COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
Mr Justice Colman
2002 Folio No 1132
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE RIX
SIR MARTIN NOURSE
|- and -
|Brandywine Reinsurance Company
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Christopher Butcher QC and Richard Slade (instructed by Holman, Fenwick & Willan) for the Respondent
Crown Copyright ©
Lord Justice Waller :
This is a judgment of the court to which all members have contributed.
The Basic Facts
(i) The lightering of the Exxon Valdez;
(ii) The skimming of oil from the surface of the water;
(iii) Booming off sensitive areas of shoreline (for example to protect fish hatcheries);
(iv) Burning of oil on the surface of the water;
(v) Washing the shoreline, by cold water and subsequently warm water flushing, coupled with the skimming of oil washed off the shoreline into the sea;
(vi) Moving rocks/pebbles etc into the tidal zone to allow natural tidal flushing;
(vii) Bioremediation (whereby compounds are added to the environment to assist in the natural process in which bacteria and other micro organisms alter the organic molecules in oil into other substances such as fatty acids and carbon dioxide);
(viii) The cleaning up of animals, including otters and birds.
(i) Claims were made against Exxon and ESC by both the United States of America (Federal Government) and the State of Alaska, in respect of the losses which they had suffered. These led to the payment of some US$900 million by Exxon, pursuant to an Agreement and Consent Decree, approved on 8 October 1991.
(ii) Sums were claimed from and paid by Exxon (about US$267 million) to commercial fishermen for lost income due to fish stock damages, to Alaska Natives for lost harvest foods, to seafood processors, seafood processor employees and some other organisations for lost income, and to private landowners for damage to their land as a result of oil fouling.
(iii) Proceedings were brought in the US District Court for the District of Alaska and in the State of Alaska Courts by some 30,000 plaintiffs (fishermen, processors, Alaska Natives, landowners and others). These proceedings were consolidated. After a jury trial in Alaska, the claimants were awarded US$287 million compensatory damages, and US$5 billion in punitive damages. After appeals and remands the District Court has recently reduced the punitive damages element to US$4.5 billion.
"24(A) The liabilities, costs and expenses in respect whereof Owners and Co-Assureds shall be insured by the Association in respect of their interest in the Entered Tanker… are limited to the following:-
(i) Those for which the Owner may, as a party to [TOVALOP] be liable.
(ii) Those for which the Owner or Co-Assured may be legally liable under statute or otherwise … by reason of the discharge or threatened discharge of oil, other than any damage, except pollution damage, caused directly or indirectly by fire or explosion . . . "
(b) The GCE
(i) Section I provided property insurance. Its essence was the cover of loss or damage to the property of the insured. It provided US$600 million cover above US$410 million of aggregate deductibles. It was given a separate policy no. of "03-0364B-88" and gave rise to a separate premium.
(ii) Section IIIA provided coverage for an array of marine risks, including in particular third party liabilities of vessel owners and operators. It was placed in three layers, which together provided cover of US$250 million per occurrence above aggregate deductibles of US$210 million.
(iii) Section IIIB was placed in the same layers as Section IIIA, and also provided cover of US$250 million per occurrence above aggregate deductibles of US$210 million. It provided general third party liability coverage. Sections IIIA and IIIB had their own (joint) policy number, viz "03-0366B-88" and gave rise to their own separate premium.
Claims on the GCE
For each loss occurrence covered by this Policy the Insurers agree with the Insured to pay or to pay on their behalf subject to the Basis of Recovery Article (VIII) . . .
4. All sums which the Insured pays or incurs as costs or expenses on account of: . . .
(b) Removal of or attempted Removal of Debris or Wreck of Property and/or Residual Structure covered hereunder.
2, Cargo and Stock . . .
(b) . . . recovery shall also include costs and expenses incurred in defending, safeguarding, recovering, preserving and forwarding the property, as well as costs and expenses in respect of general average, sue and labour, salvage, salvage charges and expenses incurred in removal or attempted removal of debris or wreck of property even if incurred solely as the result of governmental or other authoritative order and the amount of the reasonable extra cost of temporary repair or of expediting the repair, including overtime and the extra cost of express or other rapid means of transportation. This shall include but not by way of limitation, any costs and expenses incurred in respect of fighting a fire endangering or involving property insured hereunder."
Litigation and Arbitration of Exxon's claims
"13. … liability under Section I of the [GCE] was not going to turn simply upon construction of the policy language in light of the factual matrix. Rather, the outcome of the claim depended upon an interpretation of the parties' intentions as to the meaning of the policy language, as determined by a Texas jury directed by a non-specialist judge. … Jurors are often unfavourable to insurers and biased against them when insurers are arguing for a limitation of cover…
14. In these circumstances, I recommended to Underwriters the payment of $300 million This settlement was about 30% of the coverage plus interest. in settlement of Exxon Corporation's Section 1 claim.
16. Underwriters' denial of Exxon Corporation's Section 1 claim, when viewed purely as a matter of construction in the commercial context, was certainly reasonable, and based upon reasonable and credible arguments. However, in my judgment, a jury verdict on Exxon Corporation's Section 1 claim in the District Court in Houston, 189th Judicial District, was going to depend in large part on wider factors."
Commercial Union v NRG Victory Reinsurance Ltd
"It is a condition precedent to liability under the contract that settlement by the re-assured shall be in accordance with the terms and conditions of the original policies or contracts."
"It seems to me that, had the Judge sought to embark upon the question of whether the insurers were indeed liable to Exxon under section 1, he could not have failed to find that there were at least strong arguments that they were not. However, he never did embark upon that task."
