Teal Assurance v WR Berkley and Aspen
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE ANDREW SMITH,Mr Justice Andrew Smith,and |
| Judgment Date | 31 January 2011 |
| Neutral Citation | [2011] EWHC 91 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 31 January 2011 |
| Docket Number | Case No: 2010 FOLIO 1045 |
[2011] EWHC 91 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Andrew Smith
Case No: 2010 FOLIO 1045
Roger ter Haar QC(instructed by Davies Arnold Cooper) for the Claimants
Colin Edelman QC (instructed by Barlow Lyde & Gilbert) for the Defendants
Hearing dates: 13 January 2011
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 Andrew Smith :
This is the trial of a preliminary issue about the proper construction and the operation of an excess reinsurance policy of professional liability insurance, and more specifically about how it is determined whether the "excess point" that triggers the reinsurance cover has been reached.
The claimants, Teal Assurance Company Limited ("Teal"), a company incorporated in the Cayman Islands, are wholly owned by Black & Veatch Holding Company, and are a captive insurance company that insures companies in the Black & Veatch group. The Black & Veatch group includes Black & Veatch Corporation, a major engineering company incorporated in Delaware and based in Kansas City, which operates directly or through associated companies in many countries. It is not necessary for present purposes to distinguish between the different companies in the group, and I refer to them simply as BV.
The defendants are insurance companies who on 30 October 2007 underwrote a policy (the "Excess Policy") which provided "Excess Claims Made Architects and Engineers Professional Liability Reinsurance" for the period from 1 November 2007 to 1 November 2008. They reinsured Teal. I shall refer to the terms of the Excess Policy below: it is subject to a limit of £10 million (or the equivalent in other currencies) for each claim, and does not cover claims emanating from or brought in the USA, its territories or possessions or Canada ("American claims").
The trial of the preliminary issue
By an order dated 28 October 2010 Simon J ordered the trial of the following question as a preliminary issue:
"1. On the true construction of the Excess Policy:
(1) Does the Excess Policy respond to claims arising in any one year outside the USA and Canada if and to the extent (subject to the limit of indemnity and any other applicable policy terms and conditions) that the total value of worldwide claims paid in any one year was to be such as to exhaust the insurance afforded by the p.i. tower, regardless of the order and timing of the establishment and ascertainment of the original Insured's liability or of the incurring of loss by the original insured?
Or
(2) Does the Excess Policy respond to claims having regard to the order in which claims are actually paid by the Claimant so that if and when payments made by the Claimant in respect of claims arising in any one year, whether within or outside of the U.S.A. and Canada, exhaust the reinsurance available in the p.i. tower, the Excess Policy responds to provide an indemnity in respect of payments made by the Claimant in respect of claims arising outside the U.S.A. and Canada (subject to other terms and conditions of the Excess Policy, for example as to limits of indemnity and exclusions)?
Or
(3) Does the Excess Policy respond to provide indemnity only upon exhaustion of the limits of liability of the underlying p.i. tower and any original Insured thereafter becoming liable to make any payments in respect of any claims against it or incurring costs and expenses falling within the ambit of Endorsement 008 to the Primary Policy, subject to the exclusion of US and Canadian claims and losses and subject to all other applicable policy terms and conditions?
Or
(4) Does the Excess Policy respond upon some (and, if so, what, basis) other that [sic] (1), ( 2) or (3) above?
The expression "p.i. tower" refers to the layers of BV's professional indemnity programme below that to which the Excess Policy responds.
As the agreed formulation of the preliminary issue explained, paragraphs (1) and (2) set out Teal's alternative pleaded cases as to the meaning of the Excess Policy, and paragraph (3) set out the defendants' pleaded case. In fact, in submissions before me Mr Roger ter Haar QC, who represented Teal, did not argue for the interpretation reflected in paragraph (2) of the preliminary issue, but he advanced as Teal's primary case a different construction that is not reflected in the formulation of the preliminary issue. Adapting the language of paragraph (2), this might be expressed as follows: "Does the Excess Policy respond to claims having regard to the order in which the claimant becomes liable to pay claims so that, if and when such claims exhaust the reinsurance available in the p.i. tower, the Excess Policy responds to provide an indemnity in respect of claims arising outside the USA and Canada (subject to the other terms and conditions of the Excess Policy, for example as to the limits of indemnity and exclusions)?"
The parties agreed a statement of facts for the trial of the preliminary issue, and there are no questions of fact for determination. The parties exchanged witness statements and also reports of expert witnesses, but little, if anything, in the statements and reports was admissible and relevant as evidence upon the preliminary issue. In the event neither party adduced factual or expert evidence from the witnesses, and the preliminary issue is determined on the basis of the agreed statement, and of the terms of BV's professional indemnity cover and the wording of the Excess Policy.
The agreed statement explains the structure of BV's professional indemnity cover at the relevant time, and the claims which have been made against BV and give rise to this litigation, and, as I understand it, the following descriptions are not controversial.
BV's professional indemnity cover
BV's cover was generally subject to a deductible of $100,000 in respect of each claim, but they carried a larger deductible of $250,000 for their insurance of costs and expenses that they incurred in rectifying design defects in construction or engineering works. Above the deductible, BV had a "Self-Insured Retention" (or "SIR") of $10 million for any occurrence, subject to an annual aggregate limit of $20 million. Teal insured the upper $5 million per claim of the SIR.
The first layer of insurance cover was underwritten by Lexington Insurance Company (by policy no 0101085, the "Lexington Policy"). The cover was on a claims made and reported basis, and the Lexington Policy provided cover limited to $5 million (per claim and in aggregate) excess of the SIR and deductibles. The insuring clause in the Lexington Policy provided cover in respect of BV's liabilities to third parties ("liability cover") and endorsement 8 to the policy provided cover for costs of mitigating losses ("mitigation cover"), these provisions being in the following terms:
"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:
such legal liability is caused by a negligent act, error or omission of the Insured or any person or organization for whom the Insured is legally liable or responsible, including the Insured's interest in joint ventures; or
in conformance with clause 24 of the Professional Engineers Act, the Claim is a direct result of a negligent act, error or omission by the Insured or arises out of a breach of Professional Duty by the Insured or the Insured's interest in a joint venture while supplying professional engineering services.
…."
and"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:
A) the Insured reports the Claim for such Actual and Necessary Costs and Expenses as soon as practicable after discovery of such Design Defect but in no event after any certificate of substantial completion has been issued;
B) the Insured proves to us that its Claim for Actual and Necessary Costs and Expenses arises out of the Insured's rendering of professional services which resulted in a Design Defect for which a third party could otherwise make Claim against the Insured…"
(There were definitions of the expressions "Actual and Necessary Costs and Expenses" and "Design Defect" in endorsement 8.)
The Conditions of the Lexington Policy included these:
"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…"
Above the Lexington Policy, BV had layers...
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