Teal Assurance Company Ltd v W.R Berkley Insurance (Europe) Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Lord Neuberger,Lord Toulson,Lord Mance,Lord Sumption,Lord Clarke |
| Judgment Date | 02 September 2013 |
| Neutral Citation | [2013] UKSC 57 |
| Date | 02 September 2013 |
| Court | Supreme Court |
[2013] UKSC 57
Lord Neuberger, President
Lord Mance
Lord Clarke
Lord Sumption
Lord Toulson
Appellant
Christopher Butcher QC
Rebecca Sabben-Clare QC
(Instructed by DAC Beachcroft LLP)
Respondents
Colin Edelman QC
Alison Padfield
(Instructed by Clyde & Co LLP)
Heard on 17 and 18 June 2013
Lord Mance (with whom Lord Neuberger, Lord Clarke, Lord Sumption and Lord Toulson agree)
Black and Veatch Corp ("BV") is an engineering company incorporated in Delaware. This appeal concerns the top layer of its professional liability insurance programme for the year from 1 November 2007. The first or primary layer was with Lexington Insurance Co ("Lexington"). There are then three successive excess layers (described as the "PI tower") with the appellant, Teal Assurance Co Ltd ("Teal"), which is an associate or "captive" of BV based in the Cayman Islands. Teal reinsured the risks under these layers with various retrocessionaires (Swiss Re, Zurich, etc). Finally comes the top layer, a "top and drop" policy, again placed with Teal and reinsured by Teal with the respondents, WR Berkley Insurance (Europe) Ltd and Aspen Insurance UK Ltd for 50% each. Unlike the layers beneath it, which provided worldwide cover, the top and drop policy excludes any claims emanating from or brought in the USA and Canada.
BV has received and notified to its insurers various claims, some emanating from or brought in the USA or Canada, others not. The ultimate issue on this appeal is whether BV and Teal or either of them is entitled to choose which claims to meet from the primary and/or lower excess layers, so as to ensure that those remaining are not US or Canadian claims, and can be met by Teal out of the top layer and passed on to the respondents. The courts below ( Andrew Smith J, [2011] EWHC 91 (Comm), and the Court of Appeal, [2011] EWCA Civ 1570) have held that Teal cannot do this. They have held that the claims fall to be allocated to the successive layers, starting with Lexington's primary layer, as and when BV's third party liability is ascertained by agreement, judgment or award in accordance with a general principle of liability insurance established in Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363 and Bradley v Eagle Star Insurance Co Ltd [1989] AC 957.
Teal now appeals with the Court's permission. Teal submits that a party is entitled to exercise contractual rights as best suits it, here to maximise the insurance cover available to its associate BV. The primary and lower excess layers covered US and Canadian claims and BV and Teal were entitled to take full advantage of this. Further, Teal submits that the top and drop, and each of the lower excess layers, contains a clause (clause 1 of a set of clauses LSW055) making clear that no liability can arise under them unless and until underlying insurers "shall have paid or have admitted liability or have been held liable to pay, the full amount of their indemnity inclusive of costs and expenses". Teal's case is that liability thereunder necessarily depends upon the order in which underlying insurers, including Teal, choose (or are held liable) to settle insurance claims, rather than upon the order in which third party liability claims are ascertained by agreement, judgment or award as against BV. Teal submits that this scheme is complemented by clause IV.E of the Lexington policy, requiring BV to pay the deductible and self-insured retention prior to Lexington indemnifying BV.
Teal's application for permission and written case also suggested that the case raises, or may raise, what Teal calls a legal fiction, that a claim under a liability insurance is for damages for the insurer's failure to hold the insured harmless. It submits that a more appropriate analysis would be that insurers undertake to pay valid claims on the occurrence of particular events. This would have the potential effect that insurers could become liable in damages for non- or late payment, contrary to the rule presently established by cases such as Ventouris v Mountain (The "Italia Express") (No 2) [1992] 2 Lloyd's Rep 281 and Sprung v Royal Insurance (UK) Ltd [1999] 1 Lloyd's Rep IR 111. It would also enter upon an area presently under consideration by the English and Scottish Law Commissions: see their Issues Paper 6: Damages for Late Payment and the Insurer's Duty of Good Faith (2010) and their subsequent formal consultation paper Insurance Contract Law: Post Contract Duties and Other Issues (2012). However, as the submissions developed, it became apparent that it could make no difference to the outcome of this appeal how an insurer's liability to indemnify is formulated. In particular, whether the insurer's liability is by way of damages or in debt does not answer the question whether such liability is exhausted as and when a claim, insured and notified under the policy, gives rise to ascertained third party liability or expenses on BV's part.
With this introduction, I describe the insurance programme in greater detail:
a. BV accepted a deductible of US$100,000 per claim (or US$250,000 for remedial work under an endorsement) and a self-insured retention of US$10m per occurrence and US$20m in the aggregate (though it was permitted to insure part of this with Teal under a policy No 2007–006 not relevant to this appeal).
b. BV's layer of cover with Lexington was for US$5m excess of the deductible of US$100,000 (or US$250,000) per claim and the self-insured retention of US$10m per occurrence, with an aggregate limit of US$20m.
c. Above that, the "PI tower" consisted of the three excess layers:
i. Policy No 2007–009 for US$5m any one claim and in the aggregate excess of US$15m any one claim (i.e. excess of the Lexington cover);
ii. Policy No 2007–010 for US$30m any one claim and in the aggregate excess of US$20m any one claim; and
iii. Policy No 2007–011 for US$20m any one claim and in the aggregate excess of US$50m any one claim.
d. The top and drop policy (number 2007–012) applied in excess of the Lexington policy and the PI tower, and had a limit of liability of £10m or equivalent excess of the underlying retention of US$10m any one claim and US$20m in the aggregate.
The Lexington policy read:
"NOTICE: THIS IS A CLAIMS-MADE POLICY. SUBJECT TO THE TERMS AND CONDITIONS OF THE POLICY, THIS INSURANCE APPLIES TO ONLY THOSE CLAIMS THAT ARE FIRST MADE AGAINST THE INSURED AND REPORTED TO THE COMPANY DURING THE POLICY PERIOD, OR THE OPTIONAL EXTENDED REPORTING PERIOD. THE COSTS OF DEFENSE UNDER THIS POLICY, INCLUDING ATTORNEY'S FEES, REDUCE THE LIMITS OF COVERAGE AND THE DEDUCTIBLE AND SELF-INSURED RETENTION, STATED IN THE DECLARATIONS. THE COMPANY SHALL NOT BE OBLIGATED TO PAY ANY CLAIM OR CLAIM EXPENSES, OR UNDERTAKE TO CONTINUE DEFENSE OF ANY SUIT OR PROCEEDING AFTER THE LIMIT OF THE COMPANY'S LIABILITY HAS BEEN EXHAUSTED.
Declarations
…
Deductible and Self-Insured Retention:
a. $ 100,000 per Claim Deductible (including Claim Expenses)
b. $10,000,000 per Claim Self-Insured Retention (including Claim Expenses)
c. $20,000,000 aggregate Self-Insured Retention per Policy Period (including Claim Expenses)
The Insured shall have the obligation to pay up to:
1. the Deductible amount stated in line a.; and
2. the per Claim Self-lnsured Retention amount stated in line b.
Payments made under the per Claim Self-Insured Retention, line b. are subject to the maximum Aggregate Self-Insured Retention amount in line c.
…
THIS IS A CLAIMS-MADE AND REPORTED POLICY. CLAIMS MUST FIRST BE MADE AGAINST THE INSURED AND REPORTED TO THE COMPANY DURING THE POLICY PERIOD UNLESS AN EXTENDED REPORTING PERIOD APPLIES. THE PAYMENT OF CLAIM EXPENSES REDUCES THE LIMITS OF INSURANCE.
Various provisions in this policy restrict coverage. Read the entire policy carefully to determine rights, duties and what is and is not covered. Refer to SECTION IV - DEFINITIONS for the special meaning of other words and phrases that appear in bold face.
In consideration of the premium charged, the undertaking of the Named Insured to pay the Deductible and/or Self-Insured Retention and in reliance upon the statements in the application, and subject to the Limit of Liability of this Insurance as set forth in the Declarations, and the Exclusions, Conditions and other terms of this Policy, Lexington Insurance Company, hereafter referred to as the Company, agrees with the Named Insured as follows:
PART A
I. INSURING AGREEMENT — COVERAGE
The insurance afforded by this Policy applies to Claims…which allege any negligent act, error or omission provided …
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 …
IV. DEFINITIONS
…
E. Deductible and/or Self-Insured Retention means the amount stated in Item 5. of the Declarations that the Insured will pay, as set forth in the Declarations, for Claim Expenses and Damages with respect to every Claim made during the Policy Period. This amount must be paid prior to the Company indemnifying the Insured under the terms and conditions of this Policy.
…"
By Endorsement No 8 the Lexington policy further provided:
"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...
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