England and Wales High Court (Commercial Court) Decisions

i)                    The Policy Period Issues (issues 1-4): these concern whether ASD’s claims against RMJM attach to the 2008/2009 Policy or the 2009/2010 Policy.  This essentially turns on whether ASD’s claims arose out of a “Circumstance” notified to the insurers by Notification 923 or Notification 953:

a)                  Notification 923 was given on 31 March 2009, so that if the notified Circumstance gave rise to ASD’s claims, the claims would attach to the 2008/2009 Policy.

b)                 Notification 953 was given on 10 September 2009, so that if the notified Circumstance gave rise to ASD’s claims, the claims would attach to the 2009/2010 Policy.

ii)                  The ADNEC Defence Costs Issues (issues 4-7): these concern whether, if ASD’s claims attach to the 2008/2009 Policy, Beazley is entitled to set off against ADNEC’s and/or ASD’s claims a sum representing defence costs that Beazley allegedly overpaid to RMJM in respect of RMJM’s defence of ADNEC’s claim; and

a)                  if so, whether ASD is entitled to claim an indemnity from Excess Insurers under the 1930 Act in respect of the set-off amount;

b)                 if not, whether Beazley is entitled to claim the overpaid defence costs from the Excess Insurers under the 1930 Act.

iii)                The Interest Issues (issues 8-10): whether and on what basis ASD and ADNEC are entitled to recover post-award interest in relation to their respective awards.

i)                    Mr Alan Cave, who worked as an Associate in RMJM’s Dubai office from August 2009 to 2011 and was involved in the submission of Notifications 953 and 963.  Mr Cave gave evidence from Dubai via video link.

ii)                  Mr George Elliot, who began working for RMJM in 1975 as an engineer but from 2005 was responsible for the firm’s global professional indemnity programme until he was made redundant in August 2013.  He was involved in the placing of the policies relevant to the present case and in Notifications 923, 953 and 963 as well as certain later events.

iii)                Mr Steven Jones, who joined ASD in September 2009 as project manager in relation to the Al Barsha school project, and was involved in dealing with the main contractor’s extension claims in relation to that project as well as ASD’s decision to pursue the arbitration claim against RMJM.

iv)                Mr David Morgan, who was a claims manager at Beazley from January 2003 to mid December 2013 and worked on the RMJM account from 2007 onwards.

v)                  Mr Anthony Kerr, a senior claims manager at Beazley who joined on 3 May 2016 and took over the handling of the RMJM account from Rebecca Reidy of Beazley (who is currently on maternity leave).

“Whether and to what extent the ASD Claim (or any part of it, and which part(s))

(a) arises out of circumstances notified during the 2008/2009 policy year, and (b) falls within the period of cover provided by the 2008/2009 Primary Policy?”

“The columns and perimeter beams were increased in size to accommodate the larger PT beams. The foundations are OK.”

“I need this to be demonstrated to me. I need the drawings and calculations to show the column sizing and that the foundations are sufficient to take the extra point loads.”

As noted below, this query remained unanswered for some months.

“The vertical columns appeared too small to safely secure the very large horizontal beams, and Mr. Dimitriou, the AAA Project Manager of the Project at that time, told me that he raised these concerns to RMJM prior to the [DM] imposing the 24 August 2009 hold, without any action by RMJM.”

However, it is unclear when AAA is said first to have expressed any such concerns, and ASD pointed out that Mr Korolis did not join AAA until November 2009.  It would not be right in these circumstances to place significant weight on these hearsay statements. 

“I have repeatedly asked for the calculations of the structural elements of Sectors A and D where the post tension beams are to be installed.  Although RMJM have repeatedly given their assurance that the structural design of the foundations, columns and beams is more than adequate after the re-design of the post tensioning, I require the calculations to be checked to confirm this. The contractor is proceeding with his works based on these assurances and any changes to the design at this stage could prove costly.  Please issue the calculations to AAA immediately for their records, clarification and subsequent distribution to the post tensioning subcontractor.”

“Further to my letter of 23 December 2008 and previous requests and letters I still have not received the calculations for the structural elements of sectors A and D where the post tension beams are to be installed.  I reiterate my point that although RMJM have repeatedly given their assurance that the structural design of the foundations, columns and beams is more than adequate after the redesign of the post tensioning, I still require the calculations to be checked to confirm this.  The contractor has been proceeding with the works based on these assurances.  Please issue the calculations to AAA immediately for their review and subsequent distribution to the post tensioning subcontractor.  I fail to understand why the calculations are not freely available as I was under the impression that a third party review had been carried out as per Dubai Municipality requirements.

After the latest problem with the design, I am not confident regarding assurances that I have received on this matter and I am considering suspending the works in these areas until the calculations have been received and checked. As you can appreciate time is critical with this issue as we do not want to hold up the works. Therefore I will require submission of the calculations of the post tensioning and the calculations for the structural supporting elements by noon on Sunday 25 January 2009.”

 “I feel that this is an urgent safety matter and the costs of my remedial work to be carried out increases on a daily basis.  This issue needs to be resolved now.  I feel that in order to mitigate escalating costs that will be incurred due to any remedial works, it is necessary to instruct your Resident Engineer to issue a notice to suspend the works in Sectors A and D that are affected by post tensioning. I will in due course be claiming from RMJM any costs associated with this delay and any remedial work costs incurred.”

“AMERICAN SCHOOL OF DUBAI – NEW CAMPUS AT AL BARSHA FIRST

MAIN CONTRACT – Notification of potential claims

[ASD] is aware that there are potential claims that will be sought by [AAA] for the works at the New Campus Site for errors or changes in design which are as a result of poor initial design by RMJM.  The onus for checking the design and co-ordination of the designs is solely the responsibility of RMJM.  Therefore [ASD] feels it has an obligation to inform RMJM that any costs associated with such claims will be passed from the school directly to RMJM.”

“Prior to merger Hillier had produced architectural design drawings for the American School in connection with the construction of a new school campus, set in approximately 27 acres in Dubai.

The contractor was initially mobilised on site in December 2007 but the project was delayed, for reasons not associated with the Hillier work product, and works did not commence in earnest until September 2008. The current Edinburgh based project team took over the job in July 2008, issuing the previously produced Hillier drawings for construction. As the works have progressed it has become apparent that many elements of such works have not been thoroughly coordinated between different disciplines and packages, leading to the contractor submitting multiple Requests for Information (RFI's) to the design team.

In view of this RMJM has decided to review the documentation and amend any errors of coordination in order to avoid abortive works by the contractor. The project clerk of works has been advised and proposed changes are being presented for consideration. In response RMJM has received notice of potential claims in respect of any additional costs that may be incurred. At this stage it is not clear what costs might be involved and notification is being made as a precaution. No reserve is proposed for present purposes but the possible need for a reserve is being kept under review.”

“I am outraged at the current situation which has arisen with the DM regarding the remedial works to the columns supporting the post tensioning within Sector A. I asked for the calculations to support the column and beam sizes within Sector A and D in March 2008 and continuously through until January 2009 through site meetings and discussions but I was assured during the entire period that the calculations were accurate and that they have received DM approval. RMJM never submitted the calculations so that we could have a third party review and assurances were given that there are no problems with the design. In January I warned RMJM of the consequences of not having the calculations checked and that remedial works will be required if we proceed but again I was assured by RMJM that the calculations were sound and that there would be no need to change the design. Therefore it is totally unacceptable that they were not checked and double checked and now we face the situation that the work in this area will be delayed and that remedial works to thicken the columns is required. Please check whether the same situation will arise in Sector D.

In my opinion the current problems are directly due to the gross negligence of RMJM and I will be issuing a claim in this regard in due course, when the costs of the changes have been evaluated.”

“I need to know when the submission of the revised calculations for the columns supporting the post tension beams will be submitted to the DM for their review. This needs to be considered as a matter of extreme urgency.  Again, this submission and the subsequent remedial work will cause delay and disruption to the project and we need to take steps now to mitigate the delay and analyse the likely consequences for the completion of this project.  It is imperative that you immediately check whether the same situation will arise in sector D as we are in the process of constructing the columns in this structure to mitigate the remedial works and delay to this sector.”

“3.2       Date you first became aware of circumstances/claim:

Circumstances – 27th August 2009

Potential Claim – 8th September 2009

3.3         Please give a resume of the facts that have led to the current situation… 

The issue relates to the size of concrete columns supporting a large concrete beam. The local authority has raised concerns regarding the ability of these columns to support the beam in question. Timeline below:

·      Design of structure by RMJM ME between December 05 and March 06

·      Drawings issued to Dubai Municipality (DM) for Approval during the above periods

·      DM approved drawings issued to Contractor 24/07/08

·      Client raises concerns over structural stability of Sector A via 4nr letters between 23/12/08 and 27/01/09

·      RMJM respond with structural calculations 10/02/09

·      DM ad-hoc visit to site raised query on structural stability of Sector A and request meeting at DM Head Office 24/08/09

·      DM state calculations issued during meeting not accepted and future project submissions to DM will be placed on hold until DM satisfied

·      2^nd meeting with DM on 27/08/09 to discuss options for resolution.

