England and Wales High Court (Commercial Court) Decisions

The Lincoln National Life Insurance Co. v Employers Reinsurance Corporation [2002] EWHC 28 (Commercial) (5th February, 2002)

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		5th February 2002

Mr Justice Moore-Bick:

1. In each of these three actions the defendant, Employers Reinsurance Corporation (“ERC”), has applied to set aside an order giving the claimant permission to serve the proceedings out of the jurisdiction. All three applications give rise to essentially the same issues and have therefore been heard together.
2. ERC carries on business as a reinsurer in Kansas, U.S.A. The claimants are all insurance companies, many carrying on business in the United States, some in Canada, one in Ireland and one in the United Kingdom. The claimants reinsured ERC in respect of its participation in two excess of loss reinsurance programmes protecting the liability of AERO Inc., a United States aviation liability insurer, for the years 1995 and 1996. The business of AERO Inc. was to insure general aviation risks rather than commercial aviation risks. Although the liabilities reinsured by ERC were not subject to any territorial limit, most of AERO’s business related to North American light aircraft risks.
3. The contracts under which the claimants reinsured ERC were negotiated through brokers in London, Bradstock, Blunt & Crawley Ltd (“Bradstocks”), acting on its behalf. In accordance with the practice of the market Bradstocks drafted slips which were presented to underwriters for acceptance of lines. In some cases the slip was scratched in London; in other cases the slip was scratched in the claimant’s office abroad. In either case, however, Bradstocks undertook the placing of the risk on behalf of ERC.
4. The terms of the contract in each case are set out in the slip itself. Although each slip provided for a wording to be agreed by leading underwriter, it appears that no formal wording was ever agreed. The cover is described in each slip as

“Aviation Risk Excess

General Aviation Personal Accident Carve Out Reinsurance”

and the business reinsured is described as follows:

“To indemnify the Reinsured for their participation in the General Aviation Liability Excess Reinsurance Programme protecting AERO Inc. For the purposes of this Reinsurance, amounts paid by the reinsured in respect of bodily injury to covered persons are deemed to be Personal Accident and are reinsured in full hereunder subject to the limits herein. Bodily Injury hereon means physical Injury caused by Accident resulting in Death, Dismemberment, Permanent Total Disability, Permanent Partial Disability, Temporary Total Disability, Temporary Partial Disability and Accident medical Expenses or any combination thereof”.

5. Each slip also provided for exclusions from cover in the following terms:

“As per original, and also excluding

(a) . . . . . . . .

(b) Personal Injury (including pain and suffering where identifiable as Personal Injury), other than Bodily Injury; and

(c) . . . . . . . . ”

6. During the two periods of cover five accidents occurred which gave rise to claims under the original insurance. In four of the five cases the accident resulted in the death of the pilot and passengers whose personal representatives brought claims against the original insured. In each case the claim was settled, the settlement being formalised in a document entitled “Compromise Settlement and Indemnity Agreement and Full Release of Claims” by which the deceased’s personal representatives released the insured from any claims they might have arising out of the death of the deceased. The Release provided that it included, but was not limited to,

“. . . . . . all claims for injuries and damages for wrongful death and survival, funeral and burial expenses, pain and suffering, loss of financial support and contributions, loss of companionship and society, loss of consortium exemplary damages, mental anguish, worker’s compensation and death benefits, personal injuries, medical costs, psychiatric costs and any other pecuniary or non-pecuniary loss or detriment of any kind . . . . . . .”

7. In due course ERC made claims under the reinsurance with the claimants in respect of its liability to AERO Inc arising from these accidents. Lincoln made two payments in respect of certain claims, but the other claimants declined to make any payment in respect of any of the claims unless and until ERC identified what part of the settlement sum related to “bodily injury” as defined in the cover. Once that point had been raised Lincoln also declined to make any further payment. In this way a dispute arose between ERC and its reinsurers as to whether any, and if so, how much, of its liability to AERO in these cases is covered by the contracts of reinsurance.
8. After an exchange of correspondence in which the parties’ lawyers debated the meaning of “personal injury” and “bodily injury” respectively, the claimants brought proceedings in this country to resolve the issue. In each case the claimants seek declaratory relief, in particular for a declaration that the claims made by ERC are not within the scope of the cover. Neither Manufacturers Life nor American United seeks any other kind of relief, but in the case of Lincoln there is a claim to recover the amounts already paid to ERC as money paid under a mistake of fact or law.
9. With the permission of the court the claim form in each of these actions was served on ERC in Kansas. These applications were then made to set aside the orders giving permission to serve the proceedings out of the jurisdiction, the service itself and all subsequent proceedings. In the Manufacturers Life action ERC has also issued an arbitration application seeking to have all further proceedings stayed on the grounds that there is a binding arbitration agreement between the claimants in that action and ERC.
10. On an application to set aside an order giving permission to serve proceedings out of the jurisdiction three questions arise for consideration in a case such as the present:

(i) does the court have jurisdiction under rule 6.20 to permit service abroad?

