Stonebridge Underwriting Ltd v Ontario Municipal Insurance Exchange
| Jurisdiction | England & Wales |
| Judgment Date | 10 September 2010 |
| Neutral Citation | [2010] EWHC 2279 (Comm) |
| Date | 10 September 2010 |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2010 FOLIO 187 |
[2010] EWHC 2279 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Before: Mr Justice Christopher Clarke
Case No: 2010 FOLIO 187
Alexander MacDonald (instructed by XL Services UK Limited) for the Claimant
Charles Dougherty (instructed by Clyde & Co) for the Defendant
Hearing dates: 26 th July 2010
Approved Judgment
This is an application by the defendant, Ontario Municipal Insurance Exchange (“OMEX”) for an order that the service on it of a claim form in Ontario be set aside on the ground that England is not the proper forum for the dispute between the parties.
Stonebridge Underwriting Limited, the claimant, is a Lloyd's underwriter. It brings the present claim for a declaration on its own behalf and on behalf of all underwriting members of Lloyd's Syndicate 990 for the 2001 and 2002 years of accounts. XL London Market Ltd (“XL”) is the managing agent of the syndicate. For convenience I shall refer to the claimant and XL collectively as XL.
OMEX is a Canadian not-for-profit reciprocal insurance exchange which provides primary insurance cover to a number of municipalities in Ontario, under whose Insurance Act it is licensed. A reciprocal insurance exchange is a risk-sharing arrangement owned by its members: it is essentially a form of mutual. OMEX only operates in Ontario and has no presence outside Ontario. OMEX is governed by a “Reciprocal Insurance Exchange Agreement” dated 13 th December 1988. According to the witness statement of Ms Sarah Jones, on behalf of XL, OMEX ran two separate risk pools involving Ontario municipalities:
(a) the OMEX Program, which was the main programme, providing liability and automobile insurance cover, mainly to large municipalities, up to a limit of $ 50 million 1 and
(b) the SUG OMEX Program (with a $ 5 m level of cover and covering smaller municipalities, who were some of the members of the Rural Ontario Municipal Association (“ROMA”).
The SUG program arose because under the terms of the Reciprocal Insurance Exchange Agreement it was possible to set up sub-groups for underwriting purposes. One such group– Special Underwriting Group 1 (“SUG 1”)—was set up pursuant to an agreement between the members of that group and OMEX dated 12 th December 2007.
The OMEX Program was administered by employees of OMEX while the SUG OMEX Program was, in the relevant period, administered by Jardine Lloyd Thompson Canada Inc. (“JLT Canada”) 2. JLT Canada arranged for reinsurance cover on the London market for both programs. The reinsurance was placed by JLT Risk Solutions Ltd (“JLT London”) in various layers.
The dispute—overview
The dispute between the parties relates to the Claimant's failure to pay the sums said to be due to OMEX under an excess of loss policy number LK0106144 for the period 1 st July 2001 to 31 st December 2002 (“the Reinsurance Contract”). The Reinsurance Contract is contained in a slip policy dated 10 th September 2001, which XL subscribed as to 100%. It reinsured the $1 million to $ 2 million layer of the OMEX Program and, according to the claimants, the same layer of the SUG OMEX Program.
The material terms of the policy are as follows:
| “Type: | Excess Liability Reinsurance. |
| Form: | Slip Policy. |
| Reinsured: | Ontario Municipal Insurance Exchange. |
| Original Insured: | All Members participating in Omex. |
| Period: | 1st July 2001 to 31st December 2002 both days inclusive. |
| Interest: | To indemnify the Reinsured in respect of liability which arises out of or in connection with the Original Insured's activities and/or as Original Policy. |
| Limit of Indemnity: | CAD1,000,000 any one occurrence |
|
| CAD1,000,000 in the annual aggregate in respect of Products Liability. |
|
| CAD1,000,000 in the annual aggregate in respect of Professional Indemnity. |
| In excess of: | CAD1,000,000 any one occurrence but CAD2,000,000 in the annual aggregate. |
| Conditions: | 1) To follow the full wording, terms, clauses, conditions, exceptions and settlements of the Original Policy… as far as applicable hereto”. |
The Conditions clause also incorporated a Claims Co-operation Clause in the following terms:
“Claims Co-operation Clause
Notwithstanding anything herein contained to the contrary, it is a condition precedent to any liability under this Policy that:
9.1. The Reinsured shall, upon knowledge of any loss or losses which may give rise to a claim under this Policy, advise the Reinsurers thereof as soon as is reasonably practicable and in any event within 30 days.
……
b) The Reinsured shall furnish the Reinsurers with all information available respecting such loss or losses, and shall co-operate with the Reinsurers in the adjustment and settlement thereof.”
The policy was on a typical London market slip policy form. It incorporated a number of standard London market terms including: (a) “Several Liability Notice—LSW 1001 (Reinsurance)”; (b) “Ultimate Net Loss Clause Reinsurance – NMA 457”; (c) 'NMA 1685; (d, “NMA 464, and (e) “NMA 2092 – Date Recognition Clause.”
There are two endorsements to the slip policy. In summary:
(a) The first endorsement, dated 15 February 2002, purported to add certain councils to the cover. It also amended the annual aggregate deductible (“AAD”) in the “Limit of Indemnity” provision, with effect from 2 January 2002, to read:
“CAD 1,000,000 any one occurrence
CAD1,000,000 in the aggregate in respect of Product Liability
CAD1,000,000 in the aggregate in respect of Professional Indemnity
In Excess of
CAD 1,000,000 any one occurrence but CAD 3,000,000 in the annual aggregate.”
(b) The second endorsement dated 22 October 2002, purported to add further municipalities to the cover.
The claim form was issued on 17 th February 2010.
The issues that divide the parties
XL denies that any sums are due under the Reinsurance Contract. There are two main 3 issues between the parties in these proceedings.
First, there is a dispute as to the proper construction of the excess provisions in the Reinsurance Contract.
XL's case 4 is that:
(i) the AAD must first be exhausted before any claim may be made under the policy;
(ii) the AAD may only be exhausted by losses themselves in excess of $ 1m per occurrence;
(iii) OMEX is then only entitled to be indemnified in respect of losses in excess of $ 1m per occurrence.
As to the AAD, XL's case is that for the period 1 July 2001 – 1 January 2002 the applicable AAD is $1m [i.e. 1/2 of $ 2m], and that the applicable AAD for the remainder of 2002 is $3m (Jones 1, para 40). On XL's case nothing is due under the Reinsurance Contract. If OMEX is only entitled to be indemnified in respect of losses in excess of $ 1m per occurrence once the applicable AAD has been exceeded but that deductible can be exhausted by losses from the ground up XL calculates its liability at about $ 1.5m.
OMEX contends that:
(i) it is not necessary for the applicable AAD to have first been exceeded before it is entitled to be indemnified for individual losses in excess of $ 1m;
(ii) the AAD may be exhausted by any claims from the ground up, not just those which exceed $ 1m, and
(iii) once the AAD has been exhausted, it is entitled to be indemnified in full for losses from the ground up (up to $ 1 m) without application of the $ 1m per occurrence deductible.
It is not clear to me whether OMEX agrees with XL as to the applicable AADs for the 2001 and 2002 periods, namely $ 1m for the former and $3 m for the latter (as its claims bordereaux suggest), or whether it contends that a single AAD of $ 3m is applied across the entire 18 month period (its case in the Ontario proceedings at para 12).
Second, XL resists OMEX's claim on the basis that there has been a breach of the Claims Co-operation Clause. XL's case is that compliance with the notification requirements in paragraph (a) of the clause (“The Reinsured shall, upon knowledge of any loss or losses which may give rise to a claim under this Policy, advise the Reinsurers thereof as soon as is reasonable practicable and in any event within 30 days”) is a condition precedent to XL's liability under the Reinsurance Contract, and that there has been a clear breach of the clause in respect of both the individual and the aggregate claims advanced under the policy. XL's factual case on these breaches is set out in detail at Jones 1, paras 60–76 (in connection with individual claims) and paras 77–81 (in connection with breaking through the AAD). These paragraphs reveal an arguable case that OMEX was significantly late in notifying XL in respect of several very large road traffic accident claims; and that the AAD had been exhausted by January 2004 in respect of the 2001 period, and by February 2004 in respect of the 2002 period, if account is taken of claims from the ground up, such that, on OMEX's interpretation, XL was responsible for subsequent losses, whereas no notification of the exhaustion of the AAD was given until December 2006.
The two issues are related in this sense. If on the proper construction of the policy OMEX has no claim against XL, there is no need to decide whether the claims notification provisions have been complied with. If, on the other hand, OMEX prima facie has a claim, the precise operation of the Claims Co-operation Clause will depend on which construction of the excess provisions...
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