their commission, to perform some paperwork and (in the unexpected but as it subsequently transpired only too real event) to face up to claims from their assured. All the serious intellectual business, and all the handling of rating and claims, was to be performed on behalf of the pool by Clarksons, or those appointed to act for them.
Initially, there were two EIL pools, one sustaining risks from the United States, the other being concerned with risks worldwide. The latter is of no interest here. The United States pool was originally led by two reinsurers. One had evidently dropped out by the time with which we are concerned. The other was a French company, Societe Commerciale de Reassurance ("SCOR"). For the time with which we are concerned SCOR was the principal player in the pool. It is a remarkable feature of the network of relationships which were to develop that there seems to have been no formal pool agreement, tying together the responsibilities of the numerous companies who were, at one remove or more, to bear the weight of the risks nominally assumed by the fronting companies. Indeed it seems that even now there is no certainty about who were members of the pool. Nor was there any comprehensive pool management agreement which made explicit the duties of Clarksons and their delegates towards the members of the pool.
So as to explain the complex disputes arising from the breakdown of the arrangements of the relationships thus described it is convenient to look separately at the contracts of insurance and reinsurance, and at the arrangements for underwriting and claims management.
In doing so we must emphasise at the outset that the history of the matter is extremely complex, and many of its aspects are hotly in dispute. What follows is a highly simplified version included only to set the scene for the fifty or more points of law which have been argued before us. It is certainly incomplete and may well prove in some respects to be incorrect.
C. The Insurance Contracts
A conventional method of arranging insurance and reinsurance is for a client to seek insurance through the medium of a placing broker, who offers it to an underwriter. The latter decides whether the risk is acceptable and a premium is negotiated. If the risk is accepted for his principal, the underwriter aims to relieve his principal of a part of the exposure by obtaining reinsurance. On occasion the broker will already have found a potential reinsurer, and this opportunity can be offered to the insurer so as to make the offer of a direct line more attractive. Where the transaction takes this shape the assessment of the risk by the direct insurer is of cardinal importance, and the insurer will rely for this purpose on statistical information concerning the general incidence of the type of risk under offer, on the claims record of the client, and on the experience and skill of the underwriter.
The shape of the present transaction was very different. The arrangements for the reinsurance were put in place first. The managers of the pool then selected the fronting companies, who would carry the direct insurance with the client. The identity of the fronting companies is immaterial for present purposes with one important exception, namely International Insurance Company Inc. ("International"), a company based in Chicago Illinois which was on risk for the three policy years with which this action is concerned, namely 1981, 1982 and 1983.
Not only did the managers of the pool select the fronting companies, but they also selected the insured, and decided on what terms at what rates their EIL risks would be accepted. Neither the fronting companies nor the reinsurers played any part in this. Nor, for most of the life of the pool, were they intended to carry any part of the risk, since they were reinsured 100 per cent by SCOR. Only in the policy year 1983 did two of the companies, namely International and Hartford Steam Boilers ("HSB") retain seven and a half per cent each for their own account. In the last three years (1981, 1982 and 1983) the managers of the pool provided additional capacity by arranging two layers of excess loss reinsurance with various companies and syndicates.
Although SCOR carried 100 per cent (or at the end 85 per cent) of the primary layer of reinsurance, it retained only 20 per cent and retroceded the remainder. In one instance a retrocessionaire itself retroceded part of its line.
When claims began to come in they were not, except at the end in the case of International and HSB, dealt with by the...
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