·      3^rd meeting with DM on 31/08/09 to discuss options for resolution

·      4^th meeting with DM on 01/09/09 to discuss options for resolution

·      5^th meeting with DM on 03/09/09 to discuss options for resolution. Confirmation from DM on preferred option

·      Submission of revised drawings, calculations to be submitted to DM 10/09/09”.

“Please see attached PII Notification from Dubai regarding the design of Post Tension Beams.

On the face of it the situation is serious and the letters from DG Jones dated 04/09/09 and 08/09/09 are particularly worrying with the mention of a claim and gross negligence.

However I have subsequently talked to Dubai and received the attached e-mail which confirms that our design does work and we can defend the gross negligence claim BUT:

•          There has been a recent building collapse in Dubai and the Dubai Municipality ("DM") are "nervous"

•          The DM previously approved our design BUT when requested to submit more calculations earlier this year we failed to do so and this has aggravated the problem

•          The DM will not now accept our design and are insisting that we strengthen the columns AND have put any further approvals on hold until we do.

•          That particular sector of the building is now on hold but the rest of the project is progressing

I think we need to post a reserve at least for Legal Advice at this time.”

The “attached e-mail” referred to in the third paragraph of this message has not been identified.

“As per our previous statements to which you refer, the structures in question are currently and always have been structurally safe.  The structural calculations you refer to within your letter as not issued were sent to DG Jones on 10 February 2009 via a letter reference ... and signed as received by yourself.  We issued these calculations at your request for your onward use if required. "

It has become clearly apparent from internal discussions with RMJM project managers that since the building collapse in Abu Hall on 16th August DM's structural department have carried out spot checks on all projects under construction in Dubai.  It was at this time that DM noticed the apparent design of the columns supporting the beams within Sector A.  At the request of DM we reissued the previously approved structural drawings to which DM raised objections to the design of the columns.  RMJM have had numerous meetings with DM to emphasise the structural calculations are approved to which DM have requested additional support.  RMJM have tried numerous non-intrusive design options to limit both cost and programme implications and presented these to DM with supporting documentation.  DM have rejected these options and requested increasing the thickness of the columns in question.  The revised drawings will be submitted to DM on 14 September.  We will inform DG Jones of the anticipated approval date once received.

If you require a structural meeting with our ASD dedicated RMJM senior structural engineer, we are more than welcome to accommodate your queries. [sic] Once we obtain the revised approved drawings.

Once again, we reiterate that the design has always been structurally sound, the structural design was approved by DM and any amendments to the design column are additional strengthening at the request of DM.  We strongly deny the comment that the issue in question is due to gross negligence of RMJM as this is purely a DM additional requirement.”

“(i) The isolated foundation system supporting the shear
  walls have inadequate resistance for overturning moments
  resulting from seismic forces.

(ii) Bearing pressure under some of the footing supporting columns (under dead and live load) exceeds allowable bearing capacity the increase over allowable bearing pressure under these columns is around 15 per cent above the 150 kpa allowable.

(iii) Some of the columns are overstressed.”

“Please note that we have not made any allowance for acoustic treatment to the music rooms (including doors) and that recommendations will need to be sought from an Acoustic Specialist.”

“As a result of the above failures the completion of the Project was substantially delayed. By virtue of Variation Order 1 dated 30 December 2009 the Project was due to be completed on 31 August 2010. But on account of your numerous breaches, completion was substantially delayed until 10 April 2011 (in accordance with your recent determination) some 223 days.”

“… 4. As a result of delays in issuing the building permit the works were suspended. This suspension together with the consolidation of changes in the design resulted in Variation Order No. 1 being issued, and agreed, on 30 December 2009. Accordingly, the parties agreed a revised Contract Sum and Revised Final Date for Completion of the Works of 31 August 2010. This Variation Order took into account all claims and changes up to 20 October 2009 …

1.22 VO No. 1 and the new revised Completion Date were intended to reflect the events leading up to its signing and to draw a line under delays and changes up to 20 October 2009.  However, there have since that date been some 431 No. Variations and considered here are 175 notified Delay Events which have completely changed the nature of and circumstances under which the Contract Works were to have been completed …

1.32 Section 2.0 of this Submission provides details of the contractual and other entitlement to the additional preliminary costs that the Contractor has incurred beyond 20 October 2009 …”

i)                    That the Sector A / Field House design had been unsafe. 

ii)                  That RMJM’s design services had been deficient in that its designs were insufficiently detailed, leading to Variation Orders and RFIs from AAA.  RMJM was alleged (i) to have failed to include design elements required by the DM building codes; and (ii) to have failed sufficiently to detail its designs and to coordinate the various design disciplines prior to tender and prior to issuing drawings for construction. The specific allegations concerned acoustic design, joinery packages, safety items and classroom amenities. 

iii)                That RMJM’s coordination and administration services were deficient because it had failed to staff the project properly. 

“22. In December 2009, ASD and AAA agreed on Variation Order (“VO”) No. 1 and VO No. 2, which marked a fresh start and settlement to scheduling and compensation for the Project up to 20 October 2009, VO No. 1 and VO No. 2 provided an additional AED28,627,091 in compensation to AAA, and for the first time a definitive base construction program was agreed, which provided for a revised completion date of 31 August 2010. As Project Engineer, RMJM was closely involved in assessing and agreeing VO No. 1, VO No. 2, and the construction program …

24. VO No. 1 and VO No. 2 represented a resolution between ASD and AAA of all VOs, claims, and delays prior to 20 October 2009. Accordingly, ASD’s claim in this arbitration uses 20 October 2009 as its starting point for assessing liability for the delay in completion beyond the revised completion date of 31 August 2010. The revised contract amount of AED361,196,119 payable to AAA is also used as the baseline for determining the damages incurred by ASD …

52. The final sections of the new campus were officially handed over to ASD on 11 April 2011. AAA subsequently submitted a Final EOT claim, dated 13 February 2012, encompassing all delays and costs after VO No. 1 and VO No. 2 …”

“The delays to Sector A and Sector B were
the dominant and insurmountable causes of the overall
delays to the completion of the Campus.  AAA’s performance was not flawless and there were other delays, but the critical delays that we could not recover were Sector A and Sector B.”

and:

“My personal conclusion and recommendation to the Board was that AAA had an entitlement to prolongation costs
based on the delay caused by the Sector A Field House
and the Sector B theatre.  While AAA's claim encompassed a host of other delay events, the vast majority were minor or inconsequential.  My understanding of the settlement was that the prolongation costs awarded to AAA were in connection with Sectors A and B, and my opinion is that ASD secured a very favourable settlement in that regard.”

i)                    AED 3,370,269 for the costs of carrying out remedial work to the Sector A Field House.

ii)                  AED 1,900,940 for costs of VOs in respect of matters other than Sector A. 

iii)                AED 6,953,704 for costs incurred to mitigate the impact of the delays in completion to the project, including by renting part of the school’s old campus while ASD was unable to occupy all of the new campus.  

iv)                AED 14,578,514 for the prolongation costs paid by ASD to AAA.  These were said to have been caused by the construction hold placed on Sector A as a result of the Sector A columns issue, and also by the delay in production of acoustic designs for Sector B, which were said to have been concurrent. 

v)                  AED 2,325,913 for fees paid to RMJM between September 2010 and March 2012.

i)                    Remediation costs of AED 3,370,269. These were the costs incurred by ASD in rectifying the defects in the design of the Sector A columns.

ii)                  Mitigation costs of AED 733,923. These costs related to the employment of Mr Jones by ASD as Project Manager to address the delays encountered on the project.

iii)                Mitigation costs of AED 4,943,895.  These costs were incurred by ASD in hiring alternative premises, this being necessary because of the delay in the completion of the project.

iv)                Prolongation costs of AED 14,578,514 paid to AAA.

v)                  Fees paid to RMJM of AED 2,325,913. The tribunal held that such fees represented overpayments which should be reimbursed as they resulted from the period of delay attributable to RMJM’s above breaches.

“satisfied that:

14.15.1  the stop on the Sector A Field House must have had a material impact upon the progress of the works;

14.15.2  [RMJM’s] failure to advise [ASD] that it could not produce drawings in the absence of the requisite acoustic design will, on the balance of probabilities, have had an impact on the progress of the works; and

14.15.3  [RMJM’s] failure to provide drawings which properly included the details and the cross referencing to the other design documents will, on the balance of probabilities, have had an impact on the progress of the works.”

14.16     The Tribunal is satisfied that it was a natural consequence of the breaches set out in paragraph 14.15 above that AAA would be delayed in performing their works on the Project, causing a liability for the Claimant to pay prolongation costs.  Further, the Tribunal is satisfied that the Claimant mitigated that loss by reaching a settlement with AAA.”

