WR Berkley Insurance (Europe) Ltd and Another (Appellants/ Defendants) v Teal Assurance Company Ltd (Respondent/ Claimant)
| Jurisdiction | England & Wales |
| Judge | Sir Stephen Tomlinson,Mr Justice Arnold,Lord Justice Lewison |
| Judgment Date | 25 January 2017 |
| Neutral Citation | [2017] EWCA Civ 25 |
| Date | 25 January 2017 |
| Docket Number | Case No: A3/2015/1562 |
| Court | Court of Appeal (Civil Division) |
[2017] EWCA Civ 25
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE EDER
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Lewison
Mr Justice Arnold
and
Sir Stephen Tomlinson
Case No: A3/2015/1562
Colin Edelman QC and Alison Padfield (instructed by Clyde & Co LLP) for the Appellants/ Defendants
Christopher Butcher QC and Rebecca Sabben-Clare QC (instructed by DAC Beachcroft LLP) for the Respondent/Claimant
Hearing date: 18 November 2016
Introduction
This appeal raises a short point as to the proper construction or characterisation of a Payment Deed and associated Escrow Agreement entered into on 15 December 2010 by Black & Veatch Group Limited ("BVGL"), a major engineering group, pursuant to a compromise agreement concluded with one of its customers, Ajman Sewerage (Private) Company Limited ("ASPCL"). The Payment Deed by clause 3.2 required BVGL to "deposit US$13,460,531 in cleared funds (the Escrow Amount) into the Escrow Account", an account opened by the Escrow Agent BNP Paribas Securities Services "in the name of BNP Paribas Securities Services as Agent for BVGL and ASPCL … and operated pursuant to the Escrow Agreement". The Escrow Amount was paid into the Escrow Account on the same day as the Payment Deed was executed, 15 December 2010. The question is whether execution of that agreement, and/or the payment of the sum into escrow by BVGL on that day, generated in BVGL's professional liability insurers an immediately enforceable obligation to indemnify BVGL on the basis that the sum of US$13,460,531 was a sum which BVGL had "become legally obligated to pay as Damages", that being the relevant language of the insuring clause.
The question arises in the context of preliminary issues directed to be tried on the basis of a Statement of Facts agreed only for the purposes of the preliminary issues. Nothing that I say in this judgment therefore is intended to be conclusive of ultimate liability. The parties seek the resolution of this issue on the basis of assumed facts because it is critical to their interests to establish the time at which, and therefore the order in which, insured losses were suffered for the purpose of a programme of professional indemnity insurance and reinsurance. During the relevant policy period, 1 November 2007 to 1 November 2008, the Black & Veatch group companies had the protection of a "tower" of insurances in excess of a self-insured retention of US$10 million per claim and US$20 million in the aggregate per policy period. The first four layers of this programme provided worldwide cover up to US$60 million in excess of the self-insured retention. The fifth and final layer however, providing further cover of up to £10 million, excess of the cover of US$60 million provided by layers 1–4, excluded claims emanating from or brought in the USA or Canada. Layers 2–5 of the insurance programme in the tower were underwritten by the Respondent/Claimant Teal Assurance Company Limited, a captive insurer of the Black & Veatch Group. Layers 2–4 were variously reinsured by five major reinsurers. The reinsurance of the fifth layer was placed with two further reinsurers, the Appellants/Defendants WR Berkley Insurance (Europe) Limited and Aspen Insurance UK Limited, who had no exposure to layers 2–4.
During the policy period Black & Veatch faced a number of claims, two of which were substantial US-based claims. It is in the interests of Berkley and Aspen as reinsurers of the fifth layer in the tower to establish that the non-US-based claims rate for indemnity prior in time to the US-based claims and thus exhaust layers 1–4 of the insurance programme before the US-based claims attach. If their argument is well-founded, the remaining US-based claims will be irrecoverable under the fifth layer of the programme because excluded and Black & Veatch must bear those claims uninsured. If however the US-based claims attach prior to the non-US-based claims, the US claims will rate for indemnity under and exhaust layers 1–4 leaving layer 5 exposed to the non-US based claims to which it must respond. Hence this litigation between Black & Veatch's captive insurer Teal and the reinsurers of the fifth layer Berkley and Aspen.
The parties have already submitted an initial set of preliminary issues for resolution by the court. On that occasion, as it seemed to me, the captive insurer Teal was hoping to be able to manipulate recoveries of indemnity so as to enable Black & Veatch to access the fifth layer in the tower without first establishing that the cover on top of which that layer sits had burned through – see paragraph 20 of my judgment at [2011] EWCA Civ 1570. On that occasion Andrew Smith J, this court and the Supreme Court held with one voice that claims exhaust the insurance programme by reference to the order and timing of the establishment and ascertainment of the original insured's liability – see [2011] EWHC 91 (Comm), [2011] EWCA Civ 1570 and [2013] UKSC 57. That conclusion is hardly novel. It gives effect to the decision of the Court of Appeal in Post Office v Norwich Union Fire Insurance Society Limited [1967] 2 QB 363 and of the House of Lords in Bradley v Eagle Star Insurance Co Limited [1989] AC 957. The principle was pithily stated by Phillips J in Cox v Bankside Members Agency Limited [1995] 2 Lloyd's Rep 437 where he said, at 442(RH):
"No obligation on the part of the insurer arises until the liability of the assured to a third party is established and quantified by judgment, arbitration award or settlement."
