1 Insurance and Reinsurance Review of 2013 January 2014
2 Contents Law and jurisdiction Starlight Shipping: Supreme Court considers Articles 27 and 28 of the Judgments Regulation (EC Regulation 44/2001) in deciding whether to stay English court proceedings...01 Arbitration clause found to be effective despite an exclusive jurisdiction clause for the courts of Kenya...04 Procedure Deed of indemnity from an ATE insurer found to be adequate security for costs...06 English Court applied the Dallah principle when considering time limits to challenge the jurisdiction of an arbitral tribunal and subsequently permitted enforcement of the arbitration awards...07 Interpretation of policy and scope of coverage Mesothelioma: filling the gaps in insurance periods...10 Interpretation of an indemnity in a public liability policy...11 Court reluctant to grant declaration of non-liability...13 Contractual construction of a consumer contract...14 Court upholds safety first intention of typhoon warranty...16 Fraud and Avoidance Hull insurer fails to avoid indemnity...17 An appellate court is rarely justified in overturning a finding of fact by a trial judge which turns on the credibility of a witness...19 Scope of warranties within the proposal form for a construction policy...21 Fraudulent device rule vitiates otherwise valid claim...23 Misrepresentation, non-disclosure and breaches of condition will invalidate a residential insurance policy...25 Regulatory Issues Extended warranties for consumer goods found to be contracts of insurance requiring authorisation...27
3 Brokers Duties Commercial Court rules on Lloyd s brokers duties to remit funds...29 Bermuda Form English Courts interpret Bermuda Form policy governed by English law and highlight the pitfalls of not appreciating key differences between English and New York legal principles...31 Reinsurance Aggregation: English Court confirms that WTC losses arose from two events, not one...33 Scope and effect of a Claims Control Clause in a reinsurance contract...34 English High Court rules on application of follow clause in retrocession contract...36 Supreme Court upholds that liability policy coverage is triggered on ascertainment of liability of underlying insured...39 United States Assessment of cedent s settlement allocation in a follow-the-settlements case...41 Recent New York cases addressing late notice in the context of insurance and reinsurance...42 Germany Federal Court of Justice rules on the validity of permanent disability exception clause in payment protection insurance...46 International insurance team... 48
4 Our Annual Insurance and Reinsurance Review summarises the key case law developments in insurance and reinsurance throughout the year. Please note that some cases covered in this review may be subject to further appeal. In our 2013 review, we look at the following cases: Case Judgment dates Atlantic Casualty Insurance Company v Value Waterproofing, Inc., a/k/a 15 January 2013 Value Contracting Inc., a/k/a Value Water Proofing, Inc., Greenwich Insurance Company, Bullard Purchasing and Sales, Inc., and Kansas Fried Chicken, Inc. Versloot Dredging BV v HDI Gerling Vesicherung AG 4 February 2013 International Energy Group Limited v Zurich Insurance PLC UK 6 February 2013 United States Fidelity & Guaranty Company et al. v American 7 February 2013 Re-Insurance Company et al. Aioi Nissay Dowa Insurance Co Ltd v Heraldglen Ltd and Advent Capital 8 February 2013 (No. 3) Ltd Digital Satellite Warranty Cover Ltd, Re 13 February 2013 Astrazeneca Insurance Company Limited v XL Insurance (Berumda) Limited & Another 28 February 2013, 20 December 2013 AJ Building and Plastering Ltd v Turner & Others 11 March 2013 AIU Insurance Company v TIG Insurance Company 25 March 2013 Beazley Underwriting Ltd v Al Ahleia Insurance Co 27 March 2013 Mutual Holdings (Bermuda) Ltd v Hendricks 7 May 2013 MJ Gleeson Group PLC v AXA Corporate Solutions Assurance S.A. 4 June 2013 Versloot Dredging BV v HDI Gerling Industrie Versicherung AG 14 June 2013 Alan Bate v Aviva Insurance UK Ltd 17 June 2013 Aspen Insurance UK Ltd v Adana Construction Ltd 20 June 2013 Sea Glory Maritime Co v Al Sagr National Insurance Co (The Nancy) 17 July 2013 Teal Assurance Co Ltd v Berkley & Aspen 31 July 2013 Amlin Corporate Member Ltd v Oriental Assurance Corp 31 July 2013 BGH v 11/9/ IV ZR 303/12 11 September 2013 London Steam Ship Owners Mutual Insurance Association Ltd v Spain 20 September 2013, 22 October 2013 Genesis Housing Association Ltd v Liberty Syndicate Management Ltd 4 October 2013 Equitas Ltd v Walsham Bros & Co Ltd 28 October 2013 British American Insurance (Kenya) Ltd v (1) Matelec Sal and (2) Thika 29 October 2013 Power Ltd New Hampshire Insurance Company v Clearwater Insurance Company 31 October 2013 Tokio Marine Europe Insurance Ltd v Novae Corporate Underwriting Ltd 6 November 2013 Starlight Shipping Co v Allianz Marine 6 November 2013
5 01 Law and jurisdiction Starlight Shipping: Supreme Court considers Articles 27 and 28 of the Judgments Regulation (EC Regulation 44/2001) in deciding whether to stay English court proceedings Starlight Shipping co v Allianz Marina & Aviation Versicherungs AG 1 The Supreme Court has lifted the stay imposed by the Court of Appeal in proceedings instituted to enforce a settlement agreement containing an English court exclusive jurisdiction clause on the basis that, contrary to the Court of Appeal ruling, those proceedings did not fall within Article 27 of the Judgments Regulation. Article 27 obliges a court in a Member State to stay proceedings involving the same parties and the same cause of action already pending in another Member State, in this case, Greece. The Supreme Court noted the purpose of Articles 27 and 28 of the Judgments Regulation to avoid, as far as possible, inconsistent judgments. However, regarding Article 27, it was necessary to consider the object and cause of action of the claims rather than the end result sought by the parties in each jurisdiction. In doing so, the defences to the claims raised by the parties must be ignored. As such, it found that the object and causes of action in the two jurisdictions were different. The Supreme Court declined to stay the English proceedings under Article 28, where the court second seised has a discretion to stay related actions as it held that, in this case, the court was first seised. Regarding Article 28, it was necessary to consider the proceedings and not the issues to determine the court first seised. Had the English court been second seised, it would, in any event, have declined to exercise its discretion to stay for a number of reasons, including the existence of the clause in the settlement agreement conferring jurisdiction on the English courts. Background Starlight was the former owner of the vessel Alexandros T, which sunk off the coast of South Africa in May 2006, with the loss of many lives. In August of that year, Starlight (and others) commenced proceedings (the 2006 Proceedings ) for the loss against their Lloyd s and company market insurers (described in the case as the LMI and the CMI defendants), who denied the claim, alleging amongst other things that the vessel was unseaworthy with the insureds knowledge 2. The dispute was hard fought, and particularly notable for the way in which insurers were alleged to have procured evidence in support of their unseaworthiness case. Starlight asserted that the allegations made by the insurers in their defence of the claim were based on false evidence obtained from the ship s bosun, and that the insurers had made significant payments to the bosun in connection with this. The parties entered into settlement agreements shortly before the trial began. The settlement agreements were in the form of a Tomlin Order and the 2006 Proceedings were stayed, save for the purposes of enforcing the terms of the settlement agreements. The settlement agreement with the CMI was expressly subject to exclusive English jurisdiction, whereas that concluded with the LMI was simply stated to be subject to English law and the jurisdiction of the High Court of London. 1  EWHC 3381 (Comm);  EWCA Civ 1714;  UKSC 70. We commented previously on the First Instance and Court of Appeal decisions between the insurers and the insured in our annual reviews of 2011 and Unseaworthiness with the privity of the assured, to which see s39(5) Marine Insurance Act 1906.