 “It is therefore necessary to identify whether any of the claims which the Tribunal awards to the Claimant arise from “the same original cause or source”.  The Tribunal holds that all of the heads of claim on which an award are made primarily arise out of [RMJM’s] breach of Clause 5(1) of the Agreement in the preparation of the design of the Field House.  Therefore the liability of [RMJM] is limited to GBP 5,000,000.”

“5.4 It is common ground between the Parties that the Project was affected by delays from the outset. The Claimant entered into renegotiations of its contract price with AAA, which culminated in the agreement of two Variation Orders (“VOs”). VO No. 1 and VO No. 2 were both agreed on 30 December 2009. This represented a resolution of liability for certain changes and claims raised by AAA up to 20 October 2009, and provided for a revised final date for completion of 31 August 2010. The matters addressed in VO No. 1 and VO No. 2 do not form part of the subject matter of this reference …”

 “1.1      Insuring Clause

In consideration of the Assured having agreed to pay the premium shown in the Schedule, Underwriters agree, subject to the terms, conditions and exclusions of this policy, to indemnify the Assured, up to the Limit of Indemnity, for any claim for compensation and/or damages (including claimant’s costs and expenses) first made against the Assured and notified to Underwriters during the Period of this Policy which the Assured may become legally liable to pay and which arises out of the exercise and conduct of the Assured’s Professional Business by the Assured and/or by others on behalf of the Assured.

1.2         Defence Costs in Addition

Underwriters will also indemnify the Assured for Defence Costs (see 6.5) where such costs have been incurred with Underwriters’ consent. Such Defence Costs are payable in addition to the Limit of Indemnity shown in the Schedule.

In the event that a settlement is made with any party in excess of the amount of the Limit of Indemnity, Underwriters’ liability in respect of Defence Costs shall be in the same proportion that the Limit of Indemnity bears to the sum which would be eligible for payment but for the restriction of the Limit of Indemnity

…

CLAIMS CONDITIONS

The following claims conditions and the more general conditions listed under Section 5 apply to this policy:-

3.1         All conditions contained in Section 3 are deemed to be conditions precedent to liability.

Discovery of a Claim or Circumstance

3.2 a)     If during the Period of this Policy the Assured shall receive any claim, the Assured shall give notice (see 3.3) to Underwriters as soon as practicable, but in any event not later than expiry of the Period of this Policy.

      b)     If during the Period of this Policy the Assured becomes aware of any Circumstance, the Assured shall give notice (see 3.3) to Underwriters of such Circumstance as soon as practicable but in any event not later than expiry of the Period of this Policy.

Underwriters agree that any such Circumstance notified to them during the Period of this Policy and which subsequently gives rise to a claim after expiry of this Policy shall be deemed to be a claim first made during the Period of this Policy.

Notice

3.3         Notice to Underwriters under Clause 3.2 shall be deemed to have been properly made if received in writing by:

Integra Technical Services [contact details set out]

and;

Beazley Group plc [contact details set out]

A bordereau shall be prepared by Integra Technical Services containing details of all claims notifications.  The bordereau will be prepared at intervals of approximately five and ten months after inception of this Policy until such time as all notifications are closed and/or claims paid.

Marsh Limited shall circulate the bordereau to Underwriters in accordance with requirements of the individual slip conditions.

3.4         Notwithstanding Clause 3.2. if the Assured becomes aware of a claim or discovers any Circumstances and is unable, due to any reasonable cause, to give notice during the Period of this Policy, Underwriters will accept such notice up to 15 days after expiry of this policy provided always that the matter which is being notified first came to the Assured’s attention during the Period of this Policy.

…

4.6 Claim Settlements

The Underwriters may at any time pay to the Assured in connection with any claims or series of claims under this Policy the Limit of Indemnity (less any sums already paid) or any lesser sum for which such claims can be settled and upon such payment the Underwriters shall not be under any further liability in respect of such claims except for costs and expenses incurred prior to such payment.

If a payment exceeding the Limit of Indemnity has to be made to dispose of a claim the liability of the Underwriters to pay all costs fees and expenses in connection therewith shall be limited to such of the said costs and expenses as the Limit of Indemnity bears to the amount paid to dispose of a claim.”

 …

SECTION 6

DEFINITIONS AND INTERPRETATIONS…

6.5 Limit of Indemnity

Shall mean the sum shown in the Schedule which is available to indemnify the Assured in respect of each claim provided always that where more than one claim arises from the same original cause all such claims shall be deemed to be one claim and only one limit of indemnity shall be payable in respect of the aggregate of all such claims.

6.6  Defence Costs

Shall mean all costs and expenses incurred in the investigation, defence or settlement of any claim or potential claim and/or the cost of representation at any enquiry or other proceedings which have a direct or indirect relevance to the investigation, defence or settlement of any matter notified under the terms of this policy.  This shall include the Assured’s own costs, but excluding any profit element, incurred in the defence, investigation, design of remedial work, inspection and supervision of remedial works in respect of any claims notified under Claims Conditions 3.2 a) and b) of this Policy subject to Underwriters’ prior agreement and acceptance of Liability under this Policy.

6.12  Circumstance

Shall mean information or circumstances of which the Assured is aware which suggests that a claim is likely to be made against the Assured which the Assured may become legally liable to pay and which arises out of the exercise and conduct of the Assured’s Professional Business …”

“USD 10,000,000 in the aggregate, plus unlimited reinstatements as in Endorsement No. 4 of Section A of the Wording, costs in addition.”

 “To indemnify the Assured for claim or claims which may be made against the Assured during the Period of Insurance hereon up to this Policy’s amount of liability … in the aggregate, the excess of the Underlying Policy(ies) limits … in the aggregate, the latter amount being the subject of Indemnity Policy(ies) … issued in substitution or renewal thereof for the same amount effected by the Assured and hereinafter referred to as “the Underlying Policy(ies)”…

1. Liability to pay under this Policy shall not attach unless and until the Underwriters of the Underlying Policy(ies) shall have paid or have admitted liability or have been held liable to pay, the full amount of their indemnity…

4.  With the exception of costs incurred by the operation of 3(b) above, in the event of a claim arising to which the Underwriters 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) and if they so consent they shall contribute to the said costs in the proportion that their share of the claim, as finally settled, bears to the total sum paid to dispose of the claim. No settlement of a claim shall be effected by the Assured for such a sum as will involve this Policy without the consent of Underwriters hereon …

7. Except as otherwise provided herein this Policy is subject to the same terms, exclusions, conditions and definitions as the Policy of the Primary Insurers …”

i)                    Condition 3.2(a) permits notification where the insured “becomes aware of any Circumstance”, and “Circumstances” are defined as “information or circumstances of which the Assured is aware …”.

“In my view, Mrs Justice Gloster's dicta as set out above are germane, correct and applicable in this case.” (§ 95)

“It is possible for the insured to give notice of a ‘hornets' nest’ or ‘can of worms’ type of circumstance.” (§ 99(c))

but held on the facts of Kajima that the circumstances notified were limited to specific matters and that it was not a ‘hornet's nest’ or ‘can of worms’ set of circumstances.  The insured in Kajima had erected a block of flats consisting of pre-constructed pods, and notified insurers in 2001 of the fact that the pods were “settling and moving excessively causing adjoining roofing and balconies and walkways to distort under differential settlement”. Later it became apparent that there were serious structural problems with the building as a whole, and by the end of 2005 it had become clear that the entire building had become unstable. Akenhead J held that the notification was effective only in respect of the specific notified circumstances and did not extend to damage unless such damage was causally linked to the notified circumstances. The assured was under an obligation to make further notifications as and when further problems were identified.

i)                    By the operation of the insuring clause (clause 1.1) and clause 3.2(b) of the Primary Policies, cover under a particular policy period is triggered when a claim is (deemed) first made, which requires a notified Circumstance to have given rise to a claim. Once this is established, the policy is triggered regardless of whether any other policy has also been triggered.

ii)                  There is no term such as policies sometimes contain in the 2009/10 Primary Policy excluding a claim that is deemed first made in another period.  As a result, both the 2008/09 and 2009/10 Primary Policies are capable of being engaged at the same time. If valid notifications have been made to both policies, RMJM (or ASD as statutory transferee) is entitled to choose the policy under which to claim.

iii)                This approach is supported by the decision of the Supreme Court of Appeal of South Africa in Immerzeel v Santam Ltd [2007] Lloyd's Rep IR 106, which held that where a notification was given in one policy year (1991) and a claim was made in a later year (1993), either policy could respond at the insured’s option because that was the bargain struck by the parties.  The court made the points that (a) the clause extending cover to claims arising from notified circumstances (the equivalent to the clause 3.2b extension in the present case) applied for the purposes of the earlier 1991 policy covering the period in which the notification was made; (b) the equivalent clause in the later 1993 policy did not apply as there was no notification of circumstances which became known during that later period, and “[i]n any event the condition does not provide that a notification of an occurrence which may possibly give rise to a claim during a period of insurance preceding the period of insurance of the 1993 policy is to be regarded, for the purposes of the 1993 certificate, as a claim made during the preceding period of insurance”; (c) the later policy contained no exclusion for claims arising out of circumstances notified under earlier policies; and (d) in those circumstances the insured was free to arrange more extensive cover for periods subsequent to the one in which it had given notification of circumstances.

