A loss was suffered for the purpose of entitlement to indemnity under a Top and Drop insurance policy when settlement monies were drawn down from (rather than paid into) an escrow account.
Teal Assurance Co Ltd v (1) W R Berkley Insurance Europe Ltd (2) Aspen Insurance UK Ltd [2015] EWHC 1000 (Comm) Mr Justice Eder, 25 April 2015
Summary
The court was asked to decide a preliminary issue as to whether liability to pay settlement monies arose when monies were paid into an escrow account, or when those monies were to be drawn down.
Background
Teal is a captive insurance company, incorporated in the Cayman Islands. It insured Black and Veatch Corporation ("BVC") and the wider BVC group which operates a global engineering and construction business.
During the period 1 November 2007 to 1 November 2008 (the "Policy Period"), BVC's professional indemnity insurance programme comprised the 'Lexington Policy', three Tower policies and a final "Top and Drop" policy. W R Berkley Insurance Europe Ltd and Aspen Insurance UK Ltd ("Defendant Reinsurers") agreed to reinsure Teal in respect of the Top and Drop policy (the "Reinsurance Contract"), subject to a per claim limit of £10 million or its equivalent in other currencies.
Teal faced a number of claims brought by BVC during the Policy Period and in 2010 Teal commenced proceedings against Defendant Reinsurers in relation to their liability under the Reinsurance Contract. Following a first round of preliminary issues before Mr Justice Andrew in 20111, the court found in favour of the Defendant Reinsurers, finding that the insurance policy responded to claims "by reference to the order and timing of the establishment and ascertainment of BVC's liability" and not when the claims were paid.
Preliminary issue
Teal revised its case in light of Andrew J's ruling. A second round of preliminary issues subsequently flowed from a settlement that BVC reached with a contracting party on terms which required BVC to pay in excess of US $13 million into an escrow account in accordance with the terms of an escrow agreement. Mr Justice Eder was asked to decide when BVC suffered a loss for the purpose of its entitlement to an indemnity under its insurance policies - was it: (i) when the monies were paid into the escrow account; or (ii) as and when the contracting party drew down on those funds in accordance with the escrow agreement?
It was Teal's case that the establishment and ascertainment of liability arose when the settlement counterparty became entitled to draw down the monies in the escrow account. This was important because, applying the various dates of drawdown, rather than the date of payment into the escrow, was financially advantageous to Teal because over $11 million in respect of the claim would then be payable by Teal to BVC under the Top and Drop policy and Defendant Reinsurers would then be liable to indemnify Teal under the Reinsurance Contract. However, if the Defendant Reinsurers were right, and the liability arose when the monies were paid into the escrow, then no payment would be due to Teal under the Reinsurance Contract.
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