UK Court Opinions

UK SUPREME COURT ENJOINS FOREIGN COURT ACTION IN FAVOR OF POSSIBLE LONDON ARBITRATION

August 7, 2013 by Carlton Fields

Since reinsurance disputes are sometimes multi-jurisdictional we occasionally post on appellate UK and US court opinions dealing with the relationship between proceedings in different countries. The latest example of this involves two parties which entered into a contract concerning a hydroelectric plant in Kazakhstan. The contract is governed by Kazakh law but contains a London arbitration clause. When a dispute arose one party filed suit in Kazakhstan and secured a judgment from the Kazakh Supreme Court invalidating the arbitration provision. The other party filed suit in a UK court seeking a declaration that the arbitration provision was valid and enjoining the action in Kazakhstan. The UK trial court and Court of Appeals ruled that the Kazakh judgment was not binding, upheld the validity of the arbitration provision and enjoined the parties from proceeding with the Kazakh action. The UK Supreme Court agreed, and dismissed the appeal (the UK equivalent of affirming). The UK Supreme Court held that the refusal of the Kazakh court to enforce the arbitration provision compelled it to act to preserve the right to arbitrate. It is perhaps notable that no one had sought to commence an arbitration proceeding. The UK courts were acting to preserve the right of the parties to arbitrate, should they desire to do so. Ust-Kamenogorsk Hydropower Pland JSC v. AES Ust-Kamenogorsk Hydropower Pland LLP, [2013] UKSC 35 (June 12, 2013).

This post written by Rollie Goss.

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BRITISH HIGH COURT FINDS FOR CEDENTS IN DISPUTE OVER COVERAGE FOR A DEFECTIVE KUWAITI OIL TANK

April 15, 2013 by Carlton Fields

A newly-installed petroleum holding tank in Kuwait was discovered as defective in 2007, and initial repair/replacement estimate was approximately $28 million (US). At that time, the insurers notified the reinsurers, including Beazley, through their broker, Aon. AIG, the lead insurer, took the position that loss was excluded from coverage under a defective design exclusion. Ultimately, that coverage dispute appeared headed toward settlement, with AIG prepared to contribute some $4 million of a reduced $19 million total repair estimate. Beazley, AIG’s reinsurer, and other participating reinsurers, were not informed of these developments at the time. Upon learning about the negotiations later, the reinsurers notified the primary insurers of their objection that the settlement did not take into account the defective design exclusion, and that they did not consent to the settlement. They also pointed to the Claims Control Provision in the reinsurance contracts, which they alleged gave them full control over investigation and settlement. After hearing testimony, the Court held in favor of the primary insurers, finding that the reinsurers were sufficiently apprised of the settlement discussions, and the coverage dispute, as to have had meaningful control over the claim, and that the insurers did not breach that condition. Beazley Underwriting, Ltd. v. Al Ahleia Insurance Co., [2013] EWHC 677 (English High Court of Justice, Queen’s Bench, Comm. Div., Mar. 27, 2013).

This post written by John Pitblado.

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PHILIPPINE INSURER IS NOT ENTITLED TO STAY OF LONDON REINSURERS’ DECLARATORY COVERAGE ACTION REGARDING VESSEL SINKING

October 30, 2012 by Carlton Fields

A consortium of London reinsurers are seeking a declaration from an English court regarding their duty to indemnify Philippine insurer Oriental Insurance Company for losses resulting from the sinking of a cargo passenger ship during Typhoon Frank in 2008. The sinking, which caused widespread outrage in the Philippines due to the vessel’s failure to heed storm warnings resulted in over 500 deaths and significant property loss. The reinsurance contract contained a “Typhoon Warranty,” which voided the policy if an otherwise covered vessel left port during a typhoon or storm warning. Oriental’s underlying policy with the ship owner contained a virtually identical clause. Oriental, facing massive claims and litigation in the Philippines, sought a stay of the proceedings initiated by the British reinsurers, arguing that their action was premature given the reinsurance contract’s “follow the fortunes” clause and significant unresolved claims pending in the Philippine courts. The lower court dismissed Oriental’s application for a stay, holding that such relief should only be granted in “rare and compelling circumstances,” which were not present. The appellate court dismissed the appeal with “little enthusiasm,” finding the lower court’s decision correct but noting its apparent “unfairness.” In particular, as one justice noted, the reinsurers’ action might force Oriental to assert in the London courts that the “Typhoon Warranty” did not apply, a position diametrically opposed to the one it would wish to take in defending ongoing and imminent coverage suits in the Philippines. Amlin Corp. Member Ltd. v. Oriental Assurance Corp., [2012] EWCA Civ. 1341 (Royal Courts of Justice, Queen Bench Division, Commercial Court Oct. 17, 2012).