(ii) is there a serious issue to be tried between the claimant and the defendant?

(iii) is England the appropriate forum for the trial of the action?

see Spiliada Maritime Corpn v Cansulex Ltd [1987] AC 460 and Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran [1994] 1 A.C. 438. I shall consider each of these issues in turn.

(i) Jurisdiction

11. The court’s jurisdiction to give permission to serve proceedings out of the jurisdiction is governed by rule 6.20. In the present case each of the claimants relied on a number of heads of jurisdiction set out in the rule, but only one need be mentioned for present purposes, namely, that in each case the contract was made by or through an agent trading within the jurisdiction. ERC did not accept that the contracts had all been made in this country because in some cases the slip had been stamped and initialled by the claimant elsewhere. However, it did accept that they had all been negotiated on its behalf by Bradstocks who were given the responsibility for placing the reinsurance and presenting the risk to underwriters. Bradstocks carried on business in London and it therefore follows that each of the claims for declaratory relief is a claim “in respect of a contract where the contract was made through an agent trading within the jurisdiction” within the meaning of rule 6.20(5)(b). Mr. Shepherd did not seek to argue that Lincoln’s claim to recover the payments already made to ERC fell outside the scope of that rule. Accordingly, I am satisfied that the court had jurisdiction to give the claimants permission to serve out of the jurisdiction in relation to all their claims.

(ii) Serious issue to be tried

12. It is convenient to deal first with the claims made by Manufacturers Life and American United. In its particulars of claim each of these claimants refers to a letter from ERC’s lawyers, Foland & Wickens, putting forward its claim to be indemnified against its liability to AERO Inc. and to their contention that the expression “bodily injury” as used in the slips extends to pain and suffering and other non-physical injury. The claimants do not admit (but do not positively deny) that ERC has incurred a liability to AERO, but they deny that the liability alleged to have been incurred is in respect of bodily injury. They seek a declaration that the cover is confined to liability in respect of physical injury and does not extend to liability in respect of pain and suffering and loss of earnings.
13. Mr. Shepherd made some trenchant criticisms of these statements of case, not without some justification, but whatever may be said about them, I think it is clear that there is a serious issue to be tried between the parties. There is clearly a difference of opinion about the precise scope of the expression “bodily injury” which may have a bearing on the amount recoverable under these contracts. Mr. Shepherd submitted that since in four of the five cases the accident was fatal this dispute over the construction of the slip is likely to be academic because there will be no liability for non-physical loss. The difficulty with this argument, however, is that until the underlying material has been examined it is impossible to ascertain definitively the nature of the loss for which the original insured was liable. It is quite true that the claimants have put forward no specific grounds for alleging that any of the underlying claims relate to damage of a kind that falls outside the contracts of reinsurance, but this reflects the fact that the action was commenced before they had access to the material supporting those claims. This may be a matter going to the exercise of the court’s discretion, but I do not think that it is sufficient to demonstrate the absence of a serious issue.
14. The particulars of claim in the Lincoln action are framed rather differently. The primary allegation is that it was an implied term of the contract in each case that ERC would not submit claims that did not fall within the cover and that that term was broken by the submission of claims in respect of sums paid under settlement agreements in the terms to which I have referred. On that basis Lincoln claims to recover the sums it has already paid as damages for breach of contract.
15. The argument that these contracts are subject to an implied term that the reinsured will not under any circumstances submit a claim which does not properly fall within the scope of the cover is in my view quite untenable, and indeed it was abandoned by Mr. Lord in the course of the hearing. If this had been the only basis on which the claim was advanced, therefore, I should have accepted Mr. Shepherd’s submission that there is no serious issue to be tried between Lincoln and ERC. However, Lincoln also alleges that the two payments made to ERC were made under a mistake of fact or law because they were thought to, but in fact did not, fall within the scope of the cover.
16. The issue concerning the construction of the slip wording which underlies this contention is the same as that which is raised in the Manufacturers Life and American United actions. To that extent, therefore, there is in my judgment a serious issue to be tried. However, Mr. Shepherd submitted that the claim is bound to fail because it is clear from the evidence that the decision to pay the two claims in question was made advisedly and not under a mistake of any kind.
17. The evidence on this question is to be found in the witness statement of Mr. David Maddox who was responsible for reviewing the claims on behalf of Lincoln. Mr. Maddox says that he asked the broker for documents supporting the claims and a few days later was provided with a large bundle of papers which included the settlement releases, copies of legal advices and correspondence relating to the underlying claims. In the light of that material Mr. Maddox authorised the payment of the claims.
18. Mr. Shepherd submitted that in the light of this evidence it is impossible for Lincoln to show that the two claims in question were paid under a mistake of fact or law. Mr. Maddox had access to all the relevant material and was thus in a good position to make a judgment before deciding what course to take. He does not give any insight into his thinking, nor does he say what his misapprehension was or how it came about. In these circumstances, he submitted, the claim is so weak that it does not raise a serious issue to be tried.
19. The strength or weakness of the claimant’s case is one of the important factors going to the exercise of the court’s discretion when deciding whether a foreign defendant should be put to the trouble and inconvenience of defending proceedings in this country. In the light of the evidence I can see a good deal of force in Mr. Shepherd’s submissions, but the fact remains that there is at the heart of this claim an issue of construction, the resolution of which is likely to affect not only the two claims which are the subject of the action but also other claims which have yet to be submitted by ERC to Lincoln under this reinsurance. That does in my view raise a serious issue, whether or not Lincoln ultimately succeeds in recovering the sums it has already paid. Moreover, the very same issue arises in two other closely related actions involving ERC, namely, the Manufacturers Life and American United Actions. In the circumstances, despite the fact that on the evidence currently before the court Lincoln’s case is open to serious question, I do not think that the order should be set aside on the grounds that there is no serious issue to be tried between these two parties.

(iii) Forum conveniens

20. I come finally to the real issue on which these applications turn, namely, whether England is the appropriate forum for the trial of this action so as to justify the court in exercising its discretion to permit service out of the jurisdiction.
21. One factor which is often of importance in determining this question is the proper law of the contract. At one stage ERC sought to argue that the contracts in the present case were governed by the law of the State of Kansas, that being the state in which ERC has its principal place of business. The argument was based on evidence from Mr. Jean-Pierre Kamester who at the time in question was responsible for aviation broker services at Bradstocks. He said that in his thirty years’ experience contracts of this kind were always written on the basis that they would be subject to the law and jurisdiction of the country in which the reinsured had it seat, unless the parties agreed otherwise, and would incorporate an arbitration clause. On that basis he drew up a wording for the first layer of the 1995 AERO contract which provided for the contract to be governed by the law of Kansas and for the courts of Kansas to have jurisdiction, subject to an agreement to arbitrate there. Mr. Kamester sent copies of that wording to ERC which approved and signed them and returned them to Bradstocks. Copies of the signed wording were then sent to the representatives of the leading underwriters for their signature, but no response was ever received. Mr. Kamester also prepared wording in a similar form for the second layer of the 1995 programme, but there was no record of that having been despatched to the leading underwriter.
22. Mr. Kamester says in his statement that it was his expectation that each of the contracts in this case would be governed by the law of Kansas and would be subject to an agreement to arbitrate in Kansas. However, the underwriting representative handling the business on behalf of Lincoln in London, Mr. Timothy Dumenil, viewed the matter quite differently because at one stage he prepared a wording which provided for English law and jurisdiction and for arbitration in London. The fact remains, however, that no wording was signed by or on behalf of any of the claimants, nor did any of them signify their agreement to the terms drafted by Mr. Kamester in any other way. Mr. Shepherd accepted that the evidence does not begin to support a case of custom and it is, of course, trite law that silence in response to an offer of terms does not amount to acceptance. In fact, it later turned out that the signed copy of the wording which Mr. Kamester sent to the leading underwriter had apparently not been received. In these circumstances Mr. Shepherd accepted that there could be no binding agreement in relation to proper law, jurisdiction or arbitration and that the question fell to be determined by the application of general principles.
23. It was common ground that in the absence of agreement between the parties as to the applicable law Article 4 of the Rome Convention applies and the proper law of these contracts is to be determined by reference to the law of the country with which they are most closely connected. Under Article 4(2) it is to be presumed in a case of this kind that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract (here the reinsurer) has its principal place of business. In the present case, however, the parties to each of these contracts have their principal places of business in a wide variety of jurisdictions and it would make little sense to hold that each claimant’s obligation was governed by the law of a different country. Clearly this is a case in which it is necessary to consider whether these contracts have a close connection with any one country whose law would then apply to govern all the obligations arising under them. Mr. Shepherd submitted that the contracts have a close connection with the United States, but that is of little help in itself since each state represents a separate country for these purposes.
24. In seeking to exclude England as the country with which the contracts are most closely connected Mr. Shepherd pointed out that the contracts in this case were not made by reference to a standard English form, nor were they all made in the London market in the sense of being placed by London brokers direct with London underwriters in each case (although in fact the leading underwriter on the lower layer in both 1995 and 1996 wrote the risk in London and Lincoln as the leading underwriter on the upper layer in 1996 negotiated the risk through its London representative). However, all the contracts were negotiated through brokers in London, Bradstocks, and were made in the usual manner of the London market, that is, by the signature of a slip which summarised the essential terms of the contract. Two other factors point strongly towards England as the country with which the contracts have their closest connection. The first is the nature of the cover itself, described in the slips as “General Aviation Personal Accident Carve Out Reinsurance”. The evidence shows that in 1995 aviation bodily injury carve out reinsurance was a relatively new and specialised form of reinsurance developed in the London market. The second is that the slips incorporated by reference a number of standard London market clauses. The fact that the limits of liability were expressed in US dollars seems to me to be of little significance by comparison since much of the business written in the London market is written in dollars. In the present case there were no territorial limits on cover.