“Underwriters agree that any… Circumstance notified to them during the Period of this Policy and which subsequently gives rise to a claim after expiry of this Policy shall be deemed to be a claim first made during the Period of this Policy”

“… the sum shown in the Schedule which is available to indemnify the Assured in respect of each claim provided always that where more than one claim arises from the same original cause all such claims shall be deemed to be one claim and only one limit of indemnity shall be payable in respect of the aggregate of all such claims”

because it would allow the insured to notify claims arising from a single cause in two different policy years and (arguably) thereby avoid the application of the “same original cause” limit.

“It often happens that the insured’s loss is attributable to at least two causes each of which is a proximate cause in the sense that the loss would not have happened if only one of the causes had been operative.  In The Miss Jay Jay, for example, it was held that the damage was caused by the frequent and violent impacts of an adverse sea on a badly designed hull. The adverse sea was a peril insured against but the bad design of the hull was not.  The Court of Appeal held there were two proximate causes and the insured could recover on the basis that it was sufficient if one of the causes was a peril insured. It is different, however, if there are two proximate causes of the loss, one of which is insured and the other of which is excluded.  In Wayne Tank and Pump Co v Employers’ Liability Assurance Corp, a factory was destroyed by fire partly due to the negligence of the insured’s servant (which was insured) and partly due to the unsuitable nature of plastic material used in the installation (which was expressly excepted under the policy). In this situation it was held that, since the insured had promised that the insurers would not be liable for loss caused by the excepted peril, the insured could not recover.” (§ 21-005)

 “This situation must be distinguished from the situation in which there are two concurrent but independent causes, each of which would alone have been sufficient to cause the loss. In that situation, the “but for” test for causation will not be met in respect of either cause: see Orient-Express Hotels Ltd v Assucurazioni Generali S.A. [2010] Lloyd’s Rep. I. R. 531 at 538”.

 “It is not disputed that Mr Gomez was seriously negligent, and as a result he did not do anything to prevent the vessel drifting on the current before she grounded or was about to ground, but I cannot accept that the causal impact of his negligent omission was so potent in terms of efficiency as to displace as proximate causes of the damage the events that he did not prevent, the action of the current that made the vessel drift and the grounding itself.”  (§§ 284-285)

On the specific facts of The Irene EM, negligence of the master, officers and crew was also an insured peril under the policy.

i)                    Beazley submits that by reason of the parties having for some years operated the system in this way, notification to Integra constituted valid notification under the policy.  It followed that (a) the DG Jones letter formed part of the notification and (b) the Integra letter did not form part of it: it was in effect internal on the insurers’ side.  On this approach it would also follow that RMJM’s notification form was part of the notification, but Beazley submitted that the commentary it set out could not reduce the scope of the matters notified as set out in the DG Jones letter.  Thus, Beazley contends, the effective substance of the notification was the DG Jones letter, despite the fact that Beazley did not itself receive that letter at the relevant time.

ii)                  ASD submits that since under the policy wording notice was required to be given to both Beazley and Integra, the DG Jones letter formed no part of the notification. 

iii)                Excess Insurers accepted that, for the purposes of these proceedings, notification to Integra alone is sufficient for the purposes of clause 3.2.

i)                    even if notification to Integra was sufficient, it does not follow that the notification should be construed as being confined to the DG Jones letter in isolation.  The notification consisted not only of that letter but also RMJM’s notification form, which set out the circumstances in which the DG Jones letter had been written and in the context of which it had been received; and   

ii)                  if, conversely, the notification was valid only to the extent that it was provided (at the relevant time, as opposed to later) both to Integra and to Beazley, then in substance the matters notified were those set out in the Integra letter – which was based on the contents of the RMJM notification form sent to Integra and which thus reflected matters notified both to Integra and to Beazley.  The Integra letter stated that “RMJM has received notice of potential claims in respect of any additional costs that may be incurred”.  That was a reference to the DG Jones letter, and in my view sufficiently incorporated that letter by reference so as to put insurers on notice of it.

i)                    based on the matters known to RMJM at the time of Notification 923, a reasonable person would not consider it more likely than not that that issue would give rise to a claim; and

ii)                  Notification 923 did not include notice of information or circumstances relating to any Sector A columns issue.

i)                    There had been numerous instances of, and complaints about, lack of sufficient detail in designs and lack of coordination between the various disciplines involved in the project.  Examples of these are referred to in section (E)(1)(c) above.

ii)                  DG Jones had now indicated, in its letter of 30 March 2009, that ASD was “aware that there are potential claims that will be sought by [AAA] for the works at the New Campus Site for errors or changes in design what are as a result of a poor initial design by RMJM”, RMJM having the sole responsibility “for checking the design and co-ordination of the designs”.

iii)                In early 2008 it had been necessary to double the size of the PT beams in Sector A, and RMJM had told DG Jones that the columns and perimeter beams had been increased in size accordingly.

iv)                DG Jones had insisted on this being demonstrated to them by provision of the calculations for checking, which after considerable delay and chasing had eventually been supplied on 10 February 2009.

v)                  There had been no response to the provision of the calculations and the relevant item had disappeared from the minutes of meetings.

vi)                At progress meetings on 17 and 31 March 2009, the project team (including DG Jones and AAA) had taken the view that Sector A was estimated to be back on schedule within 3 months or by the end of May.

“6.5 Limit of Indemnity

Shall mean the sum shown in the Schedule which is available to indemnify the Assured in respect of each claim provided always that where more than one claim arises from the same original cause all such claims shall be deemed to be one claim and only one limit of indemnity shall be payable in respect of the aggregate of all such claims.”

i)                    The claims arising from the Sector A Issue depended on establishing that RMJM was guilty of negligent defective structural engineering, rendering the resulting building structurally unsafe.

ii)                  The claims on the basis of which Beazley advances its aggregation argument asserted that additional costs had been incurred because RMJM had failed to include in its designs detail and provision for coordination that was necessary for the efficient execution of the project.

iii)                To characterise both categories of claim as arising from “poor initial design by RMJM” poses the test at so generalised a level as not to be useful in the context of a search for an effective original cause.

iv)                The reference to “poor initial design” in the DG Jones letter notified in Notification 923 was not, in context, a general reference to any error of design but to problems of the kind that had been raised on the basis of particular types of deficiency in the designs prepared by RMJM.

i)                    the stop on the Sector A Field House work must have had a material impact on the progress of the works;

ii)                  RMJM’s failure to advise that it could not produce drawings in the absence of the requisite acoustic design for Sector B will on the balance of probabilities also have had an impact on the progress of the works; and

iii)                (in the context of the contractual limit of liability) all of the successful heads of claim “primarily arise out of” RMJM’s breaches in the preparation of the Sector A design.

i)                    it was the Sector A issue that caused ASD to pursue the arbitration against RMJM;

ii)                  the “dominant factor” underlying the delay (prolongation) claim was Sector A, which Mr Korolis of AAA described as the “driving dominant delay”;

iii)                ASD’s expert, Mr Atkinson, stated that “Event 57 was the dominant cause of delay to completion of the Works in the period from 8 October 2009 until 18 May 2010”, and also pushed back the completion date from 31 August 2010 to 11 April 2011 based on AAA’s contemporaneous progress updates;

iv)                the main works for Sector A were stopped for just under 13 months, from 24 August 2009 to 20 September 2010 (including, ASD says, a 5 month period from late December 2009 to May 2010 before RMJM produced an adequate redesign and obtained necessary approvals); 

v)                  the Sector A issue predated any delay associated with the acoustic design issues in Sector B, and was the last sector to be handed over to ASD;

vi)                ASD’s evidence is that it settled the AAA prolongation claim on the basis of Sector A; and

vii)              the tribunal in the context of contractual limitation concluded that all of the heads of claim primarily arose out of RMJM’s breach in the design of Sector A.

i)                    it is ASD’s case and its evidence that the delays and all the damages claimed arose from the Sector A issue;

ii)                  the tribunal found that the Sector A issue was the primary cause of the losses ASD suffered;

iii)                all known problems with RMJM’s designs that had come to light prior to October 2009 were specifically compromised in VO1;

iv)                AAA’s revised EOT claim asserted that the delays were almost entirely caused by the delay to Sector A;

v)                  ASD’s expert in the arbitration, Mr Atkinson, concluded that Sector A had been the dominant cause of the delay to the project;

vi)                ASD settled AAA’s prolongation claim because of the delays caused by Sector A;

vii)              the late provision of acoustic designs which delayed Sector B (a) arose well after Notification 923; (b) does not appear to have caused the delay to Sector B: the actual cause was the delay to the steelwork; (c) did not arise from a lack of coordination or of insufficient detail in RMJM’s designs because the acoustic designs were produced by a third party employed directly by ASD; (d) therefore fell outside Notification 923; and (e) did not delay the project as a whole because the critical delays to Sector A began earlier and finished later than any others;

viii)            the ‘driving force’ of the ASD arbitration claim against RMJM was the Sector A claim, so there was insufficient causative connection between any other matters and the claims made against RMJM; and

ix)                it is for Beazley to prove any alleged casual connection between the circumstances within Notification 923 and any part of the claims for which RMJM was held liable in the arbitration award.

