Wasa International Insurance Company Ltd v Lexington Insurance Company
| Jurisdiction | England & Wales |
| Judge | Lord Justice Longmore |
| Judgment Date | 29 February 2008 |
| Neutral Citation | [2008] EWCA Civ 150 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2007/0985 & A3/2007/0984 |
| Date | 29 February 2008 |
[2008] EWCA Civ 150
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT
THE HONOURABLE MR JUSTICE SIMON
2005 Folio 928
Royal Courts of Justice
Strand, London, WC2A 2LL
The Right Honourable Lord Justice Pill
The Right Honourable Lord Justice Sedley and
The Right Honourable Lord Justice Longmore
Case No: A3/2007/0985 & A3/2007/0984
Mr Christopher Butcher QC (instructed by Chadbourne & Parke) for the Appellant
Mr Alistair Schaff QC & Siobán Healy (instructed by Addleshaw Goddard) for the First Respondent
Mr Neil Calver QC & Mr Stephen Midwinter (instructed by Charles Russell) for the Second Respondent
Hearing dates : 31 st January & 1 st February 2008
Introduction
In the United States the maxim that the polluter must pay is now being seriously enforced. The Aluminium Company of America (“Alcoa”) has been forced to remove waste caused by pollutionto restore sites from which waste has been removed. Some such sites have a long history of pollution going back as far as the end of World War II. Alcoa has incurred substantial expenditure by way of what it has called the “costs of remediation”. Not unnaturally it has looked to its property damage insurers for reimbursement of those costs. Between 1 st July 19771 st July 1980 Lexington Insurance Company (“Lexington”) were one of Alcoa's property damage insurers in an insured sum of US $20,000,000 per occurrence. Lexington reinsured that risk on the London reinsurance market on the same termsconditions “as original” including, specifically, the insured period of 1 st July 1977 to 1 st July 1980.
It was necessary for Alcoa to institute proceedings against Lexington. Alcoa chose, as it was entitled to do, to bring those proceedings in the state of Washington. The judge at first instance (Learned J) held that pollution had caused property damage at several of Alcoa's sites in the United Statesthat at each relevant site there had been two occurrences. She also held that the damage increased year by year in a more or less linear progression. It was, therefore, possible to divide the total costs of remediation by the number of years over which the pollution had occurred. She then decided it was also possible to attribute specific remediation costs to the damage which occurred during the particular years during which Lexington provided insurance to Alcoa. On all these questions she purported to apply the law of Pennsylvania, the law of the State where Alcoa was incorporatedhad its centre of business.
Some of Alcoa's other insurers seem to have escaped liability because there were relevant exceptions or limitation provisions in the policies. Alternatively Alcoa may have been uninsured for some years or may have had difficulty in tracing insurers for each of the many years during which property damage due to pollution had occurred. It decided to appeal Judge Learned's decisionargued that, as a matter of the law of Pennsylvania, it could recover the full costs of remediation at any particular site provided only that some damage had occurred at the relevant site during the years when Lexington was at risk. The Supreme Court of Washington State (sitting en banc as a court of 9 judges) decided that that was indeed the law of Pennsylvania. The court accordingly declared that Lexington was liable on that basis. Lexington was then faced with a claim of about US$180 million which they settled for a figure of US$103 million. That was a proper settlement on that interpretation of the law.
Lexington then looked to their reinsurers and, in particular to Wasa International Insurance Company Ltd (“Wasa”)AGF Insurance Ltd (“AGF”) who had taken 2.5% of the reinsurance. WasaAGF (“the reinsurers”) have declined to pay on the basis that the reinsurance policy was governed by English lawthat, as a matter of English law, reinsurers can only be liable for the costs of remedying damage to property which actually occurred between 1 st July 19771 st July 1980. Thus it is said that they cannot be liable for the cost of remedying damage which occurred before or after that date. Simon J [2007] EWHC 896 (Comm); [2008] 1 AER (Comm) 286 has upheld that contentionLexington now appeal to this court.
It is, of course, necessary to set out the relevant terms of both Alcoa's policy with LexingtonLexington's contract with the reinsurersto say a little bit more about the Supreme Court of Washington's decision.
The Contracts
Insurance Contract
Lexington insured Alcoa in respect of loss or damage to property (and business interruption risks) under a Policy on Lexington's Special Floater form signeddated at Boston, Massachusetts on 22 nd August 1977. The insurance, referred to as DIC (Difference in Conditions) Insurance, provided for the insurance of Alcoa from noon on 1 st July 1977 until noon on 1 st July 1980. The Limit of Liability was stated to be:
$20,000,000 loss or damage arising from any one occurrence.
The 'occurrence' was defined as:
… any one loss(es), disaster(s), or casualty(ies) arising out of one event or common cause;
There was a property damage deductible of $250,000 per occurrence.
Although there was no express choice of law clause, the Insurance Contract contained a standard US Service of Suit clause:
In the event of the failure of this Company to pay any amount claimed to be due hereunder, [Lexington] at the request of the Insured, will submit to the jurisdiction of any Court of Competent jurisdiction within the United Stateswill comply with all requirements necessary to give such Court jurisdictionall matters arising hereunder shall be determined in accordance with the lawpractice of such Court.
Reinsurance Contract
The reinsurance provided cover in respect of all risks of physical loss or damage to the property reinsured occurring in the period of 36 months from 1 st July 1977, subject to a limit of $20,000,000 per occurrence. The terms were set out in a Slip:
TYPE: Contributing Facultative Reinsurance
FORM: J1 or NMA 1779 covering All Risks of Physical Loss or Damage excluding FireAllied Perils and/or as original.
REASSURED: Lexington Insurance Company
ASSURED: Alcoa Aluminium
PERIOD: 36 months 1.7.77 L/U and/or pro rata to expiry of original.
INTEREST: All property of every kindDescription and/or Business InterruptionO.P.P. and/or as original.
SUM INSURED: Policy to pay up to $20,000,000 each occurrencein the aggregate annually in respect of FloodEarthquake.
SITUATED: Worldwide and/or as original
CONDITIONS: Retention $1,675,000 subject to excess of Loss and/or Treaty R/I
Full R/I Clause No. 1 amended
C.C. as original plus 30 days
PREMIUM: Calculated at GOR [Gross Original Rate]
BROKERAGE: 25%tax
The 25% brokerage was divided, with 10% payable to Lexington15% to CE Heath who were the brokers for the reinsurance.
On 1 st June 1977 Sentry Underwriting Agencies Ltd subscribed to a 2.5% line of the Reinsurance Contract on behalf of WASA in respect of 1%on behalf of AGF in respect of 1.5%.
Features of the Reinsurance Contract
The judge emphasised certain features of the reinsurance contract.
i) The risk was placed in London with London reinsurers by London insurance brokers in 1977, prior to the coming into force of the Rome Convention. It was common ground that the governing law was to be determined in accordance with English common law principles. It was also common ground that by the proper application of those principles, the Reinsurance Contract was subject to one of two alternative London forms. It followed that the constructionlegal effect of the Reinsurance Contract was governed by English Law.
ii) Since no contract was ever drawn up, the terms of the Reinsurance Contract are deemed to be contained in the Slip.
iii) The Slip referred to a choice of forms (J1 or NMA 1779). This reflected an administrative practice in the London market for the issue of formal policy documentation. The J1 form was a 'policy jacket' containing a policy, which was then put to various underwriters for subscription. The NMA 1779 form was generally used as an attachment to a Slip, obviating the need to issue a formal Policy.
iv) The J1 form contained the words:
Being a reinsurance ofwarranted same gross rate, termsconditions asto follow the settlements of the [reassured].
The NMA 1779 form did not have a follow settlements clause. However it contained an obligation:
… to pay or to make good to the Reinsured all such Loss as aforesaid as may happen to the subject matter of this Reinsurance, or any part thereof during the continuance of this Policy.
v) Although the 'Full R/I Clause No. 1 as amended' referred to in the 'Conditions' had not been identified, it was common ground that the 'Full R/I Clause No. 1' was a standard clause used in the London marketthat it was in the following terms:
Being a Reinsurance ofwarranted same gross rate, termsconditions asto follow the settlements of the … Companythat said Company retains during the currency of this Policy at least … on the identical subject matterriskin identically the same proportion on each separate part thereof, but in the event of the retained line being less than as above, Underwriters' lines to be proportionately reduced.
Since the J1 form contained a similar provision, it can reasonably be inferred that the Full Reinsurance clause was specifically referred to in the Slip in case the NMA 1779 form was to be used.
The Insurance...
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