Quantified here means ascertained as to its amount, and in this context the words "quantified" and "ascertained" are synonymous. The question raised by this second set of preliminary issues is whether the liability of Black & Veatch Corporation to ASPCL for breach of the construction contract concluded between them was established and ascertained, or quantified, by entry into the Payment Deed and associated Escrow Agreement and/or by payment of the Escrow Amount. Eder J held that it was not – [2015] EWHC 1000 (Comm) and it is against that decision that the reinsurers appeal.
The facts
I gratefully adopt the following summary of the facts and the issues set out by Eder J, which was in large part taken by him from the agreed Statement of Facts, and which I have supplemented only by citation of certain further provisions of the relevant agreements:
"3. Teal is an insurance company incorporated in the Cayman Islands. It is wholly owned by the Black and Veatch Holding Company and is one of the Black & Veatch group of companies. The Reinsurers are reinsurers of the Top & Drop layer of Black and Veatch's professional indemnity insurance as further described below.
4. Black and Veatch Corporation ("BVC") is another corporation in the same group of corporations and is incorporated in Delaware. BVC is a major engineering company providing professional advice and services and carrying out engineering, procurement and construction contracts in various parts of the world either by itself or through subsidiary or associate companies and either on its own or in joint venture with others. All references below to "BVC" are to all Black & Veatch group companies, as the context requires.
5. Teal is a captive insurer i.e. its sole business is the insurance and reinsurance of the interests of members of the Black & Veatch group of corporations.
6. During the relevant period i.e. 1 November 2007 to 1 November 2008 (the "policy period"), BVC's professional indemnity insurance programme for the policy period comprised of 5 layers, as follows.
The Lexington policy
7. The bottom layer of the programme was a contract of insurance of BVC underwritten by Lexington Insurance Corporation and contained in or evidenced by policy no. 0101085 (the "Lexington policy" or "Primary policy"). The Lexington policy provided professional indemnity insurance to BVC subject to a per claim deductible of US$100,000, a per claim self-insured retention of US$10 million and an aggregate self-insured retention per policy period of US$20 million. The limit under the Lexington policy was US$5 million per claim and in the aggregate.
8. The Lexington policy provided in material part as follows:
"…
1. INSURING AGREEMENT — COVERAGE
…
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
…
D. Damages means compensatory damages.
…
V. SETTLEMENT
The Insured shall not settle any Claim without the informed consent of the Company, such consent not to be unreasonably withheld.
…
VI. ACTION AGAINST THE COMPANY
No action shall lie against the Company unless, as a condition precedent thereto, the Insured shall have fully complied with all the terms of this Policy, nor until the amount of the Insured's obligation to pay shall have been finally determined either by judgment against the Insured at the actual trial, arbitration or by written agreement of the Insured and the claimant, to which agreement the Company has consented.
…
ENDORSEMENT # 008
…
DESIGN BUILDER'S INDEMNITY ENDORSEMENT
Endorsement Specific Deductible: $250,000.00
In consideration of the premium charged, it is hereby understood and agreed that the coverage provided under this policy is modified as...
To continue reading
Request your trial
-
Denso Manufacturing UK Ltd v Great Lakes Reinsurance (UK) Plc
...The point has been reiterated again since the hearing in this case completed in WR Berkeley Insurance (Europe) v Teal Assurance Co Ltd [2017] EWCA Civ 25 at [4] where Sir Stephen Tomlinson stated: "quantified here means ascertained as to its amount". Unsurprisingly these opinions also refle......
-
Blog: Court Of Appeal Confirms That Payment Of Money Into Escrow Account Is Not An Insured Loss Under A Liability Policy
...WR Berkley Insurance (Europe) Limited v Teal Assurance Company Limited [2017] EWCA Civ 25, the Court of Appeal upheld the first instance decision of Mr Justice Eder, and confirmed that the payment of monies into an escrow account did not constitute an insured loss under a liability insuranc......
-
Is the payment of a sum into an escrow account sufficient to ascertain an insured loss?
...arrangements when settling a dispute: (1) WR Berkley Insurance (Europe) Ltd (2) Aspen Insurance UK Ltd v Teal Assurance Co Ltd [2017] EWCA Civ 25. In December 2010 Black & Veatch Group Limited (BVGL), an engineering group, settled a dispute with the Emirate of Ajman (Ajman) in relation to t......