i)                    A contractor claims from his employer for a delay of 12 months, comprising 6 months’ delay wholly caused by negligence by the architect for which the architect has insurance, and 6 months’ delay wholly caused by negligence by the architect for which he has no insurance (e.g. because he placed no cover for the period in question, or the cover has been avoided).  Suppose further that the employer then settles with the contractor by paying a single sum for the whole period of delay, and then sues the architect.  Could the architect claim indemnity for the whole liability from his insurer on the basis that the negligence for which cover existed was a proximate cause of the whole of the architect’s liability? 

ii)                  Alternatively, suppose that the contractor claims for a delay of 12 months, comprising 6 months’ delay caused by a fault in the architect’s original design several years ago, covered by insurer A, and 6 months’ delay caused by the architect’s more recent defective supervision of the works, covered by insurer B.  Again the employer settles with the contractor by paying a single amount for the whole period of delay and then sues the architect.  Could the architect claim indemnity from insurer A on the basis that the original design negligence was a proximate cause of the whole of the architect’s liability?  Equally could he claim indemnity for the whole loss from insurer B on the corresponding basis?

i)                    on the basis of the case law referred to in § 34 above, it is clear that the ASD Award is not binding as between the present parties as to the causes of the prolongation costs: moreover, there is no consensus between the present parties that I should treat the ASD Award as binding on that issue; and

ii)                  the Award does not make clear, where it refers to the Sector A issue being the primary cause of the loss, whether the tribunal meant it was the primary cause in the sense of being the main cause of the whole loss, or in the sense of being the cause of most of the loss.

i)                    As noted in §§ 114-116 above, the EOT claim included claims for delays relating to both Sector A and Sector B, the latter including Event 39 (late instruction of nominated subcontractor for acoustic treatment works) and Event 65 (delay relating to steelwork). 

ii)                  Mr Atkinson’s report indicated (§§ 117-118 above) that AAA’s critical path analysis ran through Sector B for a three month window in mid 2010, but that he was not in a position to assess the actual impact of what he saw as the key Sector B Event viz Event 65.

iii)                The tribunal did not decide the matter based on Mr Atkinson’s report or AAA’s EOT claim.

iv)                Mr Steven Jones of ASD stated in his witness statement in the ASD arbitration that “The delays to sector A and sector B were the dominant and insurmountable causes of the overall delays to the completion of the campus”, and that he considered AAA had an entitlement to prolongation costs on that basis, albeit he stated in cross-examination in the present case that he now realised that because of the concurrent delays involved the primary driver was Sector A.

v)                  The tribunal found that Sector B delay had “an impact” on the progress of the works, but did not attempt to quantify it.

i)                    lateness in the obtaining of acoustic design; and

ii)                  a delay in obtaining DM approval to the structural steelwork design to the Sector B theatre.

“satisfied on the evidence of Mr Jones, Ms Adada and Mr Pickering that some of the drawings which [RMJM] produced lacked (1) the details and (2) the cross referencing to other design documents, which a designer using reasonable skill, care and diligence would have included.  The Tribunal is further satisfied that this contributed to the level of Requests for Further Information … issued on the Project by AAA.  The Claimant makes no separate financial claim arising from the increase in the number of RFIs and therefore it is not necessary for the Tribunal to determine whether the lack of details and cross referencing were the sole or principal cause of the RFIs which were issued on the Project, or the extent to which the level of RFIs on the Project was increased as a consequence of [RMJM’s] breach.” (§ 10.28)

“[RMJM’s] failure to provide drawings which properly included the details and the cross referencing to other design documents will, on the balance of probabilities, have had an impact on the progress of the works.” (§ 14.15.3)

“It is denied that the claims were notified to and/or fall within the 2008/09 Primary Policy.  The only claims which could fall within the 2008/09 Primary Policy are any claims to which Circumstance 923 gave rise, whereas, as set out at paragraph 38.4 below, all or most of the claims made in the Arbitration arose from Circumstance 953 and/or Circumstance 963 and/or related to claims which were otherwise first made or Circumstances which were otherwise notified after the expiry of the 2008/09 Primary Policy.”

Further, § 38.4 denies that Circumstance 923 “gave rise to any part of ASD’s claim or claims for the losses comprising Head 4.  Head 4 comprised prolongation costs entirely or primarily caused by the [Sector A] issue”.  It goes on to plead that “all claims made by ASD against RMJM were claims to which Circumstance 953 gave rise; alternatively to which Circumstance 963 gave rise (and/or to which circumstances other than Circumstance 923 gave rise) …”.  Paragraph 51 goes on to deny that the liability falls within the 2008/09 Primary Policy and to admit or aver that it falls within the 2009/10 Policy.

“In the further alternative, in the event that contrary to Beazley’s primary case but as contended by ASD: (i) the entirety of the ASD Claim is not to be treated as falling within the 2008/09 year of cover and/or the notification of 31 March 2009 did not encompass all claims in respect of “errors or changes in design which are as a result of a poor initial design by RMJM”; and (ii) there was no such agreement or estoppel as is alleged in paragraph 35 above, then the following claims advanced by ASD in the ASD Arbitration fell outside the scope of both the notification of 31 March 2009 and the notification of 10 September 2009 and, as a result, fall outside the cover provided under both the 2008/09 and the 2009/10 Primary Policies:-

(1)                   ASD’s claim that RMJM failed to proceed with due speed following the imposition by the Dubai Municipality of a stop order on the Sector A works (paragraph 10.12 of the ASD Award).  Any such delay on RMJM’s part occurred after 10 September 2009 and was not within the notification made on that date.

(2)                   ASD’s claim in respect of the Acoustic Design of the Sector B theatre (paragraph 10.20 of the ASD Award).  The matters giving rise to that claim were not the subject of any complaint by ASD prior to August 2009 and such matters did not fall within the scope of the 10 September 2009 Notification.

(3)                   ASD’s claim as to the level of detail in RMJM’s drawings and designs leading to the issue of RFIs (paragraph 10.28 of the ASD Award).  All issues in relation to RFIs issued prior to 20 October 2009 were resolved by VOs 1 and 2 and, to the extent that any issues in relation to RFIs did not form part of the ASD Claim, those issues arose after October 2009 and did not fall within the scope of the 10 September 2009 Notification.”

“Where the defendant denies an allegation—

(a) he must state his reasons for doing so; and

(b) if he intends to put forward a different version of events from that given by the claimant, he must state his own version.”

“(1) Whether and to what extent the ASD Claim (or any part of it, and which part(s))

(a) arises out of circumstances notified during the 2008/2009 policy year, and (b) falls within the period of cover provided by the 2008/2009 Primary Policy?

and

(2) Whether and to what extent the ASD Claim (or any part of it, and which part(s))

(a) arises out of circumstances notified during the 2009/2010 policy year and (b) falls within the period of cover provided by the 2009/2010 Primary Policy?”

“Whether and to what extent the ASD Claim (or any part of it, and which part(s)) (a) arises out of circumstances notified during the 2009/2010 policy year and (b) falls within the period of cover provided by the 2009/2010 Primary Policy?”

i)                    as at the date of Notification 953, RMJM was plainly aware of such a potential claim, and a reasonable person would clearly consider it likely to give rise to a claim; and

ii)                  Notification 953 as a matter of construction did include a potential claim arising from failure to design the Sector A columns in accordance with the DM regulations and/or failure to design the Sector A columns so that they could safely support the load they would bear (whether including or excluding seismic requirements).

“Based on my review of the above information and my own outline evaluation of the extent and magnitude of remedial works that would be required to upgrade the structure to meet the DM requirements, it is my opinion that a period of nine months between the hold on Sector A construction to the start of the remedial works is excessive.