"… on the face of it at least, the policy intended that losses sustained which might otherwise fall within the wording of section 1, but which were recoverable under section 3, should not also be recoverable under section 1."
1. Did the Underwriters of Section I of the GCE have and meet a liability to Exxon for the costs incurred under items (iv) to (vii) of paragraph 4 above? That question involves consideration of the language of Section I and in particular whether the words "Removal of Debris" cover Exxon for those costs. It further involves consideration of clauses known as the "Notwithstanding clauses" in Section I by virtue of which it is suggested by the defendants that if there was coverage under Section IIIA and IIIB, there would not be coverage under Section I. It also involves consideration of Article IX(3) of Section I which the defendants suggest is a free standing provision which excludes liability for such costs under Section I.
2. Did the Underwriters of Section I have and meet a liability to ESC? In this instance, although the judge was with the claimants on certain aspects, they face one difficulty on which the judge was against them, on which we have already indicated at the hearing we are against them. It was not ESC which made the settlement; thus the Underwriters under the GCE never met any liability of ESC.
3. Did the Underwriters of Section IIIB have and meet any liability to Exxon for the third party liabilities summarised in paragraph 5 above?
4. Does the seepage and pollution exclusion in certain of the reinsurance policies exclude liability for the costs and liabilities to third parties?
5. There is also a critical question as to proper law – English or New York?
The Judgment below in Summary
(i) That, in accordance with the defendants' case, the governing law of the GCE was English law. The Judge rejected the claimants' submission that the GCE was governed by New York law (judgment paragraphs 33-66).
(ii) That, as a matter of English law, there was no cover under Section I of the GCE because, on its true construction, it did not cover pollution clean up costs (paragraphs 86-116).
(iii) That had the GCE been governed by New York law, Section I would have been construed as covering pollution clean up costs (judgment paragraph 257).
(iv) That neither under English nor New York law would cover for clean up costs have been excluded from Section I by reason of Clause IX(3) (judgment paragraphs 154-159), but subject to the Notwithstanding clauses.
(v) That under English and New York law even if there would otherwise have been cover for clean up costs under Section I, there was no cover because of the provisions of the Notwithstanding clauses (judgment paragraphs 118-153; 258-259).
(vi) That the claimants cannot recover on the basis of ESC's putative claim under Section I. The Judge found that there had been no settlement of ESC's notional claim, and that as a result the claimants could not claim under the Outwards Reinsurances in respect of any liability to ESC (judgment paragraphs 160-203).
(vii) That as a matter of English law, there was no cover for clean up costs under Section IIIB of the GCE (judgment paragraphs 204-236).
(viii) That as a matter of New York law there would have been cover for clean up costs under Section IIIB of the GCE (judgment paragraphs 260-261).
(ix) That the seepage and pollution exclusion which appeared in most of the Outwards Retrocessions excluded liability on the part of the defendants to indemnify the claimants in respect of clean up costs, even if they were covered under the GCE (judgment paragraphs 237-248).
The Proper Law Of The GCE
(1) The question was to be determined by an application of English conflict of laws principles.
(2) It was to be assumed that Sections I, IIIA and IIIB were presented by the placing brokers to the participants on both the London and Scandinavian markets as a single package and during a very short period of time.
Each side has accepted throughout that all three sections should be treated as governed by the same proper law.
"To the extent the Arbitrators follow the rules of law, such law shall be that of the State of New York to the exclusion of all other laws."
"I think it plain, almost beyond argument, that the proper law of that policy is English. It was a Lloyd's policy, negotiated by Lloyd's brokers and issued by the Lloyd's Policy Signing Office in London. Notice of potential claims was to be given to Lloyd's brokers. The policy was for world-wide cover. Unless displaced, the inference that English law was intended to govern is in my view overwhelming."
One of the factors relied on as displacing that inference was a service of suit clause in much the same form as that found in Section IIIB of the GCE. As to that provision, Bingham LJ said, at p592:
"The service of suit clause did contain a reference to New York, which is the proper law for which the insurers contend. There are three points to be made. First, a clause of this type is not inconsistent with an English proper law, where that is otherwise to be inferred: see Armadora Occidental SA v Horace Mann Insurance Co  1 WLR 520….. Third, the intended effect of this clause, providing for determination of disputes in accordance with the law of the Court in which the insurer is sued, does not suggest that the law of any State of the Union is already the proper law. Certainly the provision for service on New York agents does not support that inference, because service may be made upon them no matter in which State the suit is brought."
Section I coverage - removal of debris
" The fundamental error made by the judge was in failing to construe the words "removal of debris" in the context in which they appeared in Article VIII(2)(b) of Section I. That context was as follows:-"
(a) The Policy was a high level catastrophe cover to protect the Exxon Group.
(b) The Exxon Group was engaged in the business of the production and transportation of oil and refined oil products.
(c) The first party loss cover conferred by the Policy included cover for the cost of the recovery of cargo and the cost of the removal of debris of cargo.
(d) Such cover was conferred not only in the general context of the business of the Exxon Group as described above, but also in the particular context that the only types of cargo expressly identified in the relevant clause were crude oil and refined or in-process products.
(e) Such cover was further conferred even if the expenditure was incurred solely as the result of governmental or other authoritative order, thus making it clear that the cover was to encompass the cost of a clean-up required by a government of other authoritative body."
"The learned Judge further erred in his reasoning in the following 4 respects:
a. the natural meaning of the word "debris";
b. the inference to be drawn from the annual aggregate deductible and amount of cover provided by Section I;
c. the distinction in the policy between "removal of debris" and pollution;
d. the commercial environment in which the GCE Policy was negotiated."
Mr Edelman's submissions in more detail
" In Avondale Industries Inc. v. Travelers Indemnity Company 697 F. Supp. 314 (S.D.N.Y. 1988), Aff'd 887 F.2d 1200 (Cir.1989), [C1/119.146-155, 156-168] U.S.D.J. Conboy had to decide whether clean-up costs incurred pursuant to a requirement to clean-up under administrative proceedings commenced by a state fell within the ambit of "damages" for the purposes of a policy provision imposing on the insurer the duty to defend any suit against the insured "seeking damages" on account of property damage. He held as follows:
"The average businessman does not differentiate between "damages" and "restitution"; in either case money comes from his pocket and goes to third parties. See United States Fidelity & Guarantee Co., 683 F. Supp. at 1168 ("the insured ought to be able to rely on the common sense expectation that property damage within the meaning of the policy includes a claim which results in causing him to pay sums of money because his acts or omissions affected adversely the rights of third parties"). The average businessman would consider himself covered for clean-up expenditures applicable to others' properties. Cases such as Armco Inc., which apply a "legal, technical meaning" to the word "damages", see id. at 1352, are inapposite to this case, to which New York law, mandating construction according to "the reasonable expectation and purpose of the ordinary businessman", applies."
"The court in Lexington defined "debris" as meaning "merely waste material resulting from the destruction of some article." Debris is generally understood to be "remains of something broken down or destroyed." Webster's Ninth New Collegiate Dictionary, p.328. The oil at issue in Lexington had not been destroyed, it had merely escaped. Therefore, it is difficult to fully understand the ruling of the court in that case. In any event, Lexington is clearly distinguishable from the present case. Here oil in pipes is not covered property under the policies in question and the oil at issue was not the debris, that is , the destroyed remains, of any covered property. Therefore, the Debris Removal portion of the policies does not provide coverage for the plaintiff's losses."
Evidence of New York Law
"(3) The Court of Appeal, whilst slow to interfere as in all cases where the decision involves findings of fact, may in appropriate cases be somewhat more ready to question the trial judge's conclusions than in normal cases: see Parkasho v Singh  P.233, per Cairns J. giving the leading judgment:
"We are asked by the appellant wife here to say that the decision was wrong; that the justices were wrong in their interpretation of the foreign law. The question of foreign law being a question of fact in our courts, must this court regard itself as bound by the findings of the justices on this matter? In my view the question of foreign law, although a question of fact, is a question of fact of a peculiar kind and the same considerations do not apply in considering whether and to what extent this court should interfere with the decision of the magistrates, as in the case of the ordinary questions of fact which come before a magistrates' court. It is not, I think, inappropriate to bear in mind that under the provisions of section 102 of the Supreme Court of Judicature (Consolidation) Act, 1925, it is provided that an issue of foreign law in a case which is being tried by a jury is a question of fact for the judge and not the jury. And bearing that in mind, and bearing also in mind the provisions of rule 73(7) of the Matrimonial Causes Rules, 1957 (S.I. 1957 No. 619) which enable this court to draw any inference of fact which might have been drawn in the justices' court, I think it is our duty in this case to examine the evidence of foreign law which was before the justices and to decide for ourselves whether that evidence justifies the conclusion to which they came."
Later in his judgment Cairns J  P.233, 250 referred to the speech of Lord Wright in Lazard Bros. & Co v Midland Bank Ltd  AC 289, 298, where reference is made to the Sussex Peerage Case 1844) 11 Cl. & F. 85, 116, and then to the passage from the judgment of Lord Langdale MR in Earl Nelson v Lord Bridport, 9 Beav. 527,537 cited above.
The approach of the Divisional Court in Parkasho v Singh was approved in the Court of Appeal in Dalmia Dairy Industries Ltd v National Bank of Pakistan  2 Lloyd's Rep. 223, 286, per Megaw LJ:-
"But a finding of fact on an issue of foreign law is a finding of fact of a very different character from the normal issue of fact: we would adopt as correct the observations of Cairns J (as he then was) in Parkasho v Singh  P.233, 250 as to the position of an Appellate Court on a matter of this kind. An Appellate Court must not by uncritical acceptance of a trial judge's conclusions of fact shirk its function of considering the evidence afresh and forming its own view of the cogency of the rival contentions, whilst of course always remembering that the trial judge had the undoubted initial advantage of having seen and heard the witnesses.""
"To extent that no New York precedent existed on issue of which of costs incurred by shipowner to remove chemical debris from damaged cargo tanks following shipboard explosion and to clean and repair tanks were chargeable to hull insurer, maritime nature of marine hull and machinery insurance policy dictated that federal district court anticipate that New York state courts would look to English law in view of special reasons for keeping in harmony with marine insurance laws of England, a great field of such business."
"Notwithstanding anything else contained herein to the contrary there shall be no recovery hereon for liabilities as described under Assured Liability Policy(ies) (as more fully defined and as covered under Policy No. 03-0366-88 and HA127188) or for "Directors and Officers" and "Fidelity" coverage. However, in respect of liabilities as described under Assured Liability Policy(ies) (as more fully defined and as covered under Policy No. 03-0366-88) it is agreed subject to the deductible as defined in Article IV Paragraph 2 that losses up to a further $200,000,000 in the aggregate annually may contribute to exhaust this policy aggregate(s) hereon. Further, in respect of "Directors and Officers" and "Fidelity" coverage it is agreed subject to the deductible as defined in Article IV Paragraph 2 that losses up to a further $90,000,000 any one occurrence and in the aggregate in respect of "Directors & Officers" may contribute to exhaust this policy aggregate(s) deductible(s) hereon."
"76. The extent to which it would be commercially illogical for the word "liabilities" in the Notwithstanding clause to be given the wide meaning preferred by the learned Judge (i.e. such as to include first party costs and expenses) is illustrated by Section IIIA, Article 1(a)(ii). That Article provides, so far as is relevant:
"It is further agreed that this insurance is extended to also cover any loss sustained by the Insured or indemnify or pay on behalf of the Insured any sum or sums which the Insured may be obliged to pay or agrees to pay or incurs as expenses, on account of Removal of Debris or Wreck of vessels and/or craft as per schedule contained in Endorsement No.1 even if incurred solely as the result of governmental or other authoritative order."
77. Article 1(a)(ii) thus expressly contemplates cover for first party expenses incurred in the removal of debris. The Article applies to the long list of vessels which appear under the heading "Vessels not entered in ITIA" on page 69 of the Policy. It may be seen from Section I, Article 8(1)(d), on page 21 of the Policy, that the same cover is extended to all of Exxon's vessels, including Exxon's oil tankers. If the learned Judge's conclusion were right, the cover which was given in this way by the Policy would immediately be withdrawn in respect of non-ITIA vessels by reason of the Notwithstanding clause; the costs and expenses would be recoverable only under Section IIIA, and for that reason would, given the Notwithstanding clause, be irrecoverable under Section I. It would, on the learned Judge's approach, mean that if the liabilities covered by Section IIIA arising from the incident were such as themselves to exhaust cover under Section IIIA, the additional first party loss would not be recoverable at all, despite the clear effect of the insuring clauses in Section I. This cannot have been how the parties intended the Notwithstanding clauses to operate."
"… there shall be no recovery hereon for liabilities as described under the Assureds Liabilities Policies (as more fully defined and as covered under Policy Numbers 8KM52362 and 03-0366-88 as applicable) or for 'Directors and Officers' and 'Fidelity' coverage (form to be advised)."
He suggested that it was deliberate to refer to "coverage" in relation to directors and officers, and to "liabilities" under the Section III policies.
Banker's Trust Co v. Hartford Accident & Indemnity Co.518 F.Supp. 371 [C1/119.181-119.185]:
Olin Corporation v. Insurance Co. of North America 221 F.3d 307 [C1/119.206-119.238]:
ECDC Environmental L.C. v. New York Marine & General Insurance Co. 1999 US Dist. Lexis 9836 [C1/119.186-119.205]:
He submitted that the following points emerged from the above cases:
(i) They all involved only the question of whether there was cover under a liability policy. They did not concern first party cover at all or the interaction of first party and third party cover.
(ii) All of the cases had proceeded on the premise, without it being argued or decided, that clean-up costs were capable of being covered under a liability policy; none of the cases involved consideration of what is within the ambit of a "liability" for the purposes of a liability policy, and all of the cases were concerned with other policy points.
(iii) In each case, there was a liability, in the sense of a legal obligation, to clean up either because of a specific order, decree or direction to clean up or because of a specific statutory obligation to clean-up.
(iv) The recovery of the clean-up costs in each case was not based on a mitigation of liability to third parties but on the basis that the sums were paid out in complying with an order, decree, direction or statutory obligation requiring the clean-up.
(v) In the only case (Olin) in which the insured did try to justify the recovery of clean-up costs on the basis that they avoided a liability, the insured failed on the basis that the clean-up costs could only be attributed to the discharge of the order under which the insured was required to carry out the clean-up.
Article IX (3)
"This policy does not cover:- . . .3. Loss of or damage to property, liability for which is imposed upon the insured by Law, other than such property as may be included under the terms of this policy."
"Section I is expressly confined to first party losses due to loss of or damage to the insured's property. It is not concerned with liability for damage to third parties caused by the loss of or damage to their property. The contractual function of Article IX.3 is obviously to insulate cover under Section I from liability to third parties in respect of property now owned by the Insured. However, Section I cover includes the expense of removing debris of the insured property. Clearly that debris may have come to rest on the property of third parties. For example, damaged drums of noxious chemicals may have been deposited in private harbours or on private beaches as a result of insured perils in circumstances where the cargo owners are obliged by law to remove them or to pay for the owners of the endangered property to do so. In other words, damage or the threat of damage to a third party's property is an inherent risk associated with the dissemination of debris. For this reason it cannot have been the intended effect of the Article IX.3 exclusion that debris removal expenses under Articles VII.4(b) and VIII.2(b) would be confined to removal the need for which was not occasioned by damage or the threat of damage to third parties' property if the debris were not removed.
In my judgment, therefore, the exclusion would not operate to prevent recovery of clean-up costs if the words of Article VIII.2(b) covered oil pollution clean-up."
Mr Butcher's submissions
"Major North Sea Platforms as scheduled in Endorsement No.5 are subject to sub-limit for Removal of Debris $255,000,000 (100%) each unit except ODIN which $131,000,000, STATFJORD A which $430,000,000 and STATFJORD B and C which $151,000,000 (10%)."
"As the Judge was aware, and was shown, the GCE, its terminology, and its treatment of pollution cover, were not made in a vacuum. In particular, the contract was made against a background in which oil pollution was a particular, recognised problem, and oil clean up costs were the subject of specific and explicit treatment in international agreements and insurance arrangements.
