Teal Assurance Company Ltd v WR Berkley Insurance Europe Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Eder |
| Judgment Date | 23 April 2015 |
| Neutral Citation | [2015] EWHC 1000 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 23 April 2015 |
| Docket Number | Case No: 2010 Folio 1045 |
[2015] EWHC 1000 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Justice Eder
Case No: 2010 Folio 1045
Mr Christopher Butcher QC and Miss Rebecca Sabben-Clare QC (instructed by DAC Beachcroft LLP) for the Claimant
Mr Colin Edelman QC and Ms Alison Padfield (instructed by Clyde & Co LLP) for the Defendant
Hearing dates: 4 March 2015
Further written submissions received: 6, 10 & 12 March 2015
Approved Judgment
Introduction
This is a trial of certain preliminary issues in relation to disputes arising between the claimant ("Teal") and its defendant reinsurers (the "Reinsurers"). In essence, the questions concern the time at which, and therefore the order in which, insured losses were suffered for the purpose of a programme of professional indemnity insurance and reinsurance.
For the purpose of these preliminary issues, the parties have agreed a Statement of Facts. The following summary is taken largely from that document.
Teal is an insurance company incorporated in the Cayman Islands. It is wholly owned by the Black and Veatch Holding Company and is one of the Black & Veatch group of companies. The Reinsurers are reinsurers of the Top & Drop layer of Black and Veatch's professional indemnity insurance as further described below.
Black and Veatch Corporation ("BVC") is another corporation in the same group of corporations and is incorporated in Delaware. BVC is a major engineering company providing professional advice and services and carrying out engineering, procurement and construction contracts in various parts of the world either by itself or through subsidiary or associate companies and either on its own or in joint venture with others. All references below to "BVC" are to all Black & Veatch group companies, as the context requires.
Teal is a captive insurer i.e. its sole business is the insurance and reinsurance of the interests of members of the Black & Veatch group of corporations.
During the relevant period i.e. 1 November 2007 to 1 November 2008 (the "policy period"), BVC's professional indemnity insurance programme for the policy period comprised of 5 layers, as follows.
The Lexington policy
The bottom layer of the programme was a contract of insurance of BVC underwritten by Lexington Insurance Corporation and contained in or evidenced by policy no. 0101085 (the "Lexington policy" or "Primary policy"). The Lexington policy provided professional indemnity insurance to BVC subject to a per claim deductible of US$100,000, a per claim self-insured retention of US$10 million and an aggregate self-insured retention per policy period of US$20 million. The limit under the Lexington policy was US$5 million per claim and in the aggregate.
The Lexington policy provided in material part as follows:
" …
1. INSURING AGREEMENT — COVERAGE
…
The Company will indemnify the Insured all sums up to the Limits stated in the Declarations, in excess of the Insured's Deductible and/or Self-Insured Retention, which the Insured shall become legally obligated to pay as Damages if such legal liability arises out of the performance of professional services in the Insured's capacity as an architect or engineer and as stated in the Application provided:
…
V. SETTLEMENT
The Insured shall not settle any Claim without the informed consent of the Company, such consent not to be unreasonably withheld.
…
VI. ACTION AGAINST THE COMPANY
No action shall lie against the Company unless, as a condition precedent thereto, the Insured shall have fully complied with all the terms of this Policy, nor until the amount of the Insured's obligation to pay shall have been finally determined either by judgment against the Insured at the actual trial, arbitration or by written agreement of the Insured and the claimant, to which agreement the Company has consented.
…
ENDORSEMENT # 008
…
DESIGN BUILDER'S INDEMNITY ENDORSEMENT
Endorsement Specific Deductible: $250,000.00
In consideration of the premium charged, it is hereby understood and agreed that the coverage provided under this policy is modified as follows:
In addition to the coverage granted under this Policy, but subject to the same Self-Insured Retention and limits of liability, we agree to indemnify the Named Insured for the Named Insured's Actual and Necessary Costs and Expenses incurred in rectifying a Design Defect in any part of the construction works or engineering works for any project upon which you are providing design/build services provided …"
The upper layers of insurance
The next 3 layers were contracts of insurance of BVC underwritten by Teal (together the "tower policies"). The 3 layers were as follows:
i) By policy No. 2007–009, a contract of insurance subject to a limit of US$5 million in aggregate, excess of US$15 million in aggregate (i.e. excess of the Lexington policy).
ii) By policy No. 2007–010, a contract of insurance subject to a limit of US$30 million in aggregate, excess of US$20 million in aggregate (i.e. excess of the first tower policy).
iii) By policy No. 2007–011, a contract of insurance subject to a limit of US$20 million per in aggregate, excess of US$50 million in aggregate (i.e. excess of the second tower policy).