In my opinion, once the demand to comply with DM seismic and other requirements was known, RMJM should have taken the lead in producing designs for the structural changes and remedial works in order to minimise delays.  I am not aware of all the circumstances of the project at the time, but a period of approximately four to six weeks should have been sufficient for the re-design, assuming no special or unusual conditions.  Additional time should also be allowed for the DM re-submission and approval, which I assume was obtained prior to re-commencement of work on site.” (report §§ 4.7.3 and 4.7.4)

“If and to the extent that the ASD Claim (or any part of it) arises out of circumstances notified during the 2009/2010 policy year, whether RMJM prior to its sequestration agreed with Beazley that the ASD Claim fell within the 2008/2009 Primary Policy and/or whether RMJM was (or ASD now is) estopped by RMJM’s conduct from denying the same”

·         failure to provide adequate detailed design to allow for the construction of the works that resulted in a large number of Requests for Information from the Contractor, this in itself caused substantial delays to the Project;

·         failure to adequately design the Sector A structural engineering works in accordance with local building regulations, requirements and rules, resulting in a Dubai Municipality rejection of the Sector A design;

·         over engineering of the Project design as a whole, leading to increased building material costs throughout the Project;

·         failure to adequately design or provide an adequate design to the acoustics package within the Project, resulting in our client engaging an independent Expert, re-design and subsequent rectification works to already complete aspects of the Project;

·         failure to adequately design the external surface water drainage to the Project;

·         failure to adequately design the foul water drainage to the Project;

·         failure to administer the engineering works adequately and at any time at all throughout the Project so as to ensure or assist with timely completion;

·         failure to respond in a timely and adequate fashion to Requests For Information from the contractor and subcontractors throughout the course of the Project thus delaying the completion of the works;

·         failure to provide adequate quantity and qualified personnel to the Project at all material times which [led] to increased delays, inefficiency and general poor performance; and

·         failure to consider and provide an adequate and detailed response to AAA, the contractor’s claims for an Extension of Time.”

“The current Edinburgh based project team took over the job in July 2008, issuing the previously produced Hillier drawings for construction.  As the construction progressed it became apparent that many elements of work had not been thoroughly coordinated between different disciplines and packages, leading to the contractor submitting multiple Requests for Information (RFIs) to the design team.

In view of this RMJM decided to review the documentation and amend any errors of coordination in order to avoid abortive works by the contractor.  The project clerk of works was advised and proposed changes were presented to the client for consideration.  In response RMJM received notice of potential claims in respect of any additional works that may be incurred. At the time of notification it was not clear precisely what costs might be involved and the notification was originally made as a precaution under bordereau notification number 923/08-09.

Over the last two years there had been no material developments until RMJM recently received the attached letter from lawyers acting for the client, in which formal notice of a claim has been given.  The letter of claim identifies a number of specific issues and aspects of the Insured’s involvement in the design and coordination of the project, but the overriding assertion is that their overall performance failed to meet the required professional duty of care, with the result that delays and additional costs have been incurred by both the client and the works contractor.  …

The current feeling is that the allegations may be, in large part, unjustified and that the level of losses suggested is significantly overstated, particularly in so far as the contractor loss and expense component is concerned.  However, it is a matter of fact, and accepted by RMJM (although not admitted to the client), that the early coordination of the project was poor and [led] to the contractor issuing multiple RFI requests, with attendant cost implications.  Consequently, there may be a valid claim(s) for some of those costs.

RMJM is investigating the specific allegations in more detail to (a) enable them to compile a suitable response and (b) to ascertain if a need arises to make separate notification(s) on the current policy year. … Once RMJM’s further internal investigations are complete it should be possible to provide a more definitive assessment of likely exposures and, at that stage, consideration will be given to the need for a reserve to be posted against this notification.”

A similar letter was sent to RMJM’s 2011/12 insurers, indicating at the end that following further investigations it should be possible to assess “whether or not formal notice of specific matters, not dealt with in the existing notification, need to be made under the current year policy”, and asking the current year insurers to note the situation on an information only basis in the meantime.

“Subject: RMJM – American School of Dubai – Project Delays – Bdx Notification No 923/08-09

This notification was originally made in March 2009, following a discovery that poor project coordination had resulted in the need for the contractor to issue multiple RFIs.  In the absence of any developments since the notification was made no further action has been taken but RMJM has recently received a letter from lawyers acting for the client, as per the attached.  I have also appended a letter to Insurers to bring them up to date.

The client has made various allegations but the fundamental thrust is that RMJM’s coordination of the project, and dissemination of design information, failed to meet the required standard.  For that reason it is considered that most of what is being contended falls within the scope of notification 923 but I will be writing to you separately to ensure that the current year underwriters are advised, on a precautionary basis, pending a response from the 2008-09 policy year Insurers.”

“Alleges deficiencies in the Sector A structural engineering works.  This would appear to be circumstances notified under Bdx 953 (now closed)”

and that in addition to entering a dialogue with a view to amicable settlement

“We will also reopen Bdx 953 as a precaution, although we expect any settlement to be reached as a “global” agreement. … In the meantime we propose a Reserve of £15,000 (“ground up”) against Bdx 923 for possible future legal fees …”.

“The issues now being raised by the school appear broader than encompassed within 923 and 953 – what are RMJM’s views on this?”

“that they are content that, if a settlement is concluded with ASD, any payment made to ASD by Beazley under the 2008/09 primary policy will erode the policy limit”.

 “we understand this position. However, we need to make it clear that the entity does not have the financial resources to meet any excess requirement under the policy and therefore if you wish to make this offer it is on the basis that Beazley will fully fund it. I would also be grateful to understand whether it is necessary to withdraw or reduce the Adnec at this time to reflect this.”

“You appear to suggest that, as a condition of this offer being made, Insurers should pay the policy excess in the ASD matter. The position remains that it is RMJM’s obligation to pay the policy excess and, accordingly, this condition cannot be met.”

“I am not at all trying to negotiate here and am very supportive of the initiative to settle. But I just want to be clear that someone will come ask the partnership for $250k and it is just not there.

Either that will mean it cannot meet its obligations to Beazley or it will result in short payment to ASD (I am unclear from the settlement mechanism which it will be).”

i)                    Beazley treating all the claims made by ASD as falling within the 31 March 2009 Notification and the 2008/09 year of cover and funding the defence of all such claims, in circumstances where if Beazley’s approach to the scope of the Notification 923 is incorrect then various of those claims will never have been notified to Beazley and will not be insured by Beazley;

ii)                  Beazley making the without prejudice offer;

iii)                Beazley not seeking to argue that there had been any breach of condition precedent in relation to the notification of the issues affecting Sector A (as to which see Issue 4 below); and

iv)                Beazley accounting for the ASD defence costs and reserving for the ASD claim within its financial and reinsurance accounting for the 2008/09 Primary Policy and year of account.

“In respect of Notification Bdx 953 we believe this issue is the 2nd bullet point in the lawyer's letter which in our opinion was caused by a change in the statutory requirements after our design had been approved by the local authority”

is to be understood as covering the situation where the Sector A claim arose not out of any initial design error but out of a change in the statutory requirements (which was how RMJM presented the matter in Notification 953), whereas the claim as in fact advanced by ASD (and upheld as part of the ASD Award) was based on errors in the original design and not any change in the statutory requirements.

“Q.  And your reference to 953 in the last paragraph of this email is what might be described as a fallback position. If Beazley wasn't willing to provide cover under 923 then you are asking that cover be provided under 953.

A.  I don't know if that went through my head.

Q.  Well, that's a sensible reading of this, isn't it?

A.  It's one interpretation of it, yes.

Q.  And you were presenting RMJM's view of 953 as being based on a change in the DM's requirements rather than a problem with the original design?

A.  I can't say that either because there was a problem.  It was RMJM's view at the time that it was caused by a change in the statutory requirements.  If it hadn't been that, I don't know whether I thought 953 would cover the original design.

Q.  Your approach was that if there was a change in statutory requirements, then 953 would cover it?

A.  If that was proved to be correct, but I'm not saying that's the only thing that would be covered by 953.” (Day 2/102/11-103/4)

“Q.  You've confirmed to me earlier that the email of 31 May set out your views on that date as to what was the relevant notification.

A.  Yes.

Q.  And you've confirmed to me earlier that the effect of that email was to ask Beazley to deal with all matters as falling within the 923 notification.

A.  Yes.

Q.  So that last sentence is incorrect, isn't it?

A.  But the letter also referred to the 953 notification.

Q.  I understand that.  That last sentence is incorrect, isn't it?

A.  The way it's come across just now, it could be construed as being inconsistent.

Q.  You were asking Beazley -- you were saying to Beazley, "This all falls within the 2008/2009-year", weren't you?

A.  By saying it was 923.

Q.  Which was the 2008/2009-year, wasn't it, yes?

A.  It was, yes, it was.

Q.  So your view as propounded to Beazley in that email is that everything fell within the 2008/2009-year.

A.  From the construction of my letter.  I don't know if that was in my mind at the time.  I don't know, sorry.

Q.  In fairness to you, Mr Elliot, these are matters which occurred a long time ago.

A.  Yeah.” (Day 2/118/18-119/14)

“If and to the extent that the ASD Claim falls within the 2009/2010 Primary Policy:

(a) Whether RMJM breached Claims Condition 3.2 of that policy by failing to notify Beazley of relevant matters as soon as practicable.

(b) Whether Beazley waived any such breach and/or is estopped from contending that there has been any such breach”

 “3.1      All conditions contained in Section 3 are deemed to be conditions precedent to liability.