(i) Thus, it has been recognised, at least since the Torrey Canyon disaster in 1967, that oil spills from ocean going tankers give rise to unique problems by reason of the widespread pollution which they can cause, potentially affecting vast areas, large quantities of wildlife, and causing disruption to many communities.
(ii) As a result there have been international treaties and a great deal of national legislation which deals with responsibility for oil pollution.
(iii) In particular, there has been the 1969 International Convention on Civil Liability for Oil Pollution Damage, made at Brussels, and implemented in the UK by the Merchant Shipping (Oil Pollution) Act 1971; and the 1971 International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage. Each of these refers to "Pollution Damage", and defines this as "loss or damage caused outside the ship carrying oil by contamination resulting from the escape or discharge of oil from the ship … and includes the costs of preventive measures and further loss or damage caused by preventive measures".
(iv) This national and international legislation has been supplemented by action taken by the major tanker owners (including Exxon), in agreeing TOVALOP. As already indicated, under TOVALOP Participating Owners assume liability for "Pollution Damage caused by oil which has escaped or which has been discharged from a Tanker, and the cost of Threat Removal Measures taken as a result of the Incident. "Pollution Damage" means "loss or damage caused outside the Tanker by contamination resulting from the escape or discharge of oil from the Tanker … and includes the costs of Preventive Measures, wherever taken …"; and "Preventive Measures" means "any reasonable measures taken by any Person after an incident has occurred to prevent or minimise Pollution Damage".
(v) The raison d'etre of ITIA was to deal with the insurance implications of liability for oil pollution. In particular, ITIA insured against the obligations assumed under TOVALOP, including liability for the costs of Preventive Measures (see ITIA coverage quoted in paragraph 98 of the judgment [Core 133]).
(vi) In addition to TOVALOP, oil companies (commencing in 1971) agreed CRISTAL, the Contract Regarding a Supplement to Tanker Liability for Oil Pollution. It provided supplemental compensation to persons who had sustained "Pollution Damage". "Pollution Damage" includes both "physical loss or damage caused outside the Tanker by contamination resulting from the escape or discharge of Oil from the Tanker" and costs incurred in taking measures "to restore or replace natural resources".
(vii) Exxon, as the largest oil company in the world, was obviously well aware of all these matters, and intimately involved in them. It was a member of TOVALOP. Its tankers, including the Exxon Valdez, were entered in ITIA. Exxon was a member of CRISTAL. Within the Exxon organisation, the issue of oil pollution was, unsurprisingly, so-called, and characterised in the same way as in these various international conventions and agreements. To demonstrate this one need look no further than the terms of Article 15 of the Contract of Affreightment between Exxon Corp and ESC which regulated the very carriage during which the Exxon Valdez grounded."
(a) "wreckage; ruins; rubbish; a mass of rocky fragments"[The Chambers Dictionary];
(b) "The remains of anything broken down or destroyed, ruins, wreck"[OED];
(c) "broken or torn pieces of something larger"[Cambridge Advanced Learner's Dictionary];
(d) "a. The scattered remains of something broken or destroyed; rubble or wreckage. b. Carelessly discarded refuse; litter. 2. Geology. An accumulation of relatively large rock fragments."[American Heritage Dictionary of the English Language]
"If one looks at the overall structure of the GCE, it is impossible to resist the conclusion that issues of oil pollution and its containment/mitigation/clean up were intended to be dealt with in Section III and not in Section I. Thus:
(i) Section IIIA covers P&I risks. It has a specific exception in relation to ITIA-entered vessels. That is because, in relation to those vessels, potential liabilities will include oil pollution liabilities (under TOVALOP or international legislation), which were insured by ITIA, the specialist pollution P&I club. Accordingly, the GCE (by Section IIIA Interest and Coverage Provision 1(a)(iv)) provided:"In respect of any vessel insured under this Policy which is a tanker as defined by the Rules of the International Tanker Indemnity Association Limited (hereafter ITIA) prevailing at the time of the loss, this insurance does not insure against:-Any liabilities, costs and expenses which are insured by the Indemnity Provisions of the ITIA Rules prevailing at the time of the loss, nor for any amount in excess of ITIA limits…"
(ii) Charterers' liability for oil pollution is the subject of the express provisions at Section IIIA, 1(c).
(iii) References to, and the relationship with, ITIA cover run through the whole of Section IIIA (see 1(a)(iv), 1(c), 1(e), 1(h)).
(iv) The issue of coverage for pollution emanating from onshore facilities is dealt with in Section IIIB. Again, there is clear provision, in the form of Endorsements 2 and 2A. This cover plainly embraces clean up costs."
"INSTITUTE POLLUTION HAZARD CLAUSE:
Subject to the terms and conditions of this Policy, this insurance covers loss of, or damage to the interests insured directly caused by any governmental authority acting under the powers vested in them to prevent or mitigate a pollution hazard, or threat thereof, resulting directly from damage to the interests insured for which the Underwriters are liable under this Policy, provided such act of governmental authority has not resulted from want of due diligence by the Assured, the Owners, or Managers of the interests insured or any of them to prevent or mitigate such hazard or threat …"
In Article VIII(4) there is the following coverage :
"WELL CONTROL COSTS, ETC. : …
For the purposes of coverage hereunder, a well out of control shall be defined as a well from which and whilst there is a flow of drilling fluid, Oil, Gas or Water which is uncontrollable and cannot be controlled by the blow out preventer or storm chokes or Christmas tree or other equipment generally considered prudent for the operation insured, or any well that the Assured is required by any Governmental and/or regulatory authority to control." (Emphasis added)
Article X, under the sub-heading "Cargo War Risk Insurance", includes the following:
"10. While the property insured is on board a waterborne conveyance, loss of or damage to said property directly caused by governmental authorities acting for the public welfare to prevent or mitigate a pollution hazard or threat thereof, provided that the accident or occurrence creating the situation which required such governmental action would have resulted in a recoverable claim under the policy (subject to all of its terms, conditions and warranties) if the property insured would have sustained physical loss or damage as a result of such accident or occurrence."