The 5 th layer comprised a contract of "top and drop" insurance, which was underwritten by Teal (the "Top and Drop policy"). The Top and Drop policy was contained in or evidenced by policy document no. 2007–012. In essence, it provided insurance to BVC subject to (i) a limit of GB£10 million or its equivalent in other currencies, excess of the Lexington policy and the tower policies; and (ii) an exclusion in respect of claims emanating from or brought in the USA or Canada.
All these upper layers i.e. the tower policies and the Top and Drop policy were, in effect, on terms substantially similar to the terms of the Lexington policy.
The Reinsurance of the Top and Drop policy
By a contract of reinsurance contained in or evidenced by a slip policy No. Y0050790U (the "contract of reinsurance" or the "Excess Policy"), the Reinsurers agreed to reinsure Teal in respect of its liability under the Top and Drop policy. Like the Top and Drop policy, the contract of reinsurance was subject to a per claim limit of GB£10 million or its equivalent in other currencies. The contract of reinsurance was subject to the same terms and conditions as the Top and Drop policy in relation to coverage, including the exclusion in respect of claims emanating from or brought in the USA or Canada.
Summary of claims faced by BVC during the Policy Period
During the policy period, BVC faced a number of claims, as follows:
i) PPGPL: This is a substantial non-USA claim arising from BVC's design, procurement and construction of an expansion project at a gas processing plant in Trinidad.
ii) Providence, Water One and City of Clovis: These are small US based claims.
iii) FRP: This is one of two US based claims that arise from contracts between BVC and a company known as AEP or its subsidiaries to design, procure and install wet flue gas desulphurisation systems at AEP's power stations. Fibre Reinforced Thermostat Plastic failed as a result of a design defect, namely a lack of support.
iv) Ajman: This is the second non-USA claim and arises out of the failure of a waste water treatment plant to process sewage to its contractual specification.
v) JBR Internals: This is the second AEP, and therefore US based, claim and the largest of the claims, arising out of failure of jet bubble reactors in the USA.
Thereafter, BVC paid out various sums on remedial works in respect of these claims details of which were summarised in a Schedule attached to the Statement of Facts setting out the amount of such payments and the month in which they were incurred. At this stage, the Reinsurers make no admissions as to the accuracy of this Schedule but it is to be presumed accurate for the purposes of these preliminary issues.
History of proceedings
These proceedings were originally commenced in 2010. At that time, Teal contended as its primary case that it was entitled, under the insurances, so to order its claims as to enable the non-USA claims, namely PPGPL and Ajman, to fall within the Top and Drop policy.
That question was tried by Andrew Smith J as long ago as 2011 as the First Preliminary Issue. In essence, he found for the Reinsurers and held that the contracts of insurance within BVC's professional indemnity insurance programme responded to claims by reference to the order in which the original assured (i.e. BVC) suffered insured loss: see [2011] EWHC 91 (Comm). The Order made by the Judge following that Judgment and dated 31 January 2011 is in material part in the following terms:
" On the true construction of the Excess Policy, the Excess Policy responds by reference to the order and timing of the establishment and ascertainment of an original Insured's liability or of the incurring of costs and expenses falling within the ambit of Endorsement 008 to the Primary Policy by an original insured to provide indemnity only upon exhaustion of the limits of liability of the underlying p.i.tower and an original insured thereafter becoming liable to make any payments in respect of any claims against it or incurring such costs and expenses, subject to the exclusion of US and Canadian claims and losses and subject to all other applicable policy terms and conditions."
The decision of Andrew Smith J was upheld by the Court of Appeal: see [2011] EWCA Civ 1570; and the Supreme Court: see [2013] UKSC 57.
In light of those judgments, Teal revised its case. As...
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