25. Looking at the matter in the round I am quite satisfied that there is at least a good arguable case that the proper law of all the contracts in question is English law, but it does not necessarily follow that England is the most appropriate forum for the trial of the action. This does not appear to be a case which turns on the application of particular principles of the English law of insurance any more than it turns on the manner in which the law of Kansas or any other American state characterises the nature of the underlying losses. As far as one can see at the moment it will turn on the proper construction of the words used in the slips. These, of course, have to be given their natural and ordinary meaning, but their interpretation is not without its difficulties and it may be that some evidence of market background will be required in order to enable the court to understand them correctly. Such evidence will be available in this country rather than elsewhere. It is not clear at this stage whether it will be necessary to produce much of the documentation relating to the underlying claims since it may be possible to determine the real point in issue without the need for a detailed examination of the underlying claims. However, even if it is necessary to produce copies of the underlying documents, it appears that only five claims are involved. The parties to this dispute carry on business in different places and viewing the matter objectively I do not think that it is likely to prove significantly more inconvenient or expensive overall for them to litigate in this country than elsewhere.
26. Finally I must mention the matter of forum shopping. In two of these three actions the claimants are seeking nothing but declaratory relief and although some of the declarations they seek are framed in positive terms, in substance the claim is for negative declaratory relief. Mr. Shepherd submitted that despite the cautious approval given to actions of this kind in Messier Dowty Ltd v Sabena S.A. [2000] Lloyd’s Rep. 428, these are not cases in which an action for a negative declaration is likely to prove helpful and that they are a clear examples of forum shopping on the part of the claimants.
27. As I have already said, I accept that the pleadings in all three actions are less helpful in identifying the issues than they might be, but despite that, it is apparent that in each case there is an issue between the parties in relation to the true construction of these slips. The claimants in the Manufacturers Life and American United actions were faced with the threat of proceedings by way of arbitration in Kansas and so began these actions in response. I do not think it was unreasonable of them to do so. Whether the dispute is of great practical significance is even now not entirely clear, but it cannot be said with any confidence that these actions are of no real value. I agree that there is a real danger that actions for negative declarations may be used as vehicles for forum-shopping and that the court should be astute to ensure that they are not misused in this way: see the comments of Phillips L.J. in New Hampshire Insurance Co. v Philips Electronics North America Corporation (No. 1) [1999] 1 Lloyd’s Rep. 58 at pages 61-62. However, the court has the power to ensure that proceedings brought in this country in circumstances where England is not the appropriate forum are not permitted to continue and this provides a considerable safeguard against abuse. In the present case, however, I have reached the conclusion that the actions may serve a useful purpose in resolving the dispute between the parties and that England is the appropriate forum for the trial of the action.

The arbitration application

28. ERC’s application for a stay of the proceedings brought by Manufacturers Life depends on the existence of an arbitration agreement between the parties. The slip, of course, did not contain or incorporate an arbitration clause, though one was included in the wording drafted by Mr. Kamester. However, Mr. Shepherd accepted that this application could not be pursued in the face of the evidence that the claimants had never agreed to Mr. Kamester’s wording.
29. For these reasons I have reached the conclusion that each of the defendant’s applications must fail.