This case involves a situation in which a U.S. court found that an insurance policy covered a portion of damages incurred prior to and after a policy period based upon a manifestation coverage trigger. The insured then entered into a settlement agreement, and sought coverage from its reinsurers for the amount of the settlement. The resulting reinsurance dispute was litigated in a UK court. The UK court found that even though it was apparent that the insured had acted in good faith and prudently in negotiating the settlement to minimize its loss, the reinsurance did not cover damage that occurred outside the time period of the coverage of the reinsurance agreement. This decision illustrates an important area of risk for companies which may have their insurance and reinsurance governed by different applicable law, whether the laws of different U.S. states, which may have different coverage trigger or damage allocation theories, or the laws of a U.S. state and the UK. Care should be taken in establishing reinsurance programs to attempt to avoid such a scenario. Wasa International Ins. Co. v. Lexington Ins. Co., [2007] EWHC 896 (Queen’s Bench Commercial Court April 25, 2007).
UK Court Opinions
UK HIGH COURT ORDERS “FURTHER REASONS” IN EXPERT DETERMINATION
In March, the United Kingdom’s High Court ruled that courts have the authority to order further explanations from the umpire in an expert determination. The parties in this case entered into an agreement whereby the claimant, Halifax Life Limited (“Halifax”) agreed to reinsure the defendant’s business. A dispute arouse as to the precise balance of premium payable for the reinsurance. Pursuant to the agreement, an umpire was appointed, who would act as an expert, not an arbitrator, whose decision would be binding on the parties. In September, 2006, the umpire issued a ruling. The claimants, unsatisfied with the ruling, challenged the umpire’s determination on several grounds.
Mr. Justice Cresswell found that the reasons given by the umpire for arriving at his decision were inadequate under the circumstances. Although Justice Cresswell declined to make a declaration that the expert determination was not binding, he referred to section 70(4) of the Arbitration Act of 1996, which allows a court to order the tribunal to state the reasons in detail where it appears that the award does not contain sufficient detail to enable the matter to be properly considered. Justice Cresswell stated that “[i]t would be highly anomalous if an expert’s failure to give reasons caused the determination not to be binding, when this is not the position in the case of arbitration awards.” Instead, he adjourned the hearing and directed the umpire to state further reasons for his ruling. Halifax v. Equitable Life Assurance Society, [2007] EWHC 503 (Mar. 13, 2007).
UK Court enjoins depositions in US lawsuit
In the autumn of 2006, facultative reinsurance specialists left Benfield to join Aon. Although the principal individuals involved worked in the UK, there were allegations of conspiracy and other misconduct in both the UK and the US. Benfield filed suit in US District Court in New York in October 2006, and in the UK the following month. The UK proceeding proceeded towards a trial in March 2007, while the US proceeding proceeded into discovery without a trial date being set. When it became apparent that Benfield would seek to depose critical witnesses in the US suit prior to the UK trial, while trial preparations were underway, the UK Court enjoined Benfield from taking the depositions until after the UK trial. Although reluctant to take action that would interfere with the US suit, the UK Court noted the slow pace of progress of the US suit, and articulated nine factors that it took into account in reaching its decision. This is a very interesting opinion dealing with the “coordination” and relationships between a UK and a US proceeding. Benfield Holdings Limited v. Aon Limited, [2007] EWHC 171 (Queen's Bench Feb. 21, 2007).
In mid-March, 2007, Aon announced it reached “a global and comprehensive settlement with Benfield… relating to former Benfield facultative reinsurance employees…who will be joining Aon on April 1.” Under the terms of the settlement, Benfield will receive payments over time totaling more than $18 million dollars.
ENGLISH HIGH COURT GRANTS ANTI-SUIT INJUNCTION
The English High Court considered an application by Noble and Shell for an anti-suit injunction to restrain Gerling from continuing proceedings in the Vermont courts against both Noble and Shell where there had been a final arbitration award rendered in a London arbitration.
In November 2006 the Vermont court held that it had no jurisdiction to vacate the arbitration award since the seat of the award was London, but accepted subject matter jurisdiction over the claims to rescind the contracts for misrepresentation. In granting the ex parte injunction, the Court held that the misrepresentation claim fell within the scope of the arbitration agreement. The Court also held that the claims raised in the Vermont proceedings could have been raised in the London arbitration and that Gerling was estopped from raising those claims in the Vermont proceedings.
On the inter partes hearing for a final injunction, the Court held that Gerling’s conduct in attempting to nullify the effect of the arbitration award by court proceedings in Vermont against both Noble and its parent Shell, based on assertions contrary to the findings in the award, was vexatious, oppressive, an abuse of process and unconscionable. This decision confirms the jurisdiction of the English court to grant an anti-suit injunction to protect an arbitration award after the arbitration proceedings have concluded, and not only exiting arbitration proceeding prior to the delivery of an award. Noble Assurance Company and Shell Petroleum Inc. v. Gerling-Konzern General Insurance Company, 2006 EWHC 253 (February 22, 2007).
UK Court of Appeal discusses appeal process in context of reinsurance arbitration
The UK Court of Appeals has issued an opinion that discusses the appeal process in the UK, in the context of the appeal of an arbitration award in a reinsurance dispute. The reinsurance is irrelevant to this decision, which is interesting if one wishes to see how the UK appeal process works. CGU International Ins. PLC v. AstraZeneca Ins. Co., [2006] EWCA Civ 1340 (Oct. 16, 2006).