(i) The Exxon policy is to be construed as a whole and to give effect to the parties' intended purpose (see Memorandum sub-paragraph (1)).
(ii) A New York court would look at the whole policy as a "package", and not just at one clause or a selection of clauses in isolation, to discern the intent of the parties in drafting a particular provision (see Memorandum sub-paragraph 2)).
(iii) In attempting to discern the meaning of the Exxon policy, a New York court would do so in the light of the reasonable expectations of a business person engaged in a similar line of business (see Memorandum sub-paragraph 3).
(iv) To the extent that a contract is unambiguous, a New York court will look to the plain meaning of the words used to determine the parties' intent (see Memorandum sub-paragraph (6)).
(v) If the policy or parts of the policy are determined by the court to be ambiguous because they are susceptible of two or more reasonable interpretations, then the New York court would consider extrinsic evidence to determine the proper interpretation (Memorandum sub-paragraph (8)).
"128. In the first place, the underwriters gave evidence (on behalf of some of the Claimant Syndicates, among others) which indicated that it had not been their intention to afford cover for oil clean up costs under Section I.
(i) The leading underwriter, Richard Youell, who had enormous experience of the market, said "… one thing removal of debris is not, is pollution. Pollution is something quite different and quite separate."
(ii) Mr Youell's assistant, Christopher Compton-Rickett, who took much of the responsibility for the underwriting of the property cover under Section I of the GCE, gave evidence as follows:
"Q. So removal of crude oil that's floating on the water would not be covered under removal of debris?
A. Oh, no. Not at all. That's clean-up and removal of pollution.
Q. What about removal of crude oil from – that washes ashore?
A. That's the same thing… Crude oil and other substances that pollute do not form the proper subject for removal of debris coverage, and always would be the subject of any pollution.
. . .
"129. Evidence from the other side of the contractual dividing line came from William Jueds who was President of Exxon Insurance Corp from 1986-1993. That was the company which was responsible for arranging Exxon's insurances. . . . .
Mr Jueds gave evidence that his view was that the term "removal of debris" in Section I was not intended to cover oil pollution.
130. Entirely consistent with the absence of any intention on Exxon's part to insure oil clean up costs under Section I is the following further evidence:
(i) Exxon had investigated the possibility of buying pollution coverage in excess of the US$400 million coverage under ITIA, before the Exxon Valdez spill. It obtained quotations for excess pollution coverage, but decided that the ITIA level was adequate and that the additional insurance would be too expensive.
(ii) At the time of the renewal of the GCE cover in August/September 1989, after the Exxon Valdez spill, Exxon had no idea that there would be a Section I claim for removal of debris. Exxon decided to pursue a removal of debris claim only in February 1991. The idea for that claim came from lawyers at Covington & Burling.
131. As to the brokers, the position is the same.
(i) The brokers had never, before the Exxon Valdez spill, heard it suggested that removal of debris covered oil pollution. . . . Mr Tyndall gave evidence that he had been a broker for 28 years with Bowrings, specialising in placing marine and energy business. He had never heard anyone (including his major petrochemical clients) suggest that removal of debris covered marine oil pollution cleanup expenses. He was not aware of any situation where an insured obtained insurance for oil pollution cleanup expenses and it was called anything other than pollution.
(ii) Mr Delach, managing director of Marsh & McLennan, stated that, in the marine insurance industry, an oil spill would always be described as pollution.
. . . .
132. In addition to this evidence was the evidence that there simply was not cover of $600 million excess of ITIA available in the market for pollution coverage."
"It is common ground that the specified policy numbers … were a reference to section 3 of the GCE policy itself. Thus, on the face of it at least, the policy intended that losses sustained which might otherwise fall within the wording of section 1, but which were recoverable under section 3, should not also be recoverable under section 1."
"109 The leading underwriters, Mr Youell and the underwriter directly concerned, Mr Christopher Compton-Rickett, of the Jansen Green Syndicate, Exxon Insurance Corporation, which was part of the Exxon group responsible for effecting Exxon's insurances in general and this policy in particular, and the London placing brokers, Bowrings, in particular Mr Fortescue, Mr Mead and Mr Tyndall, were none of them strangers to Exxon's global insurance cover or to insurance against pollution risks.
"110. This court has not heard oral evidence on market background or commercial matrix but it has had the benefit of transcripts of deposition evidence given in the Texas proceedings by a number of witnesses from the parties concerned with the placing. Hearsay notices were served in respect of passages from those transcripts and were not objected to save on the grounds of admissibility. Most of that evidence is not admissible because it is evidence of negotiations or the subjective understanding or intention of those concerned or of personal opinions after the event, but several of those involved were extremely experienced in the insurance industry and in particular in the insurance of oil producers and tanker operators and the evidence which they gave of their experience of the insurance industry background clearly is relevant to the issues of construction under Section I."
111. Mr Anthony Fortescue, Chairman of Bowring Marine Ltd said that in his 30 years experience of the marine insurance market he had never heard anyone suggest that pollution cleaning up expenses were encompassed within the term "removal of debris".
112. Mr Roger Tyndall another very experienced broker at Bowrings who had been responsible for placing the 1988/89 policy for Exxon had not been instructed to obtain any form of pollution cover under the property damage policy.
113. Mr Kettel had many years experience in the energy industry, including 16 years at Atlantic Richfield and 9 years at Chevron, in both corporations responsible exclusively for insurance matters. He had for 18 years been a member of the Oil Insurance Group consisting of about 15 insurance managers from the major energy companies, including Exxon, who regularly met to discuss insurance problems. He was also a board member of ITIA – the International Tanker Insurance Association, from 1975 to 1994. In an affidavit which he swore for the purposes of the Texas proceedings he stated that after the grounding of the Torrey Canyon in 1967, which was the first major oil spill, giving rise to a major coastal pollution problem, it became apparent that the energy industry required as much insurance for tanker pollution as the market had the capacity to cover. From the outset, because of the objective of maximizing market capacity, it was essential that insurers should be able to identify clearly the sources of their exposure to pollution risks. Consequently it became the practice in the marine insurance market to cover tanker pollution costs, liabilities and expenses through specialized policies that expressly addressed the pollution risk. ITIA was set up as a P&I Club specializing in pollution cover. It was in turn reinsured on the London market by virtue of its membership of the International Group of P&I Clubs which was protected by reinsurance in respect of pollution risks, led by the Janson Green Syndicate. Thus ITIA's ability to provide pollution cover was limited by the extent of the reinsurance cover obtained by it from the London reinsurers. By 1989 that limit was $400 million. In the 1980s some insurers offered tanker pollution cover above the limits offered by ITIA but such insurance policies always specifically identified tanker pollution as the risk. By 1989 it was possible to purchase on the outside marine market for a very substantial premium up to $200 million cover in excess of the $400 million available from ITIA but there was not sufficient market capacity to purchase as much as $600 million pollution clean up cover in excess of the ITIA cover.
114. It is true that Mr Kettel's evidence was in one sense adduced as a market expert and that, although it was the subject of a hearsay notice, there was no order of this court permitting the calling of expert evidence other than that of New York Law and Alaskan Law. Nevertheless, that which I have summarised was not opinion evidence. Rather it was evidence of the state of the energy insurance industry in the years leading up to the time when this GCE policy was entered into. Most of this evidence is well known to the judges of this court by reason of that specialist background which is one of the main reasons why those involved in international commerce are so willing to refer their disputes to its jurisdiction. To ignore this historical background merely because it had not formally been the subject of a previous court order would therefore be quite unrealistic.
115. Having regard to the structural and linguistic features of the GCE Policy to which I have already referred and to the commercial background against which the risk was placed, including in particular the limited availability of market reinsurance cover for primary pollution clean-up risks, I have come to the firm conclusion that paragraph 4(b) of Article VII of Section I is not, on its proper construction to be understood as including the cost of clean-up of oil pollution. The provisions of Article VIII, paragraph 2 - "Cargo and Stock" - contain nothing which is to be construed as expanding the meaning of Article VII paragraph 4(b) to include oil pollution clean-up costs. Paragraph 2 does not apply exclusively to liquid cargoes: it covers also cargoes consisting of "materials, supplies, equipment, tools and all other cargoes" as indicated in Paragraph 2(a)(iii). Matching the provisions in Article VIII, Paragraph 1(d) and (f) which deal with cost of removal of debris of property in the context of insured property other than cargo and stock, so Article VIII paragraph 2(b) deals with cost of removal of debris of cargo and stock. The fact that most of the cargo or stock may be in liquid form does not expand the meaning of debris, given that paragraph 2 expressly contemplates solid cargo.
"a. The effect of clause 2(g) of Section IIIA is that if and to the extent that the Insured, in its capacity as charterer or cargo owner, incurs expenses which are within the categories set out in 2(g) and connected with its legal or contractual liability as charterer or cargo owner for pollution or contamination, there will be cover under Section IIIA. "
b. The Notwithstanding clauses embrace costs and expense incurred pursuant to a sue and labour clause. 
c. The general principles applicable to sue and labour with regard to the insurance of property or ships are equally relevant to liability insurance. 
d. If (contrary to the Judge's conclusion on Section I) "removal of debris" does extend to oil pollution clean-up costs, those costs could only be recoverable under Section I if Exxon were not entitled to recover it under Section IIIA on the ground that Exxon incurred a liability to a third party (viz the State of Alaska) in respect of such clean-up or the cost of it or because the cost was a sue and labour expenditure in the sense expressed in clause 2 (g). 
e. The clean-up operation undertaken by Exxon was an expense of the character of sue and labour expenditure incurred to avoid an insured potential liability and therefore fell within the scope of clauses 2(e) and (g) of Section IIIA. 
