Tokio Marine Europe Insurance Ltd v Novae Corporate Underwriting Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hamblen |
| Judgment Date | 06 November 2013 |
| Neutral Citation | [2013] EWHC 3362 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 06 November 2013 |
| Docket Number | Case No: 2013-177 |
[2013] EWHC 3362 (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 Hamblen
Case No: 2013-177
Stephen Midwinter (instructed by Clausen Miller) for the Claimant
Simon Picken QC and Sushma Ananda (instructed by Locke Lord) for the Defendant
Hearing dates: 23 and 24 October 2013
Introduction
In autumn 2011 Thailand suffered severe floods. Unusually heavy rains throughout the rainy season caused the Chao Phraya River and its tributaries in central Thailand to swell and burst their banks in October 2011. The floodwater swept through Thailand from north to south, flooding over 20,000km of farmland and causing an estimated US$50 billion of damage.
Among the properties damaged were shops and distribution centres owned by a subsidiary of Tesco plc, Ek Chai Distribution System Co Ltd ("Ek Chai").
Claims of approximately £125 million for property damage and business interruption were made by Tesco/Ek Chai who were insured under a global Master Policy issued by ACE European Group Ltd ("Ace Europe") and local policies issued by local ACE entities pursuant to the Master Policy. The claim was adjusted by VRS Vericlaim and on 20 February 2012 the claim was settled in the amount of £82.5 million, less a deductible of £100,000 and a self-insured retention of £2.4 million.
ACE Europe and the relevant local ACE companies were reinsured under a facultative reinsurance ("the Reinsurance") under which various reinsurers agreed to reinsure a 55% share of losses. The Claimant, Tokio Marine Europe Insurance Limited ("TMEI"), subscribed a 12.5% share to the Reinsurance and, in turn, purchased from the Defendant, Novae Corporate Underwriting Limited ("Novae"), a facultative excess of loss reinsurance ("the Retrocession").
TMEI has paid its share of the settlement sum and in these proceedings seeks to recover from Novae its 12.5% share of losses excess of £53 million (i.e. £3,125,000). Novae denies liability on various grounds.
The trial of five preliminary issues which it is hoped will resolve the parties' disputes was ordered. The issues are essentially questions of construction including in particular issues as to the scope and effect of the follow settlements clause. The trial was conducted on documents and without the need for oral evidence. Both parties made extensive written submissions and I have drawn on those submissions, with adaptations and amendments, in preparing this judgment, particularly in relation to matters of common ground and in setting out the parties' arguments.
Factual background
The parties produced a Statement of Agreed Facts which largely sets out the factual background.
The properties affected by the flooding in Thailand were insured under a local policy PIP0020253 AR-40124 — issued by ACE INA Overseas Insurance Company Limited ('ACE INA') and a Master Policy reference UKFRIC38309.11 (the 'Master Policy') — issued by ACE Europe in respect of physical damage to the property insured and business interruption losses.
The insurance of the properties in Thailand was part of a multinational insurance programme by which properties owned and operated by Tesco plc, its affiliates, subsidiaries and joint ventures (together 'Tesco') in various territories throughout the world were insured under the Master Policy and, with certain exceptions, also under local policies issued by companies in the ACE group. For properties in those territories in which a local policy was issued, the Master Policy responded solely on a Difference in Conditions ("DIC")/Difference in Limits ("DIL") basis.
The Master Policy covered Tesco's properties in the United Kingdom, Republic of Ireland, France, Hungary, Poland, Czech Republic, Slovakia, Thailand, South Korea, Malaysia, Hong Kong, Japan, Turkey, USA, China and India and local policies, issued by the respective local companies, covered Tesco's properties in the same territories, except the United Kingdom, China and India.
ACE Europe and the relevant local companies were reinsured by ELH Insurance Limited ('ELH') up to £2.5 million each and every occurrence excess of the deductibles under the Master Policy and local policies.
ACE Europe and the relevant local companies were further reinsured under the Reinsurance by which various reinsurers, including TMEI, agreed to reinsure the cedants for, in total, a 55% share of losses sustained by Tesco during the period of 1 October 2011 to 28 February 2013 excess of the deductibles and captive/self-insured retention up to a limit of £100 million each and every occurrence excess of original policy deductibles.
TMEI subscribed a 12.5% share to the Reinsurance and, in turn, purchased from Novae the Retrocession.
