Travelers Casualty and Surety Company of Europe Ltd and Others v Arkwright and Others

JurisdictionEngland & Wales
JudgeJonathan Hirst QC,Mr Hirst QC
Judgment Date16 July 2004
Neutral Citation[2004] EWHC 1704 (Comm)
CourtQueen's Bench Division (Commercial Court)
Date16 July 2004
Docket NumberCase No: 2004 Folio 198

[2004] EWHC 1704 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Jonathan Hirst QC sitting as a Judge of the High Court

Case No: 2004 Folio 198

Between
(1) Travelers Casualty and Surety Company of Europe Limited
(2) Travelers Casualty and Surety Company of Canada
(3) Oak Dedicated Limited on Behalf of all Underwriting Members of Syndicate 839
(4) American Home Assurance Company
(5) Chubb Insurance Company of Canada
(6) Liberty International Underwriters
(7)New Hampshire Insurance Company
Claimants
and
Sun Life Assurance Company of Canada (UK) Limited
Sun Life Financial Services of Canada Inc.
Defendants

Gavin Kealey QC and Andrew Wales (instructed by Clifford Chance LLP) for the Defendants

Robert Howe (instructed by Robin Simon LLP) for the Claimants

Hearing dates : 25 and 30 June and 2 July 2004

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of the Judgment and that copies of this version as handed down may be treated as authentic.

APPROVED JUDGMENT

Jonathan Hirst QC Mr Hirst QC
1

The Defendants (who I shall call Sun Life UK and Sun Life Canada respectively and Sun Life collectively) apply:

(1) To stay these proceedings against Sun Life UK in favour of the proceedings between the same parties before the Ontario Superior Court of Justice;

(2) To set aside the permission granted to the Claimants on 16 March 2004 to serve the Claim Form out of the jurisdiction on Sun Life Canada;

on the grounds that Canada is an alternative available forum with competent jurisdiction which is clearly and distinctly a more appropriate forum than England for the trial of this action.

Background

2

Sun Life Canada is the parent company of the long established and well known Sun Life of Canada group of companies. It was originally a mutual organisation. It is now incorporated in Toronto in the Province of Ontario, Canada, where its head office is situated. It owns subsidiaries in many parts of the world, including Sun Life UK which is a major subsidiary.

3

Sun Life UK is incorporated in England & Wales. It has its head office at Basingstoke in Hampshire. At all relevant times it was a substantial participant in the UK financial services industry selling and managing investment and insurance products within the UK. It employed a substantial sales force. Until 1 December 2001, it was regulated by the Personal Investment Authority ("the PIA"). Thereafter, it has been regulated by the Financial Services Authority ("the FSA") in accordance with the Financial Services and Markets Act 2000.

The Policy

4

In September 2000, Sun Life Canada took out a global "Blended Excess Program" contained in a single policy No. MMF/1460 ("the Policy") consisting of a primary and three excess layers. Coverage extended to US$300 million any one claim with an excess retention of $25 million each and every loss or claim and US$600 million aggregate over the policy period. Sun Life Canada was named as the Parent Organisation, but the insured were defined as including any subsidiary of Sun Life Canada. The Policy period was for three years from 30 September 2000 till 1 October 2003. Coverage was divided into four sections:

All sections were subject to the Master General Conditions. The undivided premium for this extensive programme was US$6,930,000.

Section 1A:

Financial Institution Bond.

Section 1B:

Financial Institution Professional Liability.

Section 1C:

Employment Practices Liability.

Section 1D:

Fiduciary Liability.

5

The insurers' participations differed as between the layers. Originally the participations were as follows:

Primary Layer (US$50m)

First Excess Layer ($50 million)

Second Excess Layer ($100 million)

Third Excess Layer ($100 million)

Lead insurer, Gulf Insurance Company U.K. Ltd:

20%

("Gulf UK")

Participating Insurers

Lloyd's Syndicates (led by Syndicate 839)

40%

American Home Assurance

15%

Chubb Insurance Company of Canada

15%

Liberty Mutual Insurance Company

10%

Gulf UK

20%

Lloyd's Syndicates

40%

American Home Assurance

15%

Chubb Insurance Company of Canada

10%

Liberty Mutual Insurance Company

15%

Gulf UK

10%

Lloyd's Syndicates

35%

American Home Assurance

11.5%

AIG Europe

as agents of New Hampshire Insurance Co

3.5%

Chubb Insurance Company of Canada

15%

Liberty Mutual Insurance Company

25%

SR International Business Insurance

Company Ltd

50%

American Home Assurance

24%

AIG Europe

as agents of New Hampshire Insurance Co

3.5%

Chubb Insurance Company of Canada

12.5%

Liberty Mutual Insurance Company

10%

6

Gulf UK is a subsidiary of Gulf Insurance Group ("Gulf US") based in New York. It has changed its name to Travelers Casualty and Surety Company of Europe Limited

7

Section 1B of the Policy, with which this dispute is concerned, stated:

" Declarations

THIS IS A CLAIMS MADE POLICY. SUBJECT TO ITS TERMS, THIS POLICY APPLIES ONLY TO ANY CLAIM FIRST MADE DURING THE POLICY PERIOD PROVIDED SUCH CLAIM IS REPORTED TO THE INSURERS AS SOON AS PRACTICABLE."

