The Names at Lloyd's for the 1992 and Prior Years of Account, Represented by Equitas Ltd Equitas Insurance Ltd (formerly Known as Speyford Ltd) Part vii of The Financial Services and Markets Act 2000
| Jurisdiction | England & Wales |
| Judge | Mr Justice Blackburne |
| Judgment Date | 07 July 2009 |
| Neutral Citation | [2009] EWHC 1595 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: 10587 OF 2008 |
| Date | 07 July 2009 |
[2009] EWHC 1595 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Before: Mr Justice Blackburne
Case No: 10587 OF 2008
Robert Hildyard QC and Barry Isaacs (instructed by Clifford Chance) for the Applicants
Robin Knowles CBE QC (instructed by Lloyd's Legal Department) for the Society of Lloyd's
Christopher Symons QC and Robert Purves (instructed by FSA General Counsel's Division) for the FSA
Christopher Stockwell (In person)
Stephen Merrett (In person)
Hearing dates: 24 and 25 June 2009
Mr Justice Blackburne:
Introduction
This is the hearing of an application brought by Equitas Ltd (“EL”) and Equitas Insurance Ltd (“EIL”) for an order under section 111 of the Financial Services and Markets Act 2000 (“the 2000 Act”) sanctioning a scheme for the transfer to EIL of the 1992 and Prior Business carried on at Lloyd's. Section 111 is to be found in Part VII of the 2000 Act concerned with business transfer schemes. At the conclusion of the hearing I indicated that I was willing to sanction the scheme. I have approved the order recording the sanction. The order, to which a copy of the scheme is attached, sets out undertakings by the two applicants, by various associated entities and also by the Society of Lloyd's (“Lloyd's”) and by Lioncover Insurance Company Limited to be bound by the scheme and to do what is necessary or expedient to give effect to it. There is also an undertaking by Equitas Holdings Ltd (“EHL”) to comply with promises set out in a letter designed to ensure the maintenance of the applicants' minimum capital requirements. The order sets out (pursuant to section 112 of the 2000 Act) a series of provisions, mirroring the terms of the scheme, to give effect to the transfer and related matters.
I indicated when sanctioning the scheme that I would set out in writing why I felt able to give the sanction. I do so in recognition of the interest in and importance of the scheme and in deference to the very considerable work that has been devoted to its preparation, including matters that have been addressed in the written and oral submissions of those who have appeared before me at the hearing of the application. I hope that I will be forgiven if, despite the care and thoroughness of the written and oral submissions, I express myself with brevity.
The scheme is intended to bring finality—although some loose ends overseas remain—to a process which began with a reconstruction and renewal plan promoted and implemented by Lloyd's in the second half of 1996. Lloyd's R&R, as it has been described, came in the wake of huge losses suffered by the Lloyd's market in the late 1980s and early 1990s as a result, principally, of the historic asbestos and pollution liabilities which Names had underwritten. Complex litigation followed. Doubts were raised as to Lloyd's continuing solvency and liquidity. Lloyd's R&R was designed to stem the litigation through a settlement arrangement, separate the 1992 and Prior Business from the continuing business conducted at Lloyd's and provide Names with reinsurance to close in respect of their liabilities for the 1992 and Prior Business, thereby enabling Names with no other years of account remaining open to resign their membership of Lloyd's. The basis and rationale of Lloyd's R&R is more fully described in Society of Lloyd's v Leighs & ors [1997] CLC 759.
The reinsurance to close was achieved on 3 September 1996 through the Equitas Reinsurance Contract (as it has been referred to) whereby liabilities in respect of the 1992 and Prior Business of (i) all the closed year non-life syndicates reinsured to close directly into any open year syndicate and (ii) all the open year non-life syndicates were reinsured into Equitas Reinsurance Ltd (“ERL”) which was specially set up and authorised for the purpose. In addition, closed-year Names who participated in non-life syndicates for 1992 and earlier years of account were indemnified by ERL in the event that their existing reinsurance to close (“RITC”) were to fail. ERL in turn entered into the Equitas Retrocession Contract with EL on the same date pursuant to which it retroceded its reinsurance and indemnity obligations to EL, a wholly-owned subsidiary of ERL. Under the terms of the Equitas Retrocession Contract ERL delegated responsibility for the run-off to EL.
The business of Names who underwrote on the PCW and Warrilow syndicates was, for reasons I do not need to explain, reinsured by Lioncover Insurance Company Ltd (“Lioncover”) in the case of PCW and Centrewrite Ltd (“Centrewrite”) in the case of Warrilow, both of which are subsidiary companies of Lloyd's. As part of Lloyd's R&R, ERL agreed under reinsurance contracts entered into in February and December 1997 to reinsure Lioncover and Centrewrite in respect of their liabilities relating to the 1992 and Prior Business of PCW and Warrilow Names. Certain other 1992 and Prior Business was also reinsured into ERL by separate reinsurance contracts and, like the Lioncover and Centrewrite obligations, retroceded to EL under the Equitas Retrocession Contract.
Lloyd's R&R also provided for the establishment of Equitas Policyholders Trustee Ltd (“EPTL”) the primary purpose of which is to hold on trust for the benefit of policyholders certain rights of the Names as reinsureds under the Equitas Reinsurance Contract.