Discovery of a Claim or Circumstance

3.2         a)  …

b) If during the Period of this Policy the Assured becomes aware of any Circumstance, the Assured shall give notice … to Underwriters of such Circumstance as soon as practicable but in any event not later than the expiry of the Period of this Policy.”

i)                    The various communications between DG Jones and RMJM concerning the structural adequacy of the Sector A columns prior to 10 February 2009 referred to earlier: Beazley says that as a result RMJM must have been aware that DG Jones and AAA had serious concerns as to the adequacy of the structural design of Sector A, including the ability of the columns to support the PT beams.

ii)                  RMJM’s delay in providing the requested structural calculations until 10 February 2009: Beazley says that RMJM was aware that DG Jones and AAA required those calculations in order to check their correctness, and that as a result of RMJM’s delay it was not possible for them to carry out any such check.

iii)                Mr Kareem’s email of 27 August 2009 in which he referred to AAA and DG Jones’ stability concerns in relation to the structure of Sector A, and continued “We responded to them with ‘calculations’ only in Mid February ’09 when the Client threatened to close the site and somehow managed to pacify their concerns. I regret deeply that I did not correct it earlier when we had the chance And [n]ow it has come back to haunt us. …”  Beazley relies on this email as indicating that RMJM was concerned on 10 February 2009 as to the correctness of its structural calculations.

iv)                DG Jones’ letters of 22 January 2009 and 30 March 2009 making it clear that ASD would hold RMJM responsible for any delays and losses arising out of errors in its design.

v)                  DG Jones’ letter of 14 May 2009, stating that “the American School of Dubai will be making claims against RMJM for errors and omissions from the drawings issued to the contractor in Sector A.”

vi)                As a result, Beazley says RMJM was either aware that its structural design of Sector A was likely to be inadequate or, at the very least, chose to run the risk that it might be inadequate.

i)                    For the reasons given in section (E)(3)(b) above, I do not consider that the various communications between DG Jones and RMJM concerning the Sector A columns prior to 10 February 2009 meant that RMJM was aware of circumstances that a reasonable person would have considered likely to give rise to a claim.  I also do not consider that they meant RMJM must have known that DG Jones and AAA had serious concerns as to the adequacy of the structural design of Sector A (including the ability of the columns to support the PT beams): the evidence indicates only that DG Jones had pressed RMJM for calculations to demonstrate the columns’ adequacy to support the increased weight of the beams, but goes no further than that.  There is no evidence that DG Jones or AAA had alleged, expressly or implicitly, that the columns were inadequate or that RMJM was aware of any such allegation or concern.

ii)                  I would accept that RMJM must have known that DG Jones and AAA required the calculations in order to check their correctness, but as indicated in § 63 above I do not consider it established on the evidence either that it was not possible to carry out any such check, or that RMJM knew that.

iii)                I do not consider that Mr Kareem’s email of 27 August 2009 indicates that RMJM was concerned on 10 February 2009 as to the correctness of its structural calculations: see §§ 50-52 above.

iv)                DG Jones’ letters of 22 January 2009 and 30 March 2009, making it clear that ASD would hold RMJM responsible for any delays and losses arising out of errors in its design, did not make RMJM aware of any circumstances likely to give rise to a claim relating to the adequacy of the Sector A columns.

v)                  DG Jones’ letter of 14 May 2009 stating that “the American School of Dubai will be making claims against RMJM for errors and omissions from the drawings issued to the contractor in Sector A” was entirely general in its terms and made no allegation in relation to the adequacy of the Sector A columns.  It stated, in full:

“I am writing to inform you that the American School of Dubai will be making claims against RMJM for errors and omissions from the drawings issued to the contractor in Sector A.  the drawings are being reviewed at present and upon the submission by the contractors of costs for the work to be carried and their delay and disruption claim a claim will be submitted by the ASD to RMJM for the re-imbursement of all associated costs.”

A letter was sent on the same date in relation to Sector B in otherwise identical terms.  Moreover, these letters should be read in conjunction with ASD’s message of May 2009 referred to in § 74 above agreeing with RMJM that there was no relevant issue with the Sector A drawings.

vi)                I do not find that RMJM was either aware that its structural design of Sector A was likely to be inadequate or chose to run the risk that it might be inadequate.

i)                    Beazley made no objection to the initial notification and acquiesced in the allocation of an initial reserve of £50,000.

ii)                  Beazley accepted the re-opening of Notification 953 in May 2013 after receipt of the Ince letter of 5 May 2013.

iii)                In May 2013 Mr Morgan on behalf of Beazley raised with RMJM a query as to whether ASD’s claims were outside both Notifications 923 and 953 (“The issues now being raised by the School appear broader than encompassed within 923 and 953 – what are RMJM’s views on this?”).  Mr Morgan’s question implied, ASD says, that Notification 953 was valid and effective.

iv)                Mr Elliot’s 31 May 2013 response to Mr Morgan (quoted in § 293 above) indicated that he too continued to regard Notification 953 as a valid and relevant notification.  There was no suggestion by Beazley at any time that he was wrong to do so.

i)                    Notification 953 itself attached the 10 February 2009 letter from RMJM to DG Jones providing the structural calculations; it also attached the letters of 23 December 2008, 8 January 2009, 22 January 2009, and 27 January 2009.  Beazley has also long had access to the 30 March 2009 letter from DG Jones that was provided to underwriters as an attachment to Notification 923.

ii)                  With Notification 953 RMJM also enclosed letters from DG Jones of 4 and 8 September 2009, which explained the history of the Sector A issue (as Beazley avers).

iii)                Integra’s report of Notification 953 on 14 September 2009 (see paragraph 90 above) told Beazley that RMJM had failed to submit Sector A calculations earlier in the year despite having been requested to do so.

iv)                The first time that breach of clause 3.2 was asserted was in Beazley’s Defence to ASD’s Particulars of Claim served on 27 May 2017.

v)                  Beazley chose to conduct the defence of the ASD arbitration pursuant to clause 3.6 of the Primary Policies, and RMJM was correspondingly unable or restricted in its ability to control the conduct of the defence of the claims made against it.

vi)                Mr Elliot of RMJM was not told that any of ASD’s threatened claims was or might be uninsured.  He and RMJM proceeded on the basis that Notification 953 was valid and had been accepted.  His evidence is that, if RMJM had been aware of an alleged breach of clause 3.2, RMJM is likely to have escalated the issue to Marsh’s Managing Director level, to have taken the situation very seriously and to have examined all options to minimise the resulting risk to RMJM.

i)                    RMJM did not breach Claims Condition 3.2 of that policy by failing to notify Beazley of relevant matters as soon as practicable.

ii)                  Had I found such a breach to have occurred, I would have concluded that Beazley did not waive it and is not estopped from contending that there had been any such breach.

“What is the available limit of cover under the 2008/2009 Primary Policy for the ASD Claim and/or the ADNEC Claim allowing for the amount of £62,500 (equivalent to US$ 107,181.25 using the rate of exchange on the date on which the payment was made) already paid by Beazley under the 2008/2009 Primary Policy in respect of an earlier claim against RMJM), and in particular:

(a) Whether Beazley is entitled to set-off a pro rata share of the costs incurred in defending the ADNEC Claim against its liability under the 2008/2009 Primary Policy to ADNEC in relation to its Claim and (insofar as the pro rata share exceeds the amount available to be set off against ADNEC’s Claim) against its liability under the 2008/2009 Primary Policy to ASD in relation to its Claim; and/or

(b) Whether Beazley is estopped from contending that it is entitled to set-off a pro rata share of the costs incurred in defending the ADNEC Claim in the manner alleged in issue 5.a. above.”

“1.2 Defence Costs in Addition

Underwriters will also indemnify the Assured for Defence Costs (see 6.5) where such costs have been incurred with Underwriters’ consent. Such Defence Costs are payable in addition to the Limit of Indemnity shown in the Schedule.

In the event that a settlement is made with any party in excess of the amount of the Limit of Indemnity, Underwriters’ liability in respect of Defence Costs shall be in the same proportion that the Limit of Indemnity bears to the sum which would be eligible for payment but for the restriction of the Limit of Indemnity.” (emphasis added)

“4.6 Claim Settlements

The Underwriters may at any time pay to the Assured in connection with any claims or series of claims under this Policy the Limit of Indemnity (less any sums already paid) or any lesser sum for which such claims can be settled and upon such payment the Underwriters shall not be under any further liability in respect of such claims except for costs and expenses incurred prior to such payment.