John McGowan of TMEI's broker AON Benfield supplied Novae's underwriter, Richard Ikin, with the information contained in his e-mail of 19 August 2011 and its attachments and further spreadsheets of property values revised on 4 October 2011. Mr Ikin bound the Retrocession on 4 October 2011.
Under the Retrocession, Novae agreed to reinsure TMEI for 12.5% (its written line under the Retrocession) of losses sustained by Tesco during the period of 1 October 2011 to 28 February 2013 in excess of £53 million each and every "Loss Occurrence" subject to a limit of £25 million each and every "Loss Occurrence", and subject to the terms and conditions of the Retrocession.
The "Reinsurance Conditions" of the Retrocession contain the term: "Following Original Policy Wording Reference Number: UKFRIC38309.10". This is an error and should read "Following Original Policy Wording Reference Number: UKFRIC38309.11"
The Retrocession contains a follow the settlements clause in the following terms:
"This Contract is subject in all respects (excluding the rate and/or premium hereon and subject always to the Limits Reinsured hereon and except as otherwise provided herein) to the same terms, clauses and conditions as original and without prejudice to the generality of the foregoing, Reinsurers agree to follow all settlements (excluding without prejudice and ex-gratia payments) made by original Insurers arising out of and in connection with the original insurance and to bear their proportion of any expenses incurred whether legal or otherwise in the investigation and defence of any claim hereunder in addition to limits hereunder."
Between 6 October 2011 and 6 November 2011 a number of Tesco stores and distribution centres were affected by the widespread flooding in Thailand as a result of which Tesco suffered losses.
ACE Europe and ACE INA appointed loss adjusters VRS Vericlaim to adjust Tesco's claim and RGL Forensics to assist in the adjustment of Tesco's business interruption claim.
VRS Vericlaim produced a number of reports. The final report dated 18 May 2012 records that the total claim made by Tesco and/or Ek-Chai under the Master Policy and the Local Policy for physical damage to property insured under those policies and business interruption was £125.32 million.
In 2011 Tesco occupied nearly 900 properties throughout Thailand and the floods affected a total of 165 of those properties.
The geographical distribution of the affected properties listed by province and approximate distance from Central Bangkok was as follows:
i) 1 in Nakhon Sawan (Northern Region) — approximately 200 km north of Central Bangkok
ii) 24 in Ayutthaya (Central Plain Region) — approximately 60 km northeast of Central Bangkok
iii) 57 in Pathum Thani (Central Plain Region) — approximately 30 km north of Central Bangkok
iv) 20 in Nonthaburi (Central Plain Region) — approximately 15 km north of Central Bangkok
v) 9 in Nakhon Pathom (Central Plain Region) — approximately 50 km west of Central Bangkok
vi) 53 in Bangkok (Central Plain Region)
vii) 1 in Samsut Sakhon — approximately 30 km southwest of Central Bangkok
On 20 February 2012, a settlement agreement was entered into between Tesco plc, Ek-Chai, ACE Europe, ACE INA and ELH to settle Tesco's claim under the Master Policy and the local policy for £82.4 million after application of one deductible of £100,000.
On 17 February 2012, Philip Dick, TMEI's Chief Operating Officer, sent Andy McAvan of ACE an email in, inter alia the following terms:
"Given the urgency involved in providing you with a position from TMEI, I confirm that TMEI is prepared to support the proposed settlement with Tesco for its share of GBP80m net of one GBP2.5m deductible subject to the following points:
1. We assume this is the intent of the proposed settlement with Tesco but, for the avoidance of doubt, our agreement to the settlement is on the basis that this is a 'full and final' settlement in respect of the Thailand flood event and that TMEI is fully released from all further liability to ACE in respect of damage to Tesco properties caused by the recent floods.
2. Our agreement is on the strict understanding that it shall not, in any respect, be treated by ACE as a precedent to support any future claims it may make under its reinsurance contract with TMEI.
3. TMEI's support is also on the basis that the premium due will first be paid — a point we understand has already been agreed with QBE."
The settlement amount was split £57,950,152 to the local policy and £24,449,848 to the Master Policy. Of the net settlement sum of £82.4m, ELH's liability to ACE Europe and ACE INA (together referred to as "ACE") was £2.4 million. The net settlement for the purposes of the Reinsurance was therefore £80 million. TMEI says it has paid in full its share of the settlement due under the Reinsurance.
The amount of the settlement concluded on 20 February 2012 that was...
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