6 02 Some three years later, in April 2011, Starlight (and others) then brought claims against the insurers in the Greek courts under the Greek Civil and Criminal Code. The basis of the Greek claims was in effect tort, akin to the torts of defamation and malicious falsehood in English law. The insurers responded in two ways. On the one hand, they sought to invoke the Tomlin Order which included provisions for Starlight to indemnify the insurers in relation to any fresh proceedings which it or its associated companies might bring against the insurers. On the other hand, and without prejudice to their right to relief under the Tomlin Order, they initiated new English proceedings for relief and damages for breach of the exclusive jurisdiction clauses within the settlement agreements. First Instance Decision Commercial Court, 19 December 2011 At first instance, the English Court gave summary judgment for the insurers and refused to stay the English proceedings under Article 28 of the Judgments Regulation. In reaching its decision, the Court considered several issues. First, the Court rejected Starlight s argument that the Greek proceedings were not in relation to the loss of the Alexandros T or under the policies and rather claims for bad faith brought under the Greek Criminal Code, which therefore fell outside the ambit of the previous settlement agreements. The Court found that the so-called fraud exemption in Satyam Computer Services Ltd v Unpaid Systems Ltd 3 applied only to claims unknown at the time of the settlement. In this case, Starlight not only knew of the claims it was now asserting but had attempted (unsuccessfully) to introduce them to the English action three years earlier. Secondly, having determined that the subject matter of the Greek claims fell within the settlement release, the Court held that it was also a breach of those agreements for Starlight to bring the said claims by way of litigation in Greece since the parties had agreed in the settlements to exclusive English jurisdiction (this was expressly so in the case of the CMI settlement agreement, but also held to be so in the case of the LMI settlement agreement which was construed by the court as conferring exclusive jurisdiction to the English courts). Thirdly, the Court held that it was unnecessary for the insurers to rely upon fresh English proceedings to enforce the settlement agreements since the Tomlin Order gave the Court jurisdiction to order the relief sought by the insurers. Appeal Court of Appeal, 20 December 2012 The insureds appealed, arguing that the English proceedings should be stayed under Article 27 of the Judgments Regulation, as the Greek Court was the court first seised of the proceedings. The Court of Appeal held for the insureds. The Court of Appeal stated that it was clear from the authorities that if a cause of action in one Member State is a mirror image of a cause of action in another Member State, the cause of action will be regarded as the same and the second action must therefore be stayed, applying Article 27 of the Judgments Regulation. The Court of Appeal considered that the key assertion in the Greek proceedings was that the claims were non-contractual claims while the key assertion in the insurers newly issued proceedings in the English courts was that the non-contractual claims had already been resolved by the settlement agreements. Therefore, the Court of Appeal held that there was an identity of issues between the proceedings and, as there was considerable risk of inconsistent judgments if one set of proceedings was not stayed, it was bound (as the court second seised) to stay the English proceedings under Article 27 of the Judgments Regulation. The summary judgments granted at First Instance were set aside. The Court of Appeal made no final determinations on Article 28 of the Judgments Regulation. It was left to the Greek courts, as the courts first seised, 3  EWCA Civ 487
7 03 to determine whether the English exclusive jurisdiction clauses under the settlement agreements should be adhered to, and whether the Greek proceedings should be stayed. Supreme Court Supreme Court, 6 November 2013 The insurers appealed the decision of the Court of Appeal and the insureds cross-appealed on the point of Article 28 of the Judgments Regulation. The Supreme Court considered the position under Articles 27 and 28 of the Judgments Regulation. In relation to Article 27 of the Judgments Regulation, the Supreme Court stated that the essential question was whether the English and Greek proceedings were mirror images of one another and thus legally irreconcilable (in which case Article 27 would apply) or whether they were not incompatible (in which case it would not apply). The analysis of the Supreme Court was to disregard any defences raised to the claims and consider only the claims themselves; comparing the cause and the object underlying the claims to see whether they were the same. In the leading judgment of Lord Clarke (with which the majority of the Supreme Court agreed), the new English proceedings were described as being brought under three heads, namely an indemnity claim, a claim under the exclusive jurisdiction clauses, and a claim under the release provisions of the settlement agreements. The Supreme Court determined that the legal basis for the English proceedings was contractual as opposed to the Greek proceedings which were tortious. Therefore, Article 27 of the Judgments Regulation was found not to be applicable to the English proceedings. The Supreme Court noted that where the insurers sought a declaration of non-liability through the English proceedings, this would in effect be a mirror image of the Greek proceedings and the Supreme Court would refer the question to the CJEU as to whether those declarations involve the same cause of action as the Greek proceedings. In any event, the insurers abandoned any claim for such declarations and no referral was required to be made to the CJEU. In relation to Article 28 of the Judgments Regulation, the Supreme Court noted that only those courts other than the court first seised have discretion to stay. It was not in dispute that the English and Greek proceedings were related. The issues the Supreme Court considered were whether the English court was first seised and, if it was not, how the discretion should be exercised. The Supreme Court found that the English court was first seised through the 2006 Proceedings 4 either to the extent that they were unstayed or whether they remained stayed, and nothing had occurred subsequently from which it could be inferred that the English court was no longer seised. The Supreme Court also rejected Starlight s argument that the Greek proceedings were new claims and thus new proceedings. The Supreme Court held that it was only necessary to consider the proceedings and not the issues in relation to claims in the context of Article 28 of the Judgments Regulation. To the extent that the English and Greek proceedings were related, the English court would be considered the court first seised in this case. The Supreme Court further considered the issue of discretion under Article 28 of the Judgments Regulation on the assumption that the English court was second seised. On the facts of the case, given the close relationship between the claims in England and the subject matter of the claims in Greece, the fact that issues in the English proceedings raised contractual questions under English law, and the English proceedings were more advanced than the Greek proceedings, the Supreme Court found that it would refuse a stay under Article 28 of the Judgments Regulation. Lord Clarke also confirmed that, when dealing with Article 28, an exclusive jurisdiction clause in favour of the court second seised would be likely to be a powerful factor in support of refusal of a stay. 4 The 2006 Proceedings had not been dismissed as the parties had not filed any consent order for dismissal after payment of the settlement amounts. The CMI settlement agreement contained a provision for filing such a consent order but this was not carried out. The LMI settlement agreement did not contain any such provision.
8 04 On a procedural note, the Supreme Court also confirmed that the English courts are not required to consider an application for a stay made under the Judgments Regulation where the application is not made in accordance with the requirements of English civil procedure, e.g. if it is made late. Arbitration clause found to be effective despite an exclusive jurisdiction clause for the courts of Kenya British American Insurance (Kenya) Ltd v Matelec SAL & Anor 5 Commercial Court, 29 October 2013 The High Court decided that despite an inconsistent provision in a single contract of insurance and reinsurance which seemingly granted exclusive jurisdiction to the courts of Kenya, a London arbitration clause was binding on the parties. Background The Claimant, British-American Insurance (Kenya) Limited ( BAIC ), an insurance company carrying on business in Kenya commenced two arbitration claims against the Defendants, Matelec SAL, a Lebanese company and Thika Power Limited, a Kenyan company, for an order under the Arbitration Act 1996 appointing an arbitrator, and an injunction to prevent the Defendants commencing proceedings other than by way of arbitration under the contract. The contract in question was agreed by the parties to be a single document which constituted both a contract of insurance for cargo and delay startup, and a contract for reinsurance of that risk. Under the reinsurance contract BAIC only retained 5% of the risk. The combined document did not make clear which clauses referred to which contract, solely the insurance contract, solely the reinsurance contract or both. Due to regulatory concerns by the Kenyan insurer the original policy document was issued with a law and jurisdiction clause which simply stated Kenya. The representative of BAIC had removed the detailed Swiss Re wording which had previously been present and replaced it with the single word. Less than two months later and following a concern raised in relation to having Kenyan governing law in the contract, an endorsement was agreed. The policy was amended to (i) be governed by English law; (ii) give the Kenyan courts exclusive jurisdiction; and (iii) have London as the arbitration seat. A dispute arose as to whether the amended arbitration provision was binding on the parties to the insurance contract, the reinsurance contract or both. The Court needed to resolve the apparent inconsistency between a clause giving exclusive jurisdiction to the Kenyan courts, and an arbitration clause with London as the seat. General principles The Court was clear that when deciding how to interpret a commercial contract, the aim is to ascertain what a reasonable person would have understood the parties to have meant by the words they used, with such reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. 5  EWHC 3278 (Comm)
9 05 Each party put forward quite different meanings which they said should be attributed to the words. Accordingly the Court had to consider the commercial consequences flowing from each interpretation. This process involved looking both at the contract as a whole, but also the commercial rationale for the contract itself, and deciding which meaning made most commercial sense. The Court was mindful of the principle that when confronted with inconsistent provisions it must conscientiously and fairly reconcile them, if at all possible. Finally, as the document in question was not drafted as a coherent whole the Court must be willing to reject parts of the document. Decision The Court found that the reasonable person would, having decided that the governing law amendments introduced by the endorsement would apply to both contracts, be reluctant to find that the amendment relating to arbitration would only apply to the reinsurance contract. The Court was influenced by the apparent commercial desire to ensure that the two contracts would be identical, as evidenced by the incorporation of both the insurance and reinsurance contracts in a single document. On a commercial interpretation as to the effect of the endorsement, there was no delineation between the two contracts, and it made sense that the parties would wish for all disputes to be decided under an identical regime. No weight was placed on the fact that one insurer was based in Kenya in part because, by the very nature of a marine insurance contract, investigation would be required throughout various parts of the world. Given, also, that arbitration clauses are common in commercial insurance contracts and London arbitration would have commercial advantages, in particular an expert tribunal and a substantial degree of privacy, a reasonable observer would have identified no compelling reason overall for the insureds to want disputes to be resolved in the Kenyan courts, rather than by London arbitration. Although the endorsement referred to exclusive court jurisdiction, while at the same time contemplating that disputes would be resolved by arbitration, the Court found no great difficulty in reconciling the two apparently conflicting provisions. A reasonable observer would conclude that the exclusive jurisdiction provision was not intended to prevent the amended arbitration provision from being effective in either the insurance or reinsurance contract; it simply specified which court would have jurisdiction if court proceedings were in fact brought as to the merits. As a practical reality, arbitration clauses do not always prevent one side from bringing such proceedings. Accordingly, relief was granted to BAIC and the parties were bound to arbitrate any claims in London. Key points The Court confirmed that when dealing with inconsistent contractual provisions it will adopt the most commercially sensible interpretation (Rainy Sky SA v Kookmin Bank 6 ). Accordingly, if there is not clarity in the wording of a contract, when a dispute arises the court will look at a number of the wider factors in deciding how to interpret the words. The court will not determine a construction which would damage the parties, but it will be willing to go to the margins of what can conscientiously and fairly be done to reconcile the words used (Pagnan SpA v Tradax Ocean Transportation SA 7 ). Commentary If parties intend to use a single document to encompass both a contract for insurance and reinsurance, and want different provisions to apply to each one, this must be clearly and expressly shown. To prevent a dispute arising in relation to law and jurisdiction, or dispute resolution, parties need to ensure that these are clearly drafted to prevent any ambiguity arising. 6  1 WLR  2 Lloyd s Rep 342
10 06 Procedure Deed of indemnity from an ATE insurer found to be adequate security for costs Versloot Dredging BV v HDI Gerling Vesicherung AG 8 Commercial Court, 4 February 2013 The Court held that a deed of indemnity provided by the Applicant s ATE insurer in favour of the Respondent constituted acceptable security for costs. The case confirms that ATE insurance can be considered just as reliable as a bank guarantee in the context of security for costs. Background The Applicant in the case applied to vary a Court Order requiring it to provide 550,000 security for costs in the form of a bank guarantee from a first class London bank. The Court Order allowed the Applicant to apply to vary its terms in relation to any ATE insurance that the Applicant obtained. The Applicant eventually offered a deed of indemnity from an ATE insurer (QBE Insurance) in favour of the Respondent as security for costs, and argued that it provided a better form of security than a bank guarantee. The Respondent in the case argued that such security was in fact less reliable. Approach to ATE insurance as security for costs Previously, there had been some speculation as to the effectiveness of ATE insurance as a form of security for costs. The High Court in Michael Phillips Architects Ltd v Riklin 9 examined previous cases on this issue and noted that ATE insurance could not necessarily be said to provide adequate security for costs. There, the Court stated, obiter, that while there was no reason in principle why an ATE insurance policy could not provide security over a defendant s costs, it would only do so in rare cases where ATE insurance could provide a similar level of security as a payment into court or a bank bond or guarantee. The Court highlighted that insurance policies are (a) voidable by insurers, (b) subject to cancellation for various reasons, (c) not in the control of the defendants, and (d) constitute a promise to pay under the policy to the claimant rather than the defendant. The Court went on to consider the terms of the ATE insurance policy in the case and, having found that the policy granted extensive rights for the insurer to cancel the policy without any obligation to indemnify the insured, held that the policy did not provide any real security for the defendants costs. The Court in the present case noted that it must take a pragmatic and realistic approach to the issue and consider the merits of the ATE insurance policy as compared to security under a bank guarantee. In doing so, the Court noted that a guarantee from a first class London bank had no magic to it and that the essential question was whether the proposed form of security did indeed provide real security. On the evidence (considering the deed of indemnity and the creditworthiness of the insurance company), the Court held that the deed of indemnity did provide security which was at least equal to, if not better than, that offered by a bank guarantee. 8  EWHC 658 (Comm) 9  EWHC 834 (TCC)
11 07 English Court applied the Dallah principle when considering time limits to challenge the jurisdiction of an arbitral tribunal and subsequently permitted enforcement of the arbitration awards London Steam Ship Owners Mutual Insurance Association Ltd v The Kingdom of Spain and The French State (The Prestige) 10 Commercial Court, 20 September 2013 and 22 October 2013 The Court ruled on the importance of the Dallah principle in allowing a party that declines to participate in arbitration proceedings to later challenge the arbitral award. The Court also commented on time limits applicable under section 72 of the Arbitration Act The Court subsequently permitted the enforcement of the arbitration awards as judgments under the Arbitration Act 1996 s.66. Background The case arises from the vessel Prestige breaking up off the coast of the Kingdom of Spain ( Spain ) in November 2002 and causing significant oil pollution damage. The Prestige was entered in (and her owners were managers and members of) the protection and indemnity association appearing as the claimants in this case (the Club ). The Prestige benefitted from P&I and FD&D insurance cover from the Club pursuant to an Insurance Contract on the terms set out in the Club rules. Spanish law permits civil claims to be advanced in the course of criminal proceedings and such claims were commenced by Spain against the operators, and managers of the vessel as well as the Club itself. Meanwhile, the Club commenced arbitration in London against Spain in January The Club had declined to participate in the Spanish proceedings. One of the claims asserted by Spain in the Spanish proceedings was that the Club was liable under the International Convention on Civil Liability for Oil Pollution Damage 1992 (the CLC claim, as described by the Club). The Club argued in its arbitration notice that it had lodged the full amount of the CLC limitation fund for the Prestige in cash in the Spanish Court (being some 22m) and, where the CLC claim was in excess of this limitation fund, Spain s claim amounted to a claim to enforce the Insurance Contract and should be determined in London arbitration. The arbitration proceedings were conducted over the course of 2012 up to the arbitral hearing in January 2013 and the arbitral award being rendered in favour of the Club on 13 February 2013; including declarations that (a) Spain was bound by the arbitration clause in the insurance contract; (b) the Club s direct liability to Spain was subject to the condition precedent of the owners/managers of the Prestige under an insured liability; and (c) pursuant to the pay as may be paid clause in the insurance contract, the Club was not liable to Spain. Spain repeatedly refused to participate in the arbitration and denied that it was under any obligation to do so. When the Club sought to enforce the arbitral award in England and served its application notice on Spain, Spain responded in its acknowledgement of service filed on 14 May 2013 that it intended to contest the claim several months after the arbitral award had been rendered. Spain s reasons for contesting the Club s claim included the following grounds: 1. that the Club s liability was subjudice in the Spanish criminal proceedings; 2. that Spain was not a party to the arbitration agreement with the Club and refused to participate in the arbitration; and 10  EWHC 2840 (Comm) ;  EWHC 3188 (Comm)