If a payment exceeding the Limit of Indemnity has to be made to dispose of a claim the liability of the Underwriters to pay all costs fees and expenses in connection therewith shall be limited to such of the said costs and expenses as the Limit of Indemnity bears to the amount paid to dispose of a claim.”

i)                    RMJM’s “defence costs” are the subject of a separate insuring obligation and are payable, without limit, in addition to the maximum US$10m “compensation and/or damages” indemnity payable under clause 1.1.

ii)                  As illustrated by the present case, defence costs may be incurred in very significant sums before any obligation arises to pay the insured any indemnity in respect of its legal liability for damages, and/or before it becomes apparent that the damages limit of indemnity will or might be exceeded (whether by the same claim or a combination of claims).

iii)                The 2008/09 Primary Policy makes no express provision for either any reduction of the limit of indemnity under clause 1.1 by reference to any supposed overpayment of defence costs under clause 1.2, or for any right of Beazley or obligation of the insured in relation to the repayment of any supposed overpayment of defence costs.

iv)                Neither the 2008/09 Primary Policy nor any of the 2008/09 Excess Policies makes any provision for a claim over against the Excess Insurers by either RMJM or Beazley in relation to a supposed overpayment of defence costs.

v)                  Instead, both the 2008/09 Primary Policy and the Excess Policies operate on the basis that insurers will only be liable for costs incurred with insurers’ consent.     

i)                    In clause 1.2 itself, this is clear from the reference to “any party”, meaning the third party claimant, as opposed to the insured.

ii)                  Clause 6.6, defining Defence Costs, refers to costs and expenses incurred “in the investigation, defence or settlement of any claim or potential claim …”.  Thus “settlement” refers to settlement with the third party claimant, and the separate use of “defence” and “settlement” indicates that “settlement” refers to consensual resolution.

iii)                Clause 3.6 permits underwriters to take over the “investigation, defence or settlement of any claim”: similar points apply.

iv)                In clause 4.6, the reference to “any lesser sum for which such claims can be settled” makes clear that what is contemplated is third party claims against the insured, which are compromised. 

v)                  Similarly, the second paragraph of clause 4.6, referring to the situation where a payment exceeding the limit of indemnity “has to be made to dispose of a claim”, is confined to cases where the third party’s claim is compromised.

“… in the event of a claim arising to which the Underwriters 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) and if they consent they shall contribute to the said costs in the proportion that their share of the claim, as finally settled, bears to the total sum paid to dispose of the claim.  No settlement of a claim shall be effected by the Assured for such a sum as will involve this Policy without the consent of the Underwriters hereon.”

i)                    The test for an implied term is a strict one and has not been diluted by recent case law, as the Supreme Court made clear in Marks & Spencer.

ii)                  The language of “indemnify[ing]” in clause 1.2 indicates that the clause is addressing a situation in which the insured (RMJM) itself pays the costs incurred in the course of the defence of a claim, and then claims them from Beazley at the point of or after settlement. In those circumstances, the clause indicates that the insured will not be able to recover from Beazley (as opposed to Excess Insurers) any amount exceeding Beazley’s proportionate share.  In the present case, however, Beazley agreed to pay, and in fact paid, the costs as they arose and in return exercised its rights under clause 3.6 to control the defence of claim.  Clause 1.2 is not directed to that situation.

“It is evident that the situation which eventuated was not either of those for which the policy made express provision. The judge had to decide who should bear the risk in a situation not expressly provided for. He held against the insurer. I would be willing to accept that he was right on the facts and the policy before him. But I do not think he was purporting to lay down a rule of law, and I do not think his decision can be used to govern a situation where the policy terms are quite different.” ([1995] 2 Lloyd’s Rep 437, 462).

It is also pertinent to note that in the present case Simmons & Simmons’ engagement letter provided for their instructions to be given by RMJM.  In these circumstances I do not consider there to be a basis for sidestepping the defence costs limit set out in clause 1.2.

“Q: What is your understanding, looking at the matter first from a technical viewpoint, as to what happens in relation to the ADNEC defence costs which Beazley has funded which are proportionate to that part of the ADNEC Claim which exceeds the limit.

…

A:          Okay, my understanding of how this would work is the defence costs would have been paid in the first instance by Beazley.  You would look then at the amount of indemnity they paid in relation to the overall indemnity, and if they had paid too much they would be entitled to get that back from the insured, who would then go and seek from any other parties who they thought were responsible for it.

Q.  I asked you about how technically which I think you've answered, but how in practice does it work?

A.  In practice the broker would have coordinated that.  So rather than Beazley, you know, get money back from RMJM and then RMJM go and have to collect money from somebody else, the broker would co-ordinate the different payments from the different parties and there would only be one set of transactions that would happen.”

i)                    that there was no relevant mistake such as could give rise to unjust enrichment: instead, Beazley had simply mispredicted future events and/or assumed the risk, and had in any event paid not by reason of a mistake but because it had assumed a liability to Simmons;

ii)                  that there was no enrichment at Beazley’s expense because Beazley had a claim against Excess Insurers for the Pro Rata Share under the 1930 Act or based on a freestanding agreement; and

i)                    For the reasons set out under Issue 7 below, I do not consider that Beazley has a claim against Excess Insurers under the 1930 Act.

ii)                  Even if Beazley had such a claim, it would arise only on the basis that RMJM was liable to refund the Pro Rata Share to Beazley.  The fact that Beazley could in effect pursue RMJM’s own claim against Excess Insurers would not prevent RMJM having been enriched at Beazley’s expense in the context of a restitution claim.

iii)                ASD referred to a freestanding agreement between Beazley and Excess Insurers, details of which were not disclosed to the court.  However, counsel for Beazley stated (without challenge) that it arose in respect of events after RMJM’s sequestration and was thus not relevant to whether or not Beazley acquired a restitutionary claim against RMJM at the time it funded the Pro Rata Share.

 “The obligation of an assured to reimburse defence costs funded by underwriters within the excess gives rise, in my judgment, to a right of set-off on the part of underwriters against a claim for indemnity from that particular assured, applying established principles governing set-off.” (p451 col 2)

i)                    how to reconcile the apparently conflicting case law about whether an insurer’s right of set-off can be relied on as against claimants under the 1930 Act,

ii)                  whether a right of set-off can survive the operation of the 1930 Act where the sum which the insurer seeks to offset is not and cannot be ascertained until after the 1930 Act transfer has occurred, and

iii)                whether after a 1930 Act transfer has occurred, an insurer claiming a right of equitable set-off must show that it would be manifestly unjust to allow such a set-off vis a vis the 1930 Act claimant, as opposed to vis a vis the insolvent insured.

“Against this history, did the Act merely put the plaintiff into the shoes of the insured, so as to transfer to the third party the whole bundle of the rights of the insured, subject to the whole bundle of his liabilities under the contract of insurance, or did Parliament give to the third party the privileged position of asserting the rights of the insured in respect of his liability to the plaintiff and of disregarding the liabilities of the insured to the insurers, for example, in respect of unpaid premiums? What effect must be given to the words "in respect of the liability" which appear in the section? In my view, those words are of the utmost importance.

It is not all the rights and liabilities of the insured under the contract of insurance which are transferred to the third party, only the particular rights in respect of the liability incurred by the insured to the third party. When one looks at subsection (4) one finds the following language:

"Upon a transfer under subsection (1) or subsection (2) of this section the insurer shall, subject to the provisions of section 3 of this Act be under the same liability to the third party as he would have been under to the insured, but ..."

and then follows (a) and (b) which deal with the differences between the liability of the insurers to the insured and the liability of the insured to the third party; this shows that the draftsman in that subsection was addressing his mind to problems that arise in connection with the liability of the insurers to the insured in relation to the particular liability of the insured to the third party. In my view this section had a carefully limited intention. There is no express transfer of liabilities of the insured to the insurers, as for example, is to be found in section 5 of the Workmen's Compensation Act, 1906, but if there is, under the policy, a defence by way of condition available against the insured, that defence would be available against the third party.

In my view, in the words used to create the statutory subrogation, the draftsman did carefully limit the subrogation to the rights under the contract in respect of the liability incurred by the insured to the third party. Rights which are not referable to the particular liability of the insured to the particular third party are not transferred. Thus all the conditions in the policy which modify or control the obligations of the insurers to cover a given liability to a third party are the subject of transfer. See, for example, the judgment of Atkinson J. in Hassett v. Legal & General Assurance Co. (1939) 63 Ll.L.R. 278 . The right to recovery of the premiums in this case was not a term of the policy which arose in respect of the liability of the insured to the third party. The defendants are in my view left in regard thereto with the same rights as the general body of creditors, namely, to prove in the bankruptcy.” (pp502-503)

“The reference to the insured's rights “under the contract” has the obvious consequence that one must read and construe the insurance contract between insurer and insured to see what the insured's rights are. There can be transferred only such rights as he has under that contract. The reference to rights “in respect of the liability” to the third party has been narrowly construed: Murray v. Legal and General Assurance Society Limited [1970] 2 Q.B. 495”. 

His summary was approved by Lord Goff in the House of Lords ([1991] 2 A.C. 1, 38).  Again there was no specific discussion of Murray, and it may be pertinent to note that Lord Goff in the same passage referred to Bingham L.J. as having:

“stressed that the primary purpose of the Act was to remