UK: Insurance And Reinsurance - 20 August 2014

Last Updated: 29 August 2014
Article by Nigel Brook

Welcome to the thirty-first edition of Clyde & Co's (Re)insurance and litigation caselaw

This week's caselaw

Amlin Corporate v Oriental Assurance

The Court of Appeal agrees that there had been a breach of warranty in a reinsurance contract.

Dowdall v Kenyon & Sons

A Clyde & Co case on whether a claimant could pursue a mesothelioma claim after having settled with other employers.

Lehman Brothers v Klaus Tschira

A decision on the meaning of a "court" and "proceedings" under article 27 of the Lugano Convention.

Other News

The Civil Procedure Rules Committee has revealed some of the upcoming changes to the CPR.

Amlin Corporate v Oriental Assurance

Court of Appeal agrees that there had been a breach of warranty in a reinsurance contract

The first instance decision in this case was reported in Weekly Update 29/13. The claimant reinsurer alleged that there had been a breach of a Typhoon Warranty contained in both the reinsurance and insurance policies. The warranty read as follows: "Notwithstanding anything contained in this policy or clauses attached hereto, 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 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 point. Violation of this warranty shall render this policy void".

Field J held that there had been a breach of warranty because a storm warning had been given before the vessel had sailed from port. The reinsured appealed and that appeal has now been dismissed. The Court of Appeal held as follows:

  1. Although the warranty should be construed in accordance with Philippine law (given the presence of a follow the settlements clause and the almost identical wording for the warranty in both the insurance policy and the reinsurance contact), no evidence had been adduced as to the interpretation of the warranty in that jurisdiction and hence the clause in the reinsurance policy had to be construed in accordance with English law. It was common ground that there was no difference in any event between Philippine and English law with respect to policy interpretation.
  2. In accordance with well-established principles of construction, the court should look at the language actually chosen by the parties and give those words their ordinary natural meaning. The words used here were not commercially nonsensical, and hence there was no need to add in any wording. The warranty was clear and unambiguous and there was therefore no need to consider how typhoon warnings were generally understood and acted upon by the maritime community in the Philippines.
  3. It was also clear that the underlying policy of the warranty was "safety first" and it therefore made no difference that the reinsurers' interpretation might possibly lead, in some cases, to uncommercial results (eg the warranty would be breached even if a vessel was trying to sail away from an area covered by a warning): "I agree with the judge that the typhoon warranty has to be construed in such a way so as to prevent the vessel from sailing when there was any possibility of an encounter by the scheduled vessel with a typhoon or storm".
  4. The Court of Appeal also upheld the first instance decision that the "intended" route of the vessel had been its usual route (even if the captain intended to depart from that route if the weather becomes "really, really bad").
  5. The Court of Appeal also concluded that the judge was not bound to accept as evidence the differing conclusions of the various Philippine tribunals in relation to any issue in this case: "In the circumstances, he was clearly entitled to look at the underlying evidence himself". In reaching that conclusion, reliance was placed on the recent Court of Appeal decision in Rogers v Hoyle (see Weekly Update 11/14) which, it was said, demonstrated that the findings of tribunals may be admissible in evidence (insofar as they reflect expert opinion) but those opinions can be excluded or held to be irrelevant. Here, the tribunals' findings (dealing with what the insured would have understood at the relevant time) were irrelevant to the factual issue of whether the vessel had set sail during a storm warning.

Dowdall v Kenyon & Sons

Whether claimant could pursue mesothelioma claim after having settled with other employers

Clyde & Co for defendants

The novel issue in this case was whether a claimant could bring a claim for mesothelioma against some of his former employers despite having settled an earlier claim which he had brought against certain other former employers for the risk of developing mesothelioma.

It is well-established that mesothelioma is not a divisible injury – it may be caused by a single fibre. Hence, if several employers expose a worker to asbestos, it cannot be proven which employer actually caused the condition – it can only be shown that an employer has increased the risk of mesothelioma. As a result, the worker can recover in full from any employer who has increased his risk of developing mesothelioma (leaving the employers to apportion liability between themselves).

In this case, the claimant had not originally claimed against three of his past employers because his solicitors did not know the correct name for one of them and were unable to identify the relevant insurers of the other two employers (now dissolved). However, after developing mesothelioma, he now sought to claim against those three employers.

The judge allowed the claim. He held that it was not an abuse of process for the claim to be brought. The claimant had not been fully compensated in the first action: "The Claimant elected to accept a sum for the risk of mesothelioma and in return decided not to seek an order permitting him to return to court in the event that mesothelioma actually developed. The settlement deliberately excluded any sum which would follow from the development of the condition. It cannot therefore be said that it included such a sum". The judge held it made no difference that the claimant had chosen to abandon his provisional damages claim (which would have led to full compensation after mesothelioma developed), so that liability for mesothelioma would now have to be shared three ways, rather than amongst all the employers (with the three employers left to pursue a contribution claim (which had an uncertain chance of success) against those other employers.

Although the claim against the three employers was time-barred, the judge also decided to exercise his discretion under section 33 of the Limitation Act 1980 to allow the action to proceed. He said that the principal consideration was the fact that the claimant had a substantial claim for a very serious injury and had good prospects for establishing the defendants' liability. The fact that the three employers might have had a chance to avoid paying for the development of mesothelioma, had they been given a chance to join in the original settlement, "really means that they have lost a chance of escaping without paying the claimant the damages to which he is otherwise presumed to be entitled".

Lehman Brothers v Klaus Tschira

The meaning of a "court" and "proceedings" under article 27 of the Lugano Convention

Article 27 of the Lugano Convention provides that "Where proceedings involving the same cause of action and between the same parties are brought in the courts of different States bound by this Convention, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established" (the same provision is also contained in Article 27 of Regulation 44/2001). The issue in this case was whether Switzerland had been first seised after "conciliatory proceedings" had been started there. Such proceedings are a mandatory first step in the resolution of civil and commercial disputes within the court system. These proceedings can be contrasted with mediation which may take place instead of conciliation or during court proceedings (the parties are responsible for the organisation and conduct of the mediation and the mediation proceedings are confidential and kept separate from the conciliation authority and the court). By contrast, the conciliation authority is a state authority which, although separate from the courts, is part of the judicial system.

There is no definition of "court" or "proceedings" in the Convention. However, Richards J held that the fundamental purpose of the provision is to avoid parties being subject to parallel proceedings and to avoid conflicting judgments and "In circumstances where conciliation proceedings are, or may arguably be, mandatory it is unrealistic not to regard them as part of the proceedings which will or may lead to an enforceable judgment". As a result, Switzerland had been first seised when a written request for conciliation had been lodged.

Other News

Upcoming CPR changes:

The Civil Procedure Rules Committee has revealed some of the changes to Part 36 offers being considered. These include:

  1. Removing the need to formally withdraw a Part 36 offer and allowing time-limited offers instead;
  2. Making time to accept the offer run from the date of receipt, rather than service, of the offer (so avoiding the application of the Part 6 service rules);
  3. Introducing a new rule expressly dealing with the position for Part 36 offers by counterclaiming defendants and other parties;
  4. Tackling "cynical" claimant offers (where a claimant offers to accept 100%, or close to 100%, of its claim); and
  5. Changing the current position, so that judges can be told about an issue-based Part 36 offer, where that issue has been tried as a preliminary issue.

The Civil Rules Committee has also explained how it is making plans to implement the recast Regulation 44/2001 here (the recast Regulation comes into effect on 10 January 2015). Primarily, the CPR will be amended to remove the need to register a foreign judgment obtained from a Member State in order to enforce it. The foreign judgment will become enforceable directly, provided certain requirements as to service of certain documents on the judgment debtor are fulfilled. Other changes necessitated by the recast Regulation will be brought in by regulations.

The Pre-Action Conduct PD: The Civil Rules Committee has rejected the call by Jackson LJ to entirely remove the sections on exchanging information before starting proceedings and attempting ADR (section III) as well as the sections covering disclosure, experts, limitation and notifying the court (section IV) (because Jackson LJ believed it was unsuitable to adopt a "one size fits" all approach). However, these will be condensed into shorter paragraphs. New paragraphs on proportionality and settlement/ADR will also be introduced.

Proportionality: Where parties incur disproportionate costs in complying with any pre-action protocol or the Pre-Action Conduct PD, those costs will not be recoverable as part of the costs of the proceedings.

ADR/Settlement: There will be a new provision that a party's silence in response to an invitation to participate in ADR might be considered unreasonable by the court and could lead to the court ordering that party to pay additional court costs. This change will reflect the decision in PGF II v OMFS (see Weekly Update 38/13) where the Court of Appeal held that a failure to respond at all to an offer to mediate will usually be unreasonable (unless, for example, ADR was "so obviously inappropriate" or the failure could be attributed to a mistake by the recipient).

Where a dispute has not been resolved, the parties should continue to co-operate by seeking to agree a list of issues and the necessary procedural directions for efficient case management during the proceedings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Nigel Brook
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