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UK Court Opinions

UK COURT CONSIDERS WHETHER LATER CONDUCT STEMMING FROM A LOSS EVENT SHOULD BE CONSIDERED A LOSS UNDER AN EXCESS OF LOSS REINSURANCE POLICY

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This case considers an appeal against an arbitration award concerning whether health claims from persons involved in cleaning up the 9/11 World Trade Center site should be considered to be multiple claims or should be aggregated as losses or liabilities arising from the terrorist event. The underlying health claims were submitted by workers who became ill after they were not provided respirators or “properly trained” in the conduct of cleanup of debris from the World Trade Center site. The court described the claims as “a single event disassociated from the negligence which gave rise to the underlying liability claims.” The appeal described the issue on appeal as being: “Where the insured’s liability arises as a result of a continuing state of affairs (the failure to provide a safe system of work and equipment to multiple workers, working in disparate places over an extended period) is this to be treated as “a single event” of negligence or does the relevant event only arise when the harm giving rise to the insured’s liability occurs?”

The arbitrators concluded that the health claims could be aggregated under the applicable reinsurance contract and that the reinsurers would bound to indemnify with respect to paid health claims. The arbitrators’ analysis of the issue, and the court’s discussion, focused on the nature of the causal link between the terrorist attacks and the health claims of the cleanup personnel. The arbitrators employed a “but for” causation test rather than a “proximate cause” test, and looked to determine whether the terrorist event was a “significant cause” of the losses. Determining whether there was a “sufficiently significant causal connection” between the terrorist attack and the health injuries involved an exercise of judgment by the arbitrators. The court found that the arbitrators carefully considered the facts, the applicable law and the contracts in making their decision, and that they could have properly reached the decision they reached. Therefore, the appeal was not allowed.

Simmonds v. Gammell, [2016] EWHC 2515 (Commercial Court, Queen’s Bench Division Oct. 14, 2016).

This post written by Rollie Goss.
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U.K. COURT DENIES REINSURER’S SUIT TO AVOID REINSURANCE AGREEMENTS

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The Commercial Court (a subdivision of the Queen’s Bench Division of the U.K.’s High Court of Justice), recently held that an underwriter could not avoid the reinsurance contracts it had underwritten because it failed to convince the court that it would not have underwritten those contracts. In a case involving nondisclosure of loss statistics, the court determined that plaintiff reinsurer, Axa, could not avoid two reinsurance agreements that it had entered into with defendant insured, Arab Insurance Group (ARIG). The court made this finding even though ARIG failed to disclose – and perhaps even misrepresented – the loss statistics associated with its existing book of internal risk that was subject to the reinsurance. The court agreed with Axa that the misrepresentation of ARIG’s loss statistics was a material fact that should have been disclosed. However, even if ARIG had disclosed this information prior to the completion of the underwriting process, Axa would still have entered into the reinsurance agreements. Axa failed to prove they were induced by ARIG’s misrepresentation into the reinsurance contracts; they were therefore bound to those contracts. Axa Versicherung AG v. Arab Insurance Group [2015] EWHC 1939 (Comm).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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U.K. TRIBUNAL FINDS BROKER ALLIANCE DOES NOT FALL WITHIN VAT EXEMPTION FOR INSURANCE-RELATED SERVICES BY BROKERS AND AGENTS

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An upper tribunal in the United Kingdom has dismissed an appeal brought by Westinsure, an alliance of brokers formed to provide introductions and improve the business terms of its members, where Westinsure argued its services were tax exempt under a VAT Directive. That Directive exempts insurance and reinsurance transactions including “related services performed by insurance brokers and insurance agents.” The issue was whether Westinsure, which provides its member brokers commercial buying power, regulatory compliance assistance, and other business support, acts as a broker or agent when supplying these services. The tribunal found Westinsure’s services are not of a broker or agent and therefore not exempt under the VAT Directive or the Value Added Tax Act of 1994 (VATA). The tribunal further found that while Westinsure’s services are related to the supply of insurance, they did not have a sufficiently close connection to the insurance transactions themselves to come within the VAT exemption. Westinsure Group Ltd. v. Commissioners for Her Majesty’s Revenue and Customs, [2014] UKUT 00452 (TCC) Appeal No. FTC/96/2013 (Upper Tribunal (Tax and Chancery Chamber) Oct. 13, 2014).

This post written by Renee Schimkat.

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ENGLISH APPELLATE COURT DISMISSES APPEAL OF JUDGMENT DECLARING NO LIABILITY UNDER A CARGO LIABILITY REINSURANCE POLICY

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A judgment found that certain Lloyd’s reinsurers were not liable to cover the destruction of cargo on board a vessel that capsized in the Philippines during a Typhoon. The trial court relied on a typhoon warranty clause contained in both the reinsurance policy and the underlying insurance policy, which deemed the policy void if a vessel sailed out of port (1) “when there is a typhoon or storm warning at that port”; or (2) when the 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.” The trial court had found that there was a typhoon or storm warning at the port of sailing, and that the vessel’s route was within the possible path of the typhoon or storm announced at the port.

On appeal, the cedent argued that the first condition of the typhoon warranty clause was not breached under a four-step analysis: (1) the reinsurance policy contained a follow the settlements clause, (2) which required the reinsurance coverage to be interpreted like the underlying insurance policy, (3) the insurance policy should be construed in accordance with what an experienced insured would have understood the storm notice to mean, and (4) in this case, the storm notice would not be understood by an experienced insured as a sufficient warning against embarking. The court rejected this argument, holding that the clause must be understood according to only its plain meaning, both with respect to the clause in the insurance policy and the parallel clause in the reinsurance policy, and here it was undisputed that a storm warning had been issued. The court also rejected the cedent’s contention that the intended path of the vessel would not have crossed the possible path of the typhoon, finding that it was proper for the trial court to determine that the intended route was within the typhoon’s path. Amlin Corporate Member Ltd. v. Oriental Assurance Corp., [2014] EWCA Civ 1135 (Royal Courts of Justice, July 8, 2014).

This post written by Michael Wolgin.

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BRITISH COURT VOIDS REINSURANCE COVERAGE FOR BREACH OF TYPHOON WARRANTY IN MASS-CASUALTY SHIP-SINKING OFF PHILIPPINES

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Plaintiffs sued defendant primary insurer, Oriental Assurance Company, under a reinsurance contract covering underlying risk of a Philippines shipping company, including 22 scheduled vessels. Among them was the Princess of the Stars, a ferry built in 1984 which, on June 21, 2008, set out from Manila on a trip to Cebu, with 2978 tons of cargo, including cars and SUVs, 713 passengers and 138 crew. It capsized when a typhoon struck, killing 851 people and leaving only 32 survivors. The reinsurance contract contained a “Typhoon Warranty” clause prohibiting a ship setting sail in waters after issuance of a typhoon warning, violation of which voids the policy. After hearing expert testimony and other evidence regarding the ship captain’s and shipping company’s knowledge of typhoon warnings, and decision to nonetheless sail, the UK court held the warranty breached, and the reinsurance cover void. Amlin Corporate Member, Ltd. v. Oriental Assurance Corp., [2013] EWHC 2380 (Comm) (British High Court of Justice, Queen’s Bench, July 31, 2013).

This post written by John Pitblado.

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