The Taylor Wessing Insurance And Reinsurance Review Of 2012

The TW 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.

Law and jurisdiction

Court of Appeal reverses decision on issue of utility

Ace European Group Ltd & Others v Howden North America Inc & Anor1

In the first instance decision, given by Field J, judgment was given for the insurers who sought a declaration from the English Court that certain insurance policies were governed by English, as opposed to Pennsylvanian, law. In granting the declaration, Field J found that there was sufficient utility in an English judgment being given and that England was also the more appropriate forum for the case.

However, the insured successfully appealed. The Court of Appeal reversed the decision of the lower court and set aside the order granting the insurers permission to serve out of the jurisdiction.

Background

Howden North America, Inc. ("HNA"), an engineering group supplying fans and gas cleaning equipment, brought an application to set aside an order granting the claimants (insurers subscribing to various layers of an excess public and product liability insurance programme) permission to serve out of the jurisdiction.

HNA faced personal injury claims in the U.S. alleging that HNA was responsible for exposure to asbestos products. HNA, in turn, brought claims against its insurers in the federal court in Pennsylvania, which are ongoing. HNA joined the insurer claimants in this case to the Pennsylvania proceedings but the insurers sought a declaration from the English Court that: (i) the policies are governed by English law; and (ii) on a proper construction of the policies the insurers are not liable for asbestos-related claims where the third-party claimant had not suffered actionable personal injury or loss of or damage to material property which happens or occurs within the policy period or where a claim arising out of faulty materials was not made or notified within the policy period. The benefit for insurers of the policies being governed by English law as opposed to Pennsylvanian law is two-fold: (1) exposure to a hazardous condition does not trigger liability; and (2) the period clause is of fundamental importance and the relevant trigger must occur during the policy period.

First Instance Decision

Commercial Court, 17 September 2012

In granting insurers leave to serve out of the jurisdiction, the Court applied well established general principles. HNA conceded for the purposes of its application to set aside that insurers had a good arguable case that the claims in respect of certain policies (which do not have an express English law or jurisdiction clause) fell within CPR Part 6.36 and paragraphs 3.1 (6)(a) (contract made within the jurisdiction) and 3.1 (6)(b) (contract made by or through an agent trading or residing in the jurisdiction) of Practice Direction 6B. Moreover, Field J stated that, in his opinion, these claims also fell within paragraph 3.1(6)(c) (contract governed by English law) because the policies were placed in England through London brokers. Other policies contained express English law and jurisdiction clauses.

It was also not disputed by HNA that there was a serious issue to be tried on the merits of the claim. What was disputed, however, was whether insurers had shown that the granting of the declaration sought would be of sufficient utility (purpose) and/or that England was the proper forum.

In finding that the proceedings were properly served out of the jurisdiction, the Court made it clear that it did not merely follow its decision in Faraday2 without consideration (Faraday subscribed to three of the same policies in the excess layers and sought the same declaration). Field J applied the relevant principles in the context of the facts of this case. The Court took a broad view in deciding whether insurers had established sufficient utility for it to exercise jurisdiction over the claims. Field J found that there was sufficient utility despite Judge Conti indicating in the Pennsylvania proceedings that English law was unlikely to apply. The Court found there to be utility of an English judgment as there remained a real prospect that the Pennsylvania court would find English law to apply and, in such an event, the Pennsylvania Court would at the very least find the English ruling of "considerable assistance".

The Court also noted that the claimant insurers are "London market insurers who have a legitimate expectation that the parties to the policies would be bound by their express or implied agreement that the policies were governed by English law". As such, there was further utility in providing a judgment that could be used by the claimant insurers to resist any judgment of a foreign court that ignores the choice of law under the policies.

England was found to be the more appropriate forum following Beatson J's comments in Faraday that a local court is more apt to apply its own law and, additionally, for the reasons that the trial would be short, with limited factual evidence and unlikely to prejudice the Pennsylvania proceedings.

Appeal

UK Court of Appeal, 6 December 2012

The Court of Appeal allowed HNA's appeal and reversed the decision of the lower court, thereby setting aside the order granting permission to insurers to serve out of the jurisdiction. The Court of Appeal drew several factual distinctions between this case and the Faraday case3, where permission to serve out was allowed. In particular, the Court of Appeal noted that in Faraday insurers commenced proceedings in England several months before they were joined to the US proceedings whereas in this case the action was commenced by insurers two months later.

Aikens LJ further highlighted that: (a) the Court of Appeal was not formally bound to follow the earlier appellate decision in Faraday; and (b) as in Faraday, the lower court's decision here was not an "exercise of discretion" (a judgment based on one of several equally legitimate courses) but in fact an "exercise of judgment" (requiring a reasoned conclusion, the merits of which can be more readily challenged on appeal). As such, the Court of Appeal in this case found it appropriate to consider the merits of Field J's decision based on the facts of the case.

Firstly, the Court of Appeal disagreed with Field J's view that an English Court ruling would at least be of considerable assistance to the Pennsylvania Court. The English Court of Appeal noted that Judge Conti (in the Pennsylvanian proceedings) had already indicated that she did not believe English law to apply to the policies in question and she was, in any event, capable of applying English law without the assistance of the English courts. Aikens LJ commented that providing such unsolicited judgment as advice to the Pennsylvania Court was "presumptuous and condescending".

Secondly, the Court of Appeal, in acknowledging the Pennsylvania Court's ability to apply conflict of laws rules appropriately, considered that the English Court's exercise of jurisdiction would amount to a pre-emptive strike in England to undermine the legitimacy of any Pennsylvanian judgment. Such a decision from the English Court, obtained with the sole aim of laying the ground for a defence to enforcement, was held by the Court of Appeal to not be a "useful" exercise of the English Court's jurisdiction.

Result: Judgment for the insured.

Court of Appeal has no jurisdiction to hear a dispute arising under life insurance contracts

Sherdley v Nordea Life and Pension SA4

UK Court of Appeal, 16 February 2012

The Court of Appeal upheld the first instance decision that the English courts did not have jurisdiction over proceedings commenced by two insureds, who were based at different times in Wales and Spain, against a Luxembourg based insurer. However, the Court of Appeal came to this conclusion by pointing to article 13 of the Brussels Regulation5, which had not been raised by the parties or considered at first instance.

Background

The insured appellants, Mr and Mrs Sherdley (the "Appellants"), invested in two individual unitlinked life insurance contracts with Nordea Life and Pension ("Nordea") in 2006 / 2007. The capital sums invested were secured against the Appellants' residential investments in Spain. At the time of the formation of the contracts, the Appellants were living in both Wales and Spain. The Appellants' investments went disastrously wrong which prompted them to sell their home in Wales and move to Spain. At the time of the commencement of proceedings (23 June 2010), the Appellants were found to be habitually resident in Spain (they moved back to Wales in October 2011). The Appellants brought their claim in the English courts and alleged that there was an initial agreement in favour of jurisdiction in England and Wales.

The agreement between the Appellants and Nordea involved various contractual documents and included several countervailing provisions for jurisdiction. The Appellants initially signed "application forms", which provided for English law and jurisdiction, and "General Conditions", which provided for Luxembourg law and jurisdiction. Nordea then sent the Appellants a "Proposal" which provided for Spanish law and jurisdiction and which was signed by the Appellants. Nordea then issued (but apparently did not actually send to the Appellants) a contract document described as "Specific Conditions", which included a specific contract reference number, and which reproduced the provision for Spanish law and jurisdiction. Finally, Nordea wrote to the Appellants stating that it enclosed a copy of the original contract documentation and asking the Appellants to sign a declaration confirming that they had received this original contract documentation. The Declaration referred to the specific reference number which indicated that the original contract...

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