12 08 3. that Spain would seek to apply to set aside the arbitral award and any enforcement order pursuant to s.66(3) of the Arbitration Act 1996 (the Act ) and seek any necessary extensions of time to do so. Spain, through solicitors instructed in England towards the end of May 2013, stated in subsequent correspondence in June 2013 that it would seek to challenge the arbitral award under s and/or s.67 12, and s of the Act. In a witness statement in support of its application, Spain acknowledged that it had missed the deadline for submitting evidence for an application under s.67 of the Act 14 but argued that it should be granted an extension, and that this deadline did not apply to its application under s.72 of the Act in any event. It further sought directions for a hearing to take place on or after 4 October The Club, in its own witness statement in response, argued that the hearing should take place on 5 July 2013 and that, for various reasons relating to Spain allegedly being aware of the arbitral proceedings and having no adequate reason to ignore them entirely, Spain should not be allowed an extension of time. The Dallah principle The Court considered several cases including, principally, Dallah Real Estate & Tourism Holding Co v Pakistan 15 where the UK Supreme Court ruled that a party who has not submitted to arbitral proceedings is entitled to a full judicial determination on evidence of an issue of jurisdiction before the English court, on an application made in time for that purpose under section 67 [of the Act] even where the arbitral tribunal has determined in favour of its own jurisdiction. Spain relied on the Dallah principle in its argument that it was entitled to ignore the arbitral proceedings as a polite blank wall and that the events before service by the Club of the application to enforce the arbitral award were irrelevant in the context of its application for an extension of time. Regarding s.72 of the Act, Spain argued that no extension of time was required as it was not subject to any time limits. Finally, as regards the Court s discretion to grant an extension, Spain argued that there was real strength in the objection to jurisdiction, and that the minor delay by Spain had been without fault and as a result of procedures it was required to follow in engaging legal assistance. The Club relied on the wording in Dallah that the entitlement under s.72 of the Act was for an application made in time for that purpose and that the significant delays meant that any extension of time under ss.67 or 72 of the Act should be refused. According to the Club, the Dallah principle did not entitle Spain to ignore facts which were known merely because they were made known during the proceedings which it was not participating in. Further, it argued that Spain s delay at least from the arbitral award until service of the application notice for enforcement must count against it. The Club also argued that the restrictions applicable to s.67 of the Act (including the time limit of 28 days) must apply equally to ss.72(1) and 72(2) of the Act. 11 Saving as to the rights of a person who takes no part in arbitral proceedings. 12 Challenge to the substantive jurisdiction of the arbitral tribunal. 13 Jurisdiction of the Court to refuse to enforce an award where it is demonstrated that the arbitral tribunal lacked substantive jurisdiction. In this case, Spain stated that it would seek to challenge enforcement of the award under s.66(3) of the Act on the basis that the arbitral tribunal lacked substantive jurisdiction, and under s.66 of the Act more generally on the basis that enforcement would constitute improper interruption of legitimate Spanish criminal proceedings. 14 The deadline is provided under s.70(2) of the Act, being 28 days from the date of any award or notification of an arbitral process. This deadline is expressly stated to apply to ss.66, 67 and 69 of the Act (and notably does not mention s.72 of the Act). 15  UKSC 46
13 09 September Ruling - Procedure The Court held in favour of Spain and granted the extension and for the hearing to be held in October The Court emphasised the importance of the Dallah principle and stated that it is so fundamental that it should not be whittled down unless the interests of justice so require. A person was entitled to ignore arbitral proceedings which it considered to be invalid and this position could not whittled down by the arbitral tribunal ruling on its own jurisdiction or the delay alleged by the Club between the award and service of the application notice for enforcement. On the facts of this case (and applying the principles under Kalmneft v Glencore International AG 16 ), the Court found that an extension of time was justified and that it was in the interests of justice to afford Spain the extensions necessary so that it could deploy its full armoury of objections to enforcement of the Award and the Award itself. In obiter comments, the Court noted the difference between a party making submissions to the arbitral tribunal against the tribunal s jurisdiction and a party which disputes the tribunal s jurisdiction while taking no part in the arbitral proceedings. The Court stated that s.72 of the Act should be construed generously in favour of the latter. As regards s.72(1) of the Act, the Court stated that it should not be restricted to the position before the issue of an award. As regards s.72(2) of the Act, the Court explained that, as this provision only expressly disapplied the restriction under s.70(2), there was a clear intention that the 28 day time limit under s.70(3) was applicable. An objector taking no part in the arbitral proceedings was not prejudiced by this time limit as it would be unjust to only apply this time limit to a participating objector. A nonparticipating objector would still be free to seek remedies under s.72(1) of the Act. October Ruling Enforcement At the subsequent hearing, the Club sought to enforce the arbitration awards as judgments under the s. 66 of the Act and Spain and France (the other defendant state) sought to challenge the arbitral tribunal s jurisdiction under s. 67 and/or s.72 of the Act. The Court was asked to determine: i) the proper characterisation of the claims; ii) whether they were arbitrable; iii) whether the Club had waived the right to arbitrate France s claim; iv) whether the court had no jurisdiction on the grounds of state immunity and, if it did, whether it should exercise its discretion to enforce the awards. The defendant states main arguments were that the claims were in fact claims to enforce an independent right of recovery rather than claims to enforce a contract. Further, they were not arbitrable because they were brought under a criminal statute. France also argued that the Club had waived the right to arbitrate by submitting to the jurisdiction of the French courts in its civil claim. The Club argued that the defendant states had lost state immunity pursuant to the State Immunity Act 1978 s.9(1) by agreeing in writing to submit the relevant dispute to arbitration and that there was utility in granting leave to enforce by establishing the primacy of the arbitration award over any inconsistent judgment rendered in Spain. The Court found for the Club on all issues finding, inter alia, that when a third party claimed under an insurance policy containing an arbitration clause he became a person claiming under or through a party to the arbitration agreement and thereby a party to the arbitration agreement (Through Transport 17 considered). As such, the Court found that it was appropriate in the exercise of the Court s discretion and the interests of justice to grant the s.66 application. 16  1 Lloyd s Rep Through Transport Mutual Insurance Association (Eurasia) Ltd v New India Insurance Co (The Hari Bhum) (No. 1)  1 Lloyd s Rep. 206 and  1 Lloyd s Rep. 67.
14 10 Interpretation of policy and scope of coverage Mesothelioma: filling the gaps in insurance periods International Energy Group Ltd v Zurich Insurance Plc UK 18 The Court of Appeal has overturned a High Court decision which had held that, under a standard form employer s liability policy, and following the principles of Barker v Corus UK Ltd 19 an insured s right to indemnity in respect of an employee s mesothelioma claim was limited in relation to the proportion of the period of employment insured by the insurer. The case is important because it may now be possible, following the Court of Appeal ruling, for employers in regions where the Compensation Act 2006 does not apply to select insurers against whom to claim full indemnities for mesothelioma claims, even for periods during which no insurance was in place. Background The deceased, Mr Carré, and his insured employer, International Energy Group Ltd ( IEG ), were based in Guernsey. Mr Carré was exposed to asbestos during his employment with IEG over a period of 27 years between 1961 and Following this, he was employed elsewhere for another 20 years and was diagnosed with mesothelioma shortly after this point. Not long before his death, Mr Carré brought a claim against IEG (which was later settled) on the basis that IEG had negligently exposed Mr Carré to asbestos dust and fibres in breach of their duty of care. IEG then sought indemnification from Zurich Insurance Plc UK ( Zurich ), the insurer on risk from 1982 to Zurich contended that its liability only extended to a proportion of the overall liability corresponding to the proportion that the six year period bears to the whole period of Mr Carré s exposure to mesothelioma by his employer. First Instance Decision Commercial Court, 24 January 2012 Guernsey common law applied since the Compensation Act 2006 (the Act ) provisions (that would ordinarily govern such issues) did not apply - the Act not having been enacted in Guernsey. At first instance, Cooke J applied the principles of Fairchild v Glenhaven Funeral Services Limited 20 and Barker v Corus. Cooke J considered that the effect of those decisions was that the House of Lords has created a new basis of liability in tort in mesothelioma cases, the essence of which was not the causing of mesothelioma but the wrongful creation of a risk of suffering mesothelioma. He found that the liability of IEG in each policy year was for the amount of the risk which it created and that the total risk which IEG created during the six year policy period was to be calculated by comparison with the total period for which it employed Mr Carré. Cooke J found that the subsequent passing of the Act was immaterial because it did not apply to Guernsey and thus found in favour of the insurer such that Zurich was only liable to indemnify IEG for a proportion corresponding to the six year period that it was on risk. IEG appealed. 18  EWHC 69 (Comm);  EWCA Civ  UKHL  UKHL 22
15 11 Appeal Court of Appeal, 6 February 2013 On appeal, the Court found that Cooke J s interpretation of Barker v Corus was incorrect, especially in light of the Durham v BAI (Run Off) Ltd 21 Supreme Court judgment, which Cooke J had not benefitted from, it having been handed down two months after Cooke J s judgment. The Supreme Court in Durham v BAI held by majority that the important point was not the period of an employee s exposure to asbestos, but rather the fact that that employee had contracted mesothelioma at all. The cause of action is not the exposure to the risk of mesothelioma, but rather the actual contraction of the disease itself. As a matter of policy, the Court, following Fairchild v Glenhaven, allowed for a weaker or broader causal relationship than the usual but for test. Under this weaker causation, the deceased s mesothelioma was caused during any period of insurance and so Zurich was found liable to indemnify for the entire claim, rather than simply for a proportion corresponding to the six years on risk. It was irrelevant that Mr Carré was exposed to asbestos during his time with other employers and that these would have also been effective causes of the mesothelioma. Zurich would have had to have inserted a special clause into their policy if they had wanted to reduce the scope of their liability, but to do so would have been incompatible with the Employers Liability (Compulsory Insurance) Act Moreover, the Court held that to view an employer as self-insuring during any period for which it was unable to find any insurance coverage could produce injustice. The Court s decision means that regardless of whether the insurer was on risk for only part of the period during which the claimant was exposed to asbestos, the insurer may be liable to pay a full indemnity for all of the claimant s damages and costs for losses sustained as a result of any of the negligent exposure to asbestos. Zurich has appealed to the Supreme Court and this appeal is outstanding. Interpretation of an indemnity in a public liability policy MJ Gleeson Group Plc v AXA Corporate Solutions Assurance SA 22 Technology & Construction Court, 4 June 2013 Clear words are required to effect an extension of the terms of public liability policies, so as to provide an indemnity for the defective design or workmanship of sub-contractors, irrespective of whether this has caused damage to other property, given that ordinarily the general aim is to provide indemnity against claims by third parties. In this case, the words used were not sufficiently clear to enable the insured to claim for such costs of repair where further damage had not occurred. Background The defendant insurer ( AXA ) issued successive policies of insurance to the claimant contractor ( Gleeson ), with additional cover ( Memorandum 23 ) in respect of sub-contractors defective workmanship under the public liability section ( Section 1 ). Gleeson had engaged subcontractors in connection with a development project, pursuant to a contract dated October The general insuring clause in Section 1 provided that Gleeson would be indemnified for certain events, including damage to property but not, inter alia, for making good defective workmanship. Cover would, however, apply to other property damaged as a consequence of the defective work. Memorandum 23 stated that the policy extended to indemnify the insured in respect of legal liability arising from the defective workmanship of sub-contractors, including the cost of making good defective workmanship provided that certain conditions were met, including that a claim had been made against the insured or notification had been given by the insured of circumstances which might lead to a claim during the relevant period of insurance. 21  UKSC 14. Our summary of the case is provided in our Taylor Wessing Insurance and Reinsurance Review of 2012, January  Lloyd s Rep. I.R. 677
16 12 A certificate of making good defects was issued in September In May 2007 Gleeson received a letter from the development project funders, Strathclyde Pension Fund ( Strathclyde ), enclosing a surveyor s report detailing deficiencies in the development. The report followed an inspection of the premises, undertaken to establish the cause of water penetration, loose copings and the cause of four horizontal feature caps to become detached from the building. Gleeson sent copies of the letter (and report) to AXA, stating that it was investigating the problems. Gleeson and Strathclyde were unable to agree on the scope of the necessary remedial works. Strathclyde made a claim against Gleeson, and Gleeson sought AXA s confirmation that it would provide cover, leading to a dispute between Gleeson and AXA as to the scope of cover applicable to sub-contractor s defective workmanship. The Court was required to determine preliminary issues in respect of Gleeson s claim against AXA. Policy construction The Court was required to determine whether, on a proper construction of the policies, the extension to the policy effected by Memorandum 23 was a stand-alone clause or whether it was subject to the conditions imposed by the general insuring clause in Section 1, namely the requirement that damage be to other property. The Court accepted AXA s contention that Memorandum 23 was not a self-standing clause, and that it was only obliged to provide indemnity in respect of claims made, on the basis that damage to property other than the part the subject of the defective workmanship had occurred in accordance with the Section 1 cover. Judge Raynor QC made the following points, taking into account the commercial context in which the policy was placed: 1. There is force in the distinction between the stated expressions used at the start of some of the memoranda to the policy, namely: This section of the Policy extends to indemnify" and "The Company will indemnify. The former expression indicates that the memorandum in question is not intended to be a self-standing insuring clause but is to be governed by the general insuring clause in Section 1, whereas the latter expression indicates that the memorandum is intended to be self-standing. 2. The extensions intended by Memorandum 23 could have been expressed more clearly, but the intent of the provision seemed clear. The Section 1 cover for damage to property arising from defective workmanship was extended in two material respects: a) Gleeson would be indemnified against the cost of making good defective workmanship where property other than the part which is the subject of the defective workmanship was damaged as a result of the defective workmanship. But for the extension, such cost would have been excluded by the Section 1 exceptions. b) Gleeson would be covered if a claim was made or notification given during the relevant period of insurance in relation to damage, personal injury or obstruction, trespass, etc. occurring as a result of the defective workmanship, even though the damage to property or other Section 1 event occurred when there was no insurance in force, whereas absent Memorandum 23 the Section 1 event must take place during the period of insurance. 3. Memorandum 23 did not state expressly that the legal liability must be for personal injury, damage to property or obstruction, trespass etc., but that was implicit given the stipulation that it is the Section 1 public liability cover that is extended. 4. Notwithstanding the generality of the words preceding the provisos in Memorandum 23, the Section 1 cover did not extend in effect to a guarantee of the workmanship of sub-contractors, irrespective of whether a Section 1 event occurred. That would be an extraordinary extension of public liability cover and would require clear words and even possibly some other description of the cover. The words used here were not sufficiently clear. On the contrary, as already stated, the expression This Section extends indicates that such an extension was not intended.
17 13 Scope of the claim Additionally, the Court was required to determine whether Strathclyde s letter in May 2007 constituted a claim against Gleeson within Memorandum 23. This can be an important issue in cases such as this where an insured seeks to assert that a claim falls under a later policy period, the limit of cover under a previous policy period having already been reached. The Court concluded that the letter constituted more than a mere request for information, but it did not constitute a claim within the meaning of the policy. It amounted to a request for comments on apparent deficiencies, which was construed to mean seeming deficiencies, and proposals for rectifying deficiencies for which Gleeson accepted responsibility. It did not amount to an assertion of a right to relief. The letter was a communication of circumstances which might lead to a claim; whether a claim actually ensued would depend upon Gleeson s response to the letter. Court reluctant to grant declaration of nonliability Aspen Insurance UK Ltd v Adana Construction Ltd 23 Commercial Court, 20 June 2013 The Court held that the claimant insurer was not entitled to a declaration of non-liability in respect of a claim for indemnification under a building services combined contractor s liability policy for losses arising in connection with the collapse of a crane at a construction site. Background The insured, Adana Construction Ltd ( Adana ), entered into a contract to undertake various sub-contract ground works including casting and fixing in place a reinforced concrete pile cap on top of piles in order to facilitate building work. A crane was used to transfer loads to the piles. A tower crane erected on the pile cap collapsed due to the failure of the connection between the pile cap and the piles. Adana sought indemnity from its insurers under the public liability and product liability sections of a services combined contractor s liability policy. The public liability section covered accidental bodily injury and accidental loss or damage to tangible property but excluded cover for liability caused by any product. The product liability section covered accidental bodily injury and accidental loss of or damage to tangible property but excluded cover for failure of any Product to fulfil its intended function. The policy also included a foundation clause which excluded any liability in respect of loss of damage to any superstructure arising from the failure of the insured s foundation works to perform their intended function. The Insurer s arguments The insurer, Aspen Insurance UK Limited ( Aspen ), sought a declaration that the pile cap fell under the definition of a product and that any liability was caused by the failure of this product to fulfil its intended function and was, therefore, excluded by the policy. Additionally, Aspen claimed that if there was found to be any liability, it would be partly excluded by the existence of the foundation clause which provided that it would not indemnify the insured for loss or damage to any superstructure arising from the failure of the Assured s foundation works to perform their intended function. Decision The Court found that the wording of the policy was to be construed according to what a reasonable person, with all the relevant background knowledge of the parties at the time when the contract was made, would have understood it to mean using the language of the contract. 23  EWHC 1568 (Comm)
18 14 It was held that the concrete base could not be considered a product, even under the relatively wide definition in the policy. This decision was reached on the basis that the base was not purchased, but rather it was constructed on the customer s premises so it was seen as a part of the works rather than a separate product. Additionally the base contained no component parts, a further indicator that it did not fit under the definition of product. The Court stated that, even if the base could be seen as a product, it had achieved its intended function of transferring the loads on the crane down into the piles and it was the dowels and the piles which had failed. The Court held further that the superstructure referred to in the foundation clause concerned buildings above ground and foundations concerned any permanent features that supported these buildings. The concrete base was temporary and therefore fell outside of the scope of the policy. A permission to appeal hearing is scheduled for February Contractual construction of a consumer contract AJ Building and Plastering Limited v Samantha Turner, Sheila Munday, Martin Dalling 24 Mercantile Court (Cardiff), 11 March 2013 The issue as to who is responsible for paying a sub-contractor when the insurer s contractor becomes insolvent was revisited in A J Building and Plastering Limited v Samantha Turner, Sheila Munday, Martin Dalling. The Court rejected the building sub-contractor s claim for payment direct from the insured householders for work carried out as insurance repairs after the contractor went insolvent, despite the existence of signed mandates between the insureds and the sub-contractor. Although each case will be fact specific, and dependent upon the particular mandate wording, the decision illustrates the court s common sense approach in refusing to impose liability upon the insured for the cost of the works, other than the policy excess and agreed works not covered by the insurance. Background The Claimant was a building contractor, who brought proceedings against three householders, seeking the recovery of the costs of remedial works carried out at their homes. The Defendants houses had suffered damage and each had made a claim on his or her insurance. In each case, Zurich instructed a company in the Rok group of companies to carry out remedial works and Rok subsequently engaged the Claimant to do the works. The Claimant carried out the works and invoiced Rok. Zurich paid Rok, but before paying the Claimant, Rok went into administration. The Claimant had no contractual relationship with Zurich. Instead it sought to rely upon a mandate signed by each of the householders before the works were begun to receive payment from them. The mandate in Miss Turner and Mr Dalling s cases read as follows:  I/We herby (sic) agree to employ AJ Building & Plastering Ltd to undertake the works as detailed in their estimate/schedule of works.  I/We authorise our insurance company to make payment direct to AJ Building & Plastering Ltd upon completion.  I/We understand that I/we remain responsible for payment of any policy excess or any monies due for work authorised by me/us, which is not paid by my/our insurer.  24  EWHC 484 (QB)