f. On the hypothesis that the cost of removal of debris was covered under Section I, the Notwithstanding clauses exclude the right of Exxon to recover the actual expenditure incurred since such expenditure was recoverable under Section IIIA. "
Discussion and conclusion on Section I
"…it is necessary to keep in mind the overall coverage structure which, it is to be inferred, was mutually intended to be created as between the brokers and the underwriters. This involved (i) protection against property damage in respect of property owned by or held in trust or under responsibility by the Insured and certain kinds of expenditure by the Insured relating to such property (Section I); (ii) protection against marine liabilities of a P and I nature, including oil pollution if not covered by ITIA (Section III A); (iii) third party liabilities of a non-marine nature arising out of the Insured's commercial activities in relation to the energy industry (Section III B). As I have already concluded…the expenditure on oil pollution clean-up was recoverable by Exxon as cargo owner under Section III A and not under Section I. That right of indemnity under Section IIIA arose from the fact that such policy provided cover to a cargo owner who, not being a shipowner or bareboat charterer, did not have the benefit of cover from ITIA. As cargo owner Exxon therefore had the benefit of a wider scope of cover in relation to P and I risks, including ocean carriage than ESC as shipowner. In as much as Section III B does not provide P and I cover, the question arises whether it is to be inferred from the terms of that section, against the background of the overall structure of the cover provided by the insurers, that Exxon, not being the owner or bareboat charterer, was to have the benefit of cover of a scope which overlapped with that already granted to it as cargo owner in respect of marine liability risks under Section III A."
Insurers hereby agree, subject to the limitations, terms and conditions, hereinafter mentioned (including endorsements attached hereto).
1. To pay the Insured or to pay on their behalf all sums which the Insured shall be obligated to pay as damages or incur as expenses by reason of the liability…on account of…"Property Damage" caused by or arising out of each loss occurrence…in respect of all offshore and/or inshore and/or onshore Drilling, Production, Exploration operations and all transportation activities including all Terminal and pipeline operations and including Automobile, Aircraft, and Aircraft refueling activities and onshore fire and explosion, also including General Average, Salvage, Salvage Charges, Sue and Labour in connection therewith.
Insurers' liability hereunder shall not exceed One Hundred Million Dollars ($100,000,000) for any one loss occurrence and in the aggregate in respect of all liability from onshore drilling, exploration and production and pollution and personal injury resulting from onshore fire and explosion and all transportation activities including pipelines and terminals but not including auto, aircraft and/or aircraft refueling liability.
This policy does not insure:…
(f) Claims made against the Insured arising out of the ownership or bareboat charter of any watercraft, it being understood and agreed that this exclusion shall not apply to the liability of the Named Insured for personal injury to their employees, unless such liability is more specifically excluded under this policy.
For the purpose of this policy the following shall not be deemed to be watercraft except whilst in transit:-
An installation of any kind fixed or mobile which is used for the purpose of exploring for, producing, treating, storing or transporting oil or gas from the seabed or its subsoil, excluding any tank vessel used for storage of oil or gas commencing at the loading manifold thereof and excluding absolutely any self-propelled tank or Supply Vessel.
ENDORSEMENT NO. 2
SEEPAGE, POLLUTION AND CONTAMINATION COVERAGE ENDORSEMENT
Notwithstanding anything contained in Article I, paragraph 1, of this Policy, all other terms and conditions of this policy remaining unchanged and in the consideration of premium included, Insurers agree to indemnify the Insured or pay on behalf of the Insured:
(a) All sums which the Insured shall be legally liable to pay as damages for personal injury (fatal or non-fatal) and/or loss of damage to or loss of use of tangible property caused by or alleged to have been caused directly or indirectly by seepage, pollution or contamination arising out of the operations of the Insured.
(b) The cost of removing, containing, neutralising or cleaning up seeping, polluting or contaminating substances emanating from the operations of the Insured: but not to cover repairing, replacing, redesigning or modifying the offending facility.
(i) there was evidence from the underwriters that the parties did not intend Section IIIB to cover tanker pollution liability: Compton-Rickett at B2/292-299; Youell at B3/720-728;
(ii) there was evidence from the brokers that they did not believe that Section IIIB covered contingent cargo pollution liability: Delach at B2/p.327 line 17 to 328 line 11;
(iii) there was evidence from Mr Jueds of Exxon Insurance Services that the parties did not intend Section IIIB to cover tanker operations: Jueds at B3/533 line 20 – 535 line 8;
(iv) there is no extrinsic evidence that the parties intended Section IIIB to cover tanker pollution liabilities."
143. We therefore conclude that the claimants' appeal under Section IIIB fails.
The Seepage and Pollution Exclusion
"This contract excludes any loss arising from seepage, pollution or contamination on land unless such risks are insured solely on a sudden and accidental basis. This contract also excludes liability in respect of disposal or dumping of any waste materials or substances.
These exclusions shall not apply to coverage provided in respect of:
(a) control of well policies where such seepage, pollution or contamination follows a well out of control above the surface of the ground or waterbottom;
(b) liability under:
1. Offshore Pollution Liability Agreement
2. Outer Continental Shelf Lands Act, Federal Water Quality Improvement Act, Arctic Waters Pollution Protection Act,
3. Seepage, pollution or contamination covered by Protection and Indemnity policies,
4. Aviation policies subject to clauses no less restrictive than Aviation Seepage and Pollution Exclusion Clause (1988) amendment)."
(1) The proper law of the GCE was New York law, although in the end our opinion on that question does not matter;
(2) As a matter of New York law and English law, Section I of the GCE on its true construction did not cover pollution clean-up costs;
(3) The claimants cannot recover on the basis of ESC's putative claim under Section I;
(4) As a matter of New York Law and English Law Section III(B) of the GCE provides no cover for pollution clean-up costs;
(5) If it had arisen, (which on the above conclusions it does not) we would have had some doubts about the conclusion of the judge as to the proper construction of the seepage and pollution exclusion in certain of the outward retrocessions, but prefer to express no concluded view;
(6) The appeal must accordingly be dismissed.