On 10 November 2006 EL and EHL entered into what has been described as the NICO Retrocession Contract with National Indemnity Company (of Nebraska, USA) (“NICO”) and Equitas Management Services Ltd (“EMSL”), pursuant to which EL retroceded to NICO its liabilities under the Equitas Retrocession Contract. The retrocession was subject to a limit of $5.7 billion over and above the existing reserves of EL as at 31 March 2006 net of claims payments made and reinsurance recoveries received between 1 April 2006 and 31 March 2007. The operational functions, including responsibility for the management of the run-off in relation to the 1992 and Prior Business, were delegated to EMSL, ownership of which, as part of the transaction, was transferred to NICO. It was renamed Resolute Management Services Ltd (“RMSL”). Since the NICO Retrocession Contract came into effect on 30 March 2007 RMSL has been responsible for the day-to-day conduct of the run-off of the transferring 1992 and Prior Business.
EL is a wholly-owned subsidiary of ERL. In their turn ERL, EIL and EPTL are wholly-owned subsidiaries of EHL which, in its turn, is wholly owned by the trustees of the Equitas Trust. Those trustees hold the rights and powers attaching to the shares in EHL upon trust for the benefit of the Names in their capacity as reinsureds under the Equitas Reinsurance Contract.
Economic finality for Names in respect of the pre-1993 difficulties and the litigation that it had spawned was to a large extent achieved through the NICO Retrocession Contract of 2006. However, neither the Equitas reinsurance nor the NICO retrocession arrangements resulted in legal finality for Names who remained directly liable to policyholders in respect of the 1992 and Prior Business under the original policies: Names continued to be exposed in respect of their liabilities to such policyholders in the event that EL should be unable to pay to a policyholder the entire amount of a Name's liability. The purpose of the scheme now before the court for its sanction has been to achieve legal finality under English law for Names by transferring to EIL the legal liabilities of Names under those original policies.
The scheme
The scheme has been structured to result in as little change as possible to the existing reinsurance and run-off arrangements. In particular, RMSL will continue to be responsible for the day-to-day conduct of those arrangements. The only material changes for the transferring policyholders, as they have been described, are that EIL becomes the insurer or reinsurer of the transferring policies instead of Names under English law and the laws of other EEA States and of any other jurisdiction which recognises the transfer effected by the scheme, recovery from Names will no longer be possible under English law and under the laws of such other states and jurisdictions, and a further $1.3 billion of reinsurance cover becomes available from NICO under the NICO Retrocession Contract in consideration of the payment by EL of a premium of £40 million.
The scheme has the following particular features: the policies, assets and liabilities (together the Transferring Business) are transferred to EIL; the relevant rights and obligations of the Names as reinsureds under the reinsurance contracts that cover the Transferring Business transfer to EIL, with amendments to those contracts to reflect the fact that the Transferring Business is transferred from the Names to EIL; the interest of the Names as reinsureds and various outstanding obligations of the Names as reinsureds under the Equitas Reinsurance Contract are transferred to EIL (subject only to the previous assignment in favour of EPTL put in place at the time of Lloyd's R&R); the reinsurance structure relating to Lioncover is simplified but with the equivalent protection made available to transferring policyholders of PCW Names that was available to them prior to the transfer; there are similar (although, for historical reasons, not identical) provisions in the case of Centrewrite; the terms on which EPTL holds the rights of Names as reinsureds under the Equitas Reinsurance Contract, assigned to it at the time of Lloyd's R&R...
To continue reading
Request your trial
-
The Insurance Company of the State of Pennsylvania v Equitas Insurance Ltd (Defendant/Applicant)
... ... the rights and obligations of Lloyd's names in respect of 1992 and prior business (other than ... Blackburne J on 25 June 2009 under s.111 in Part VII of the Financial Services and Markets Act ... to sue in England and had impliedly represented that if there were no settlement suit would be ... stay the English proceedings until it was known whether the US Court accepted jurisdiction over ... ) settlements were entered into more than 6 years before the issue of the English Claim form; and ... ...
-
HC AK CIV-2012-404-7084
...of claims arising 4 In the Matter of the Names of Lloyd’s for the 1992 and Prior Years of Account represented by Equitas Limited [2009] EWHC 1595 (Ch). up to and including 1992. This substantially reduces the risk that Lloyd’s involved in pre-1993 syndicates will be the subject of claims in......
-
The Taylor Wessing Insurance And Reinsurance Review Of 2009 (PART 2)
...is the "characteristic" performer of a reinsurance contract (Dornoch v. Mauritius Union [2006] 1 Lloyd's IR 786) 35 Case C-242/08 36 [2009] EWHC 1595 (Ch) 37 [2008] EWHC 1433 (Comm) The content of this article is intended to provide a general guide to the subject matter. Specialist advice s......
-
Insurance: Names Relieved Of Further Liabilities For 1992 And Prior Non-Life Business
...under English law or European law. Further reading: Re Equitas Ltd (the Names At Lloyd's for the 1992 and Prior Years of Account) [2009] EWHC 1595 (Ch) This article was written for Law-Now, CMS McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/......