19 15 The mandate in Mrs Munday s case read as follows:  I herby (sic) agree to employ AJ Building & Plastering Ltd to undertake the works as detailed in your pre-agreed damage appraisal.  I understand that I remain responsible for payment of any monies due for additional work authorised by me, which is not paid by my insurer.   Please Note: Your insurance only covers damage as a direct result of the peril you have claimed. Any additional work i.e. filling walls, that is not directly related to your insurance claim will not be carried out by our operatives. Contractual construction Apart from the mandate, the Court would have found that each householder had two contracts; the first with Zurich and the second with the Claimant. The latter contract was that the householder permitted the Claimant to carry out works at his / her property and undertook a limited payment obligation (namely the amount not covered by insurance), whilst the Claimant came under a duty to perform the works. Following the decision in Brown & Davis Ltd v Galbraith 25, the Court concluded that it was unnecessary to imply any greater payment obligation than for additional works outside the scope of the insurance policy by the householders on the basis that (i) the parties shared the knowledge that Zurich had approved and were going to pay for the remedial works under the relevant insurance policies, (ii) the householders did not know what the costs of the works would be they only knew their policy excess and the price agreed for any additional works not covered by insurance which went against an implication on their part to pay the full cost of the works, (iii) it was known that the Claimant would look to Zurich for payment, as was stated on the scope of works document and (iv) the householders appeared to have paid the policy excess to Rok, who were managing the claim on behalf of Zurich and it was not contemplated that the Claimant would be paid the excess by the householders, nor did the Claimant request payment of the excess from the householders other than by the mandate. In adopting a construction of the mandate that best accords with commercial common sense, the Court s approach altered little. It identified significant features of the relevant surrounding circumstances being those as already listed above, as well as that the insurer, as opposed to the householders, had selected the Claimant. Further, the Claimant could only carry out the works with the permission of the householders, which would have led to an implied contract in any case. In the Court s view, the reading of paragraph 3 of Miss Turner and Mr Dalling s mandate most compatible with commercial common sense was that the insurer was responsible for paying the cost of the insured losses and the householder remained liable for all other costs, i.e. the policy excess and any works not covered by the insurance. The fact that the mandate was worded slightly differently in paragraph 2 of Mrs Munday s mandate only served to reinforce the Court s interpretation. By reason of the wording of mandate 3 and having regard to the commercial purpose of it, the Court held that a payment by Zurich to Rok in accordance with the contractual chain of which the householder was the third and final link was a payment that discharged pro tanto the householder s liability. Had it held alternatively, one would have been left with the situation in which the risk of the payment by Zurich disappearing in Rok s hands would be borne by the householder, who knew nothing of Rok s position, unlike the Claimant. The decision shows a common sense approach taken by the courts, but a differently worded mandate may have produced different results. Insureds should still be wary of liability being imposed on them for the cost of the insured works when entering into a mandate. Insurers 25  1 WLR 997
20 16 should engage a contractor to undertake insured works, who will itself appoint sub-contractors, in order not to assume any risk if an appointed contractor goes into administration or fails to pay a sub-contractor. HHJ Keyser QC dismissed the claims. Court upholds safety first intention of typhoon warranty Amlin Corporate Member Ltd v Oriental Assurance Corp 26 Commercial Court, 31 July 2013 After the Court of Appeal upheld a first instance decision refusing a stay of proceedings 27, the Claimant reinsurers sought a declaration that the departure of a vessel constituted a breach of a warranty, which stated that an insured vessel was not to depart when there was a typhoon warning at the port, or when the route may be within the possible path of a typhoon or storm announced at the port of sailing, destination or any intervening port. The Court found, in this instance, that the warranty had been breached. Background A shipping catastrophe off the coast of the Philippines in June 2008, in which a vessel (the Princess of the Stars ) sailed through and was lost in a typhoon, led to the loss of over 500 lives and the vessel s cargo. In numerous proceedings, cargo owners brought claims against the shipowner and Oriental Assurance Corp ( Oriental ), the Philippine cargo liability insurer. The policy between Oriental and the insured contained a typhoon warranty. The insurers were reinsured by Amlin and others (the reinsurers ). The reinsurance contract incorporated the conditions of the original policy including, in effectively the same terms, the typhoon warranty. Further, the reinsurance contract contained an English law and jurisdiction clause, and a followthe-settlements clause. The reinsurers issued English proceedings seeking a declaration that they were not liable to indemnify Oriental on the basis that the typhoon warranty had been breached. Oriental s application to stay the English proceedings was dismissed in the Court of Appeal on 17 October The typhoon warranty The relevant warranty provided a two-limb test as follows: it is expressly warranted that the carrying vessel shall not sail or put out of Sheltered Port when there is a typhoon or storm warning at that port [limb one] nor when her destination or intended route may be within the possible path of the typhoon or storm announced at the port of sailing, port of destination or any intervening port [limb two]. Before the departure of the vessel, a severe weather warning had been issued to the captain predicting winds of 30-60kph in the area within 36 hours. In June 2007, a circular containing revised guidelines on the movement of vessels during heavy weather had been issued by the Headquarters Philippine Coast Guard (the Circular ). The Circular provided that the ship owners and masters had the discretion to make a decision on whether or not to sail when this type of warning was given. 26  EWHC 2380 (Comm) 27 Amlin Corporate Member Ltd v Oriental Assurance Corp  EWCA Civ See a previous Taylor Wessing e-alert relating to these proceedings regarding the circumstances in which a stay of proceedings may be granted here: