UK: (Re)Insurance Weekly Update 18 - 2015

Last Updated: 27 May 2015
Article by Nigel Brook

Welcome to the eighteenth edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2015

This Week's Caselaw

Zurich v International Energy Group

Supreme Court holds that an insurer must cover a mesothelioma claim in full (even if the total period of exposure was longer than the policy period), but a contribution can be claimed from other insurers/the insured

http://www.bailii.org/uk/cases/UKSC/2015/33.html

The earlier decisions in this case were reported in Weekly Updates 3/12 and 5/13. The background to the case is as follows:

The claimant, a solvent Guernsey company, employed Mr Carré for 27 years. Mr Carré was exposed to asbestos dust during the whole of his employment with the claimant and he contracted mesothelioma. The claimant took out insurance with the defendant insurer for 6 of those 27 years. Other than a two year period when another insurer was on risk, the claimant did not have any other insurance cover during the remaining period of Mr Carré's employment (compulsory employers' liability insurance only having come into force in Guernsey in 1993). The claimant reached a settlement with Mr Carré shortly before his death and sort to recover the full amount of that payment from the defendant. The defendant argued that it was only required to pay an amount proportionate to the relationship between the policy period and the total period of Mr Carré's exposure by the claimant (ie 6/27ths).

At first instance, the insurer won (the judge emphasising that the Compensation Act 2006 which had reversed the decision of Barker v Corus did not apply in Guernsey (broadly, Barker had held that an employer was only liable for his proportion of loss where more than one employer had exposed an employee to asbestos)). The Court of Appeal allowed the appeal from that decision, the majority having found that (following the Trigger Litigation case reported in Weekly Update 12/12) mesothelioma had been "sustained" during the period of the policy issued by the defendant (because mesothelioma requires a "weak" or "broad" causal link for the disease to be caused during a policy period) and that the insurer was therefore liable in full (regardless of the fact that exposure during the other 21 years was also an effective cause of the disease).

The Supreme Court has now unanimously allowed the appeal from that decision. It did so on the basis that Barker does continue to represent the common law position in Guernsey. Of more general interest though is the court's discussion of what the position would have been had the 2006 Act applied ie the position where an insurer has insured an employer for part only of the period of exposure (a situation not dealt with under the 2006 Act, which is only concerned with the employer's liability to its employee).

There was a split in opinion on this issue. The majority (Lord Mance, Lord Clarke, Lord Carnwath and Lord Hodge) held that the insurer must meet the whole of the employer's liability to the employee. However, they held that the insurer would then have the right to seek proportionate contributions not just from the other insurer which provided liability cover to the employer in a separate period, but also from the employer in respect of the period when no other insurance cover was in place.

This was an approach which was described by Lord Hodge as "radical". That was because it involved a departure from normal principles. However, Lord Mance said that the court would be "abrogating its role to achieve a just solution...if it does not adapt and develop conventional principles to meet an unconventional, indeed unique, challenge".

In relation to the "other insurer", Lord Mance advocated a "broad equitable approach to be taken to contribution" in a mesothelioma context, so that double insurance might arise here even though the insurers were on cover for different periods. Alternatively, the Civil Liability (Contribution) Act 1978 might apply. As for the employer, the majority took the view that it would be unfair to allow an employer to insure (and pay premium) for only some years and not others, and to then be able to seek a full contribution from the insurer(s) even though it had agree to, in effect, "self-insure" for some of the time. Although the law does not formally recognise a contract of self-insurance, Lord Mance took the view that "A person who does not insure at all is well understood to be undertaking a risk for his own account, for which he should answer accordingly".

Here the claimant was a solvent company. Had it been insolvent, it was held that the position under the Third Parties (Rights against Insurers) Act 1930 would have been different and the insurer would not have been able to raise the defence of a right of contribution from the employer as against the third party claimant (in part because a right of contribution only arises on payment by the insurer and also because the right of contribution does not arise "under" the insurance policy for the purposes of the Act).

Lord Sumption, Lord Neuberger and Lord Reed adopted a different approach. They held that the insurance contract was to be construed so that the defendant's liability for the loss was limited to the proportion of the policy years in which it provided cover relative to the whole period of exposure (ie the insurer was proportionately liable).

COMMENT: The view adopted by the majority of the Supreme Court in this decision might conceivably give rise to greater satellite litigation between insurers, and between insurers and employers. However, it is worth noting that there is currently a statutory compensation scheme (established under the Mesothelioma Act 2014) to address the situation where there is no insurance in place (and so, according to Lord Sumption, the majority's view will "simply transfer the risk from the statutory compensation schemes which were created to assume that risk, to an arbitrarily selected solvent insurer who has not agreed to do so").

Although the decision to relax the rules on contribution in a double insurance situation was confined to mesothelioma in this case, it is not inconceivable that the rationale behind that decision might lead to insurers arguing for its extension to other areas too in future. This case will also be of interest to those considering "spiking" at the reinsurance level (ie where the same insurer is on cover for the whole period but seeks reimbursement from a reinsurer who was on cover for only part of that period).

"Gazprom" OAO

CJEU considers whether a Member State can recognise and enforce an anti-suit award from an arbitral tribunal

http://curia.europa.eu/juris/document/document_print.jsf?doclang=EN&text=&pageIndex=0∂=1&mode=lst&docid=164260&occ=first&dir=&cid=74519

Since the recast Brussels Regulation 1215/2012 came into force on 10th January 2015, it is now possible to bring proceedings before the courts of an EU country even though the courts of another Member State have been first seised, if those proceedings are brought "in support of arbitration" (eg they are started in order to obtain a declaration that there is a valid arbitration agreement between the parties). However, the recast Regulation is silent on whether an anti-suit injunction can be obtained to restrain proceedings in the court first seised.

Advocate General Wathelet issued an Opinion at the end of last year in this CJEU case in which he opined that the recast Regulation overturns West Tankers (see Weekly Update 06/09) and that an anti-suit injunction would not be incompatible with the Regulation.  That is arguably incorrect though, given that the Regulation would appear to countenance both proceedings continuing before the courts of the respective Member States (although an eventual New York Convention award is likely to have primacy over the judgment of the EU court first seised (which finds that there is no valid arbitration agreement) in these circumstances).

The CJEU has now delivered its judgment in the case. Unfortunately, it does not resolve the issue mentioned above since the decision is based on Regulation 44/2001 rather than the recast Regulation. It was held that Regulation 44/2001 does not preclude a Member State's courts from recognising and enforcing (or refusing to recognise and enforce) an arbitral award (obtained from a tribunal in another Member State) which prohibits a party from bringing certain claims before it.

COMMENT: In effect, therefore, this decision confirms that an anti-suit injunction can be obtained from the arbitrators to restrain proceedings brought in a Member State in breach of the arbitration agreement (assuming that the arbitrators have the power to grant the injunction). However, it does not resolve the problem that that Member State's courts may still refuse to recognise and enforce the arbitral anti-suit injunction. Nor does it resolve the wider issue of whether the courts of a Member State might also grant an anti-suit injunction under the recast Regulation (the penalties for the breach of such an injunction being potentially more serious for a litigant than an injunction obtained from arbitrators, which can only be enforced by an order from the supervisory court (if such an order can be obtained following West Tankers)).

Ram v Motor & General Insurance

Privy Council confirms that insurer does not have to organise proportionate payment of claims where limit under policy is reached

http://www.bailii.org/uk/cases/UKPC/2015/22.html

The claimant is the administratrix of the estate of a passenger killed in a road traffic accident. The driver's insurers paid out claims from several other third parties. When the claim was made by the claimant to the insurers, she was informed that the policy limit of US$1 million had already been reached and hence they had discharged their liability both under the policy and under the relevant statute in Trinidad and Tobago relating to compulsory motor insurance ("the Act"). The claimant sought to argue that the insurers should have ascertained the total number of claims arising from the event and, given that that total exceeded the policy limit, should have devised a scheme for the proportionate payment of the claims. The insurers sought to rely on Cox v Bankside Members [1995], in which it was held that, where an insurer has a limited fund to meet the claims of multiple claimants, it is legitimate to pay the claims in chronological order until the insurance is exhausted.

The Privy Council has now found in favour of the insurers. Reference was made to Teal v WR Berkley (see Weekly Update 29/13), in which it was confirmed that an insurer must pay out third party claims in chronological order of their ascertainment against the insured. There was nothing in the Act to require the insurers to delay payment to allow other claimants to "catch up": "On the contrary, the Act would enable a claimant in an appropriate case to take enforcement proceedings against an insurer's assets. In addition, an insurer that delayed payment would be exposed to additional interest charges, which it could have avoided by prompt payment, if the insurance fund turned out to be sufficient to meet all claims". As with the UK Third Parties (Rights against Insurers) Act 1930, the Act had not addressed the problem of multiple claimants on a limited insurance fund.

Although the Privy Council recognised that there could be "good policy arguments" in some circumstances to create a scheme for the rateable payment of claimants, it held that it was for Parliament to address this issue.

Willers v Gubay

Whether tort of malicious prosecution of civil proceedings is recognised under English law/doctrine of precedent

http://www.bailii.org/ew/cases/EWHC/Ch/2015/1315.html

The claimant sought damages for the tort of malicious prosecution of civil proceedings against him by the defendant. The defendant argued that English law only recognises the tort of malicious prosecution where the defendant has caused criminal, not civil, proceedings to be brought. Reliance was placed by the defendant on the House of Lords decision in Gregory v Portsmouth City Council [2000]. However, the claimant sought to rely on the more recent decision of the Privy Council in Crawford Adjusters v Sagicor General Insurance (see Weekly Update 22/13), which held that there is a tort of malicious prosecution of civil proceedings. Tipples QC has now held as follows:

(1) The House of Lords decision was binding on her. She could only follow Crawford if she was persuaded that, for all practical purposes, it is a "foregone conclusion" that the Supreme Court would eventually follow Crawford if this case is appealed to that level.

(2) She was not so persuaded. The members of the Privy Council are all justices of the Supreme Court. There are 12 justices of the Supreme Court and the decision in Crawford was by a majority of three of the members of the Privy Council and so did not represent a majority of the justices (and there were two very strong dissenting judgments from the other members of the Board). Furthermore, there was no overlap between the constitution of the members of the Privy Council in Crawford with the members of the Appellate Committee in Gregory.

(3) Finally, even if she had not been bound by Gregory, the judge said that she was still bound by a further decision – the Court of Appeal decision in Quartz Hill v Eyre [1883] – which held that there was an exception to the general position where there is a petition to wind up a company. In reaching that decision, the Court of Appeal had not held that the tort of malicious prosecution was generally available in civil proceedings.

Maass v Musion Events

Court allows a challenge under section 68 of the Arbitration Act 1996/confirms the correct test

http://www.bailii.org/ew/cases/EWHC/Comm/2015/1346.html

This case is a rare example of a successful challenge to an arbitration award under section 68 of the Arbitration Act 1996. Smith J found that the arbitrator had failed to act fairly when he decided the challenge to his jurisdiction without giving notice to the parties that he would not adhere to a prior agreed procedure. That led to the question of whether this irregularity has or will cause substantive prejudice to the claimant. The judge rejected an argument that the claimant must show on the balance of probabilities that an opportunity to develop his challenge to jurisdiction would have affected the arbitrator's decision.

Instead, the judge said that the correct test was that stated in the textbook Arbitration Law by Professor Merkin: "if it is realistically possible that the arbitrator could have reached the opposite conclusion had he acted properly in that the argument was better than hopeless, there is potentially substantial injustice". It was clear that the claimant, had he been given a proper opportunity, would have presented further submissions about the jurisdictional challenge and it was "realistically possible" that the arbitrator would have accepted those submissions, which the judge considered to be "reasonably arguable". Accordingly, the judge exercised his discretion under section 68 to grant relief.

Prince Aziz v Harb

Court of Appeal decides whether sovereign immunity can be claimed after death of the sovereign

http://www.bailii.org/ew/cases/EWCA/Civ/2015/481.html

The novel issue in dispute in this case is whether, where a sovereign dies whilst still in office, his immunity from suit continues to extend to everything which he did when he was head of state. There was no prior caselaw involving this situation although it is an established principle that when a head of state ceases to hold office during his lifetime, his on-going immunity from suit is thereafter limited to acts which constituted the performance of his official functions during his period in office. At first instance, it was held that the head of state did not have immunity (see Weekly Update 22/14) and the Court of Appeal has now dismissed the appeal from that decision.

The case was decided on the assumption that defendant was acting as the representative of his father, King Fahd of Saudi Arabia, and that he would have been able to claim sovereign immunity had the claim against him been brought whilst his father was still alive. Taking into account Article 39 of the Vienna Convention on Diplomatic Relations 1961, and treating it as if it applied to heads of state rather than diplomats, the Court of Appeal concluded that when a head of state ceases to be such, his immunity must also cease (save in respect of official acts performed whilst he was head of state). It was further held that this rule applies "whether the person has ceased to be head of state whilst alive or has done so because he has died". The position regarding immunity for private acts in respect of the estate of a head of state who died in office is therefore no different from that of a person who had been head of state but who left office and lived for some time thereafter.

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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