This post written by Ben Seessel.
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BRITISH COURT DISAGREES WITH PENNSYLVANIA COURT ON JURISDICTION AND FORUM, KEEPING ALIVE SEPARATE CASES PROCEEDING ON THE SAME INSURANCE POLICIES IN BRITISH AND U.S. COURTS

October 18, 2012 by Carlton Fields

Howden North America, Inc., a subsidiary of the Howden Group, Ltd. (“HNA”), manufactures equipment for the petrochemical, steel, mining, and cement production industries. HNA faces liability for asbestos exposure which allegedly caused personal injuries, from the 1960s through the 1990s. HNA looked to its insurers, which resulted in dispute with certain of its excess liability carriers. In 2009, HNA brought suit in Pennsylvania federal district court, seeking declaration as to the construction of the insurance policies at issue. In 2011, HNA joined a separate coverage action also pending in Pennsylvania and implicating some of the same policies and coverage layers, brought by a different primary policy holder. Meanwhile, in 2010, one of the excess carriers brought suit in the London High Court of Justice, seeking declarations involving some of the same policies at issue in the two Pennsylvania actions. In June 2012, the Pennsylvania court held, among other things, that English law does not apply, and denied motions to dismiss by the foreign defendants under the premise of forum non conveniens.

The British court has now held that English law governs with respect to one subset of the policies at issue, and that it is the appropriate court to hear those claims. It noted that because the British case is further along in terms of discovery, that it could be tried sooner and more efficiently. The British court also considered the problem of inconsistent judgments in the parallel proceedings, but held that “this is a position which the court in each country must accept.” As to the other subset of policies, the British Court declined to exercise jurisdiction, based on a lack of justiciability. Ace European, Ltd. v. Howden Group. Ltd., [2012] EWHC 2427 (High Court of Justice, Queen’s Bench Division, Commercial Court Sept. 17, 2012).

This post written by John Pitblado.

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ENGLISH LAW APPLIES TO ARBITRATION AGREEMENT IN POLICIES OSTENSIBLY GOVERNED BY BRAZILIAN LAW WHERE LONDON IS ARBITRAL FORUM

August 23, 2012 by Carlton Fields

Insurance policies insuring various risks regarding the construction of a hydroelectric plant in Brazil provided that, if the parties could not resolve disputes through mediation, arbitration was to take place in London. Brazilian law, however, governed the policies and, furthermore, the policies gave Brazilian courts exclusive jurisdiction over policy disputes. The policies, and arbitration clauses within them, however, were silent regarding what law governed interpretation of the policies’ arbitration agreements.

The insurers (Sulamérica and others) gave notice of arbitration regarding a dispute, to which the insureds responded by obtaining an order from a Brazilian court enjoining arbitration. The insurers applied to the U.K. Commercial Court for an injunction to restrain the Brazilian court proceedings. In opposition, the insureds argued that, under Brazilian law, arbitration could not be commenced without their consent. The Commercial Court sided with the insurers, determining that the arbitration agreement was governed by English law. The appeals court dismissed the appeal and agreed with the Commercial Court that, given the choice of London as arbitral forum, the arbitration agreement had its “closest and most real connection” with English law. Sulamérica CIA Nacional de Seguros S.A. v. Enesa Engenharia S.A., Case No. A3/2012/0249, [2012] EWCA Civ. 638 (Q.B. May 16, 2012).

This post written by Ben Seessel.

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