The insuring clause covered loss resulting from a claim first made during the policy period for a wrongful act, which was widely defined to include actual or alleged error, omission, negligent act, any misrepresentation, misstatement, misleading statement and "breach of any regulation, rule, standard of practice or specification of any financial services regulatory authority or Self Regulatory Organisation." Coverage also extended to all sums which the insured became obligated to pay, and all costs incurred as a result of any investigation or review by a financial services regulatory authority.

8

Clause 6 of the Master General Conditions incorporated the terms of a warranty letter ("the Warranty") signed on 27 September 2000 by Susan Meltzer, the Assistant Vice-President, Insurance and Risk Management, of Sun Life Canada. It warranted with effect from 30 September 2000 that:

"As respects the Financial Institution Professional Liability Policy … issued by Gulf Insurance Company UK Ltd ("the Insurer"), the Insured provides the following:

The Insured hereby represents and warrants that it has no knowledge or information of any actual or alleged fact, circumstance, situation, act error, omission, misrepresentation, neglect or breach of duty which could give rise to a Claim within the scope of the proposed coverage against the Insured or any of the persons or entities covered under the Policy except as disclosed in "Corporate Errors & Omissions Insurance Program Claims History (as of September 20, 2000)" in Appendix A attached. The Insured acknowledges and agrees that if such fact, circumstance, situation, act, error, omission, misrepresentation, neglect and/or breach of duty exists, whether or not disclosed, any Claim arising therefrom is excluded from coverage under the Policy."

Knowledge or information of the "Insured" was defined under the Warranty as meaning:

"…the following individual employees at Sun Life: executive officers, risk managers, general managers and vice presidents of national offices, heads of national office legal departments, general counsel and vice chairman."

9

Appendix A of the Warranty listed four sets of losses greater than US$2.5 million in the previous 5 years including UK pension mis-selling (estimated loss £400 million) and Canadian and US premium offset litigation (estimated losses Can$85 million and US$100 million).

10

Clause 7 of the Master General Conditions provided:

"Reporting and Notice

Once known or discovered by the Assistant Vice President, Insurance and Risk Management, notice shall be provided to the Insurer as soon as practicable for:

(a) any Claim, Loss, or potential Loss exceeding $12,500,000;

(b) any formal administrative or regulator proceeding, Claim or investigation;

(c) any class action lawsuit

All other Claims, Losses or potential Losses exceeding $2,500,000 shall be reported to the Insurer on an annual bordereau."

Clause IX of Section 1B of the Programme stated:

"Assignments and Action Against Insurers

No action shall lie against the Insurer unless, as a condition precedent thereto, the Insureds shall have fully complied with all of the terms of this Policy …"

Notifications were to be given to the Lead Insurer, Gulf UK, on behalf of itself and the participating insurers.

11

In April 2001, after the premium had been paid, Gulf UK was replaced by the Second Claimant, Travelers Casualty & Surety of Canada ("Travelers Canada"), effective from inception. The change was at the request of Sun Life Canada in order to avoid payment of the tax that would be due in Ontario on an insurance arrangement with a foreign domiciled insurer. Travelers Canada were fronting for Gulf UK, which continued to administer the Policy. Sun Life paid premiums to Gulf UK and Lloyd's underwriters via Marsh UK. Gulf UK and Gulf US each received all notifications.

The Claim and Proceedings in London and Ontario

12

On 10 October 2000, a few days after the Policy incepted, the FSA wrote to Sun Life UK following a "focus" visit in August 2000. It recited a summary of a number of serious criticisms made by the PIA and required Sun Life UK to undertake a review of past business ("PBR") in order to demonstrate that investors had not been disadvantaged during the period when the firm was unable to demonstrate appropriate internal controls There was a threat of disciplinary proceedings and corrective action was to be taken within two months.

13

In April 2002, Sun Life through Marsh gave Gulf UK and Gulf US an informal report about a possible claim arising from the PBR conducted following a visit and subsequent report by the FSA in August/October 2000. It was indicated that...

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