ON APPEAL FROM THE HIGH COURT
QUEEN'S BENCH DIVISION
THE HONOURABLE MR JUSTICE SMITH
Strand, London, WC2A 2LL
B e f o r e :
THE RIGHT HONOURABLE LORD JUSTICE TOMLINSON
THE RIGHT HONOURABLE SIR ROBIN JACOB
| TEAL ASSURANCE COMPANY LIMITED
|- and -
|W. R. BERKLEY INSURANCE (EUROPE) LIMITED & ANR
Mr Colin Edelman QC (instructed by Clyde & Co) for the Respondents
Hearing dates : 4th November 2011
Crown Copyright ©
Lord Justice Longmore:
"To indemnify the Insured for claim or claims first made against the Insured during the Period of Insurance hereon up to this Policy's amount of liability (as hereinafter specified) in the aggregate, the excess of the Underlying Policy(ies) limits (as hereinafter specified) or any Policy(ies) issued in substitution or renewal thereof for the same amount effected by the Insured and hereinafter referred to as "the Underlying Policy(ies)".
|This Policy's amount of liability:||GBP 10,000,000 or its equivalent in other currencies each and every claim including claims emanating from or brought anywhere in the world excluding USA, its territories or possess ions, or Canada.|
|Underlying Policy(ies) limits:||USD 20,000,000 any one claim in the annual aggregate emanating from or brought anywhere in the world, including Claims Expenses|
|USD 30,000,000 any one claim and in the annual aggregate emanating from or brought anywhere in the world, including Claims Expenses|
|Only to pay excess of;|
|USD 5,000,000 any one claim and in the annual aggregate emanating from or brought anywhere in the world, including Claims Expenses|
|Only to pay excess of:|
|USD 5,000,000 any one claim and in the general aggregate emanating from or brought anywhere in the world, including Claims Expenses for Claims|
|Only to pay excess of a retention of:|
|USD 10,000,000 any one claim, including Claims Expenses for Claims emanating from or brought anywhere in the world|
|USD 20,000,000 in the annual aggregate, including Claims Expenses for Claims emanating from or brought anywhere in the world|
|Which in turn in Excess of:|
|USD 100,000 each and every claim including Claims Expenses|
|Underlying Policy(ies) Number(s):||i) Lexington # 0101085|
"1. Liability to pay under this policy shall not attach unless and until the Insurers of the underlying policy(ies) shall have paid or admitted liability or have been held liable to pay, the full amount of their indemnity inclusive of costs and expenses.
3. If by reason of the payment of any claim or claims or legal costs and expenses by the insurers of the underlying policy(ies) during the period of this insurance, the amount of indemnity provided by such underlying policy(ies) is:-
a) Partially reduced, then this policy shall apply in excess of the reduced amount of the underlying policy(ies) for the remainder of the period of insurance;
b) Totally exhausted, then this policy shall continue in force as underlying policy until expiry hereof.
4. In the event of a claim arising to which the insurers hereon may be liable to contribute, no costs shall be incurred on their behalf without their consent being first obtained (such consent not to be unreasonably withheld). No settlement of a claim shall be effected by the insured for such a sum as will involve this policy without the consent of insurers hereon.
5. Any claim(s) made against the insured or the discovery by the insured of any loss(es) or any circumstances of which the insured becomes aware during the subsistence hereof which are likely to give rise to such a claim or loss, shall, if it appears likely that such claim(s) plus costs and expenses incurred in the defence or settlement of such claim(s) or loss(es) may exceed the indemnity available under the policy(ies) of the primary and underlying excess insurers, be notified immediately by the insured in writing to the insurers hereon."
These conditions are also present in the intermediate Teal contracts of insurance.
"the reinsurer's liability under this agreement shall follow that of the reinsured for losses under all terms, conditions and limits to the reinsured original policy or policies specified therein."
"1. INSURING AGREEMENT – COVERAGE
The Insurance afforded by this policy applies to claims, as defined in Section IV A(ii) and B of this part of the policy, which allege any negligent act, error or omission provided the claims are either (i) first made against the Insured during the Policy Period and reported in writing to the Company during the Policy Period or within sixty (60) days after the expiration date of this policy; or (ii) first made against the Insured during the Policy Period in accordance with the provisions of paragraph IV AI(ii) of this Part of the Policy and reported in writing to the Company within sixty (60) days after the Chief Counsel of the Named Insured first receives notice of the Claim, providing in either event that the insured, in the person of Chief Counsel, was not aware of such Claims at the inception date of this Policy.
The Company will indemnify the Insured all sums up to the Limits stated in the Declarations, in excess of the Insured's Deductible and/or Self-Insured Retention, which the Insured shall become legally obligated to pay as Damages if such legal liability arises out of the performance of professional services in the Insured's capacity as an architect or engineer and as stated in the Application. …"
Endorsement 8 extends the cover to the costs and expenses of rectifying defects and condition VI provides:-
"No action shall lie against the company unless, as a condition precedent thereto, the insured shall have fully complied with all the terms of this policy, nor until the amount of the insured's obligation to pay shall have been finally determined either by judgment against the insured at the actual trial, arbitration or by written agreement of the insured and the claimant, to which agreement the company has consented"
i) the reinsurance contract incorporates the terms of the top and drop insurance contract;
ii) the top and drop insurance contract provides that there is no liability on Teal as top and drop insurer until the intermediate insurers have admitted liability or been held liable to pay;
iii) so far the intermediate insurers have not admitted liability or been held liable and indeed have not even been asked to admit liability;
iv) no cause of action has therefore accrued against either the intermediate insurers or the top and drop insurer; the Black and Veatch group can choose the order in which they present claims to Teal and Teal can likewise choose the order in which the claims are settled;
v) Teal can therefore settle the American claims first pursuant to their obligations under the intermediary contracts of insurance and postpone the settlement of any non-American claim so that it is settled by Teal under the top and drop insurance contract and liability can be passed to the reinsurers of that contract;
vi) This is not an odd or undesirable consequence because any insured claimant who has more than one claim can always present his claims in any order he chooses just as any claimant can pursue any one of any potential defendants, against whom he has claims see Merryweather v Nixon (1799) 8 T.R. 186.
i) Teal's arguments begin at the wrong end of the telescope; and must begin by considering the Lexington policy at the bottom of the tower;
ii) that policy contains no clause equivalent to condition 1 of the top and drop policy;
iii) Lexington is therefore liable (and there is a cause of action against it) as soon as Black and Veatch settle a claim; if an American claim is settled that will be payable but so will a non-American claim; any such claim which exceeds the self insured retention and the deductible has to be met. If the claim exceeds $5 million it penetrates to the next layer;
iv) Once the intermediate insurance of $60 million in the tower is exhausted, the top and drop insurance drops down to become the primary layer; in its capacity as the primary layer it insures on the same terms as Lexington did and Teal is liable once a claim against Black and Veatch is established in the sense of being admitted or the subject of judgment or award;
v) Teal cannot therefore choose when to present claims to (effectively) themselves but claims must be met in the order in which they are established against Black and Veatch.
Lord Justice Tomlinson:
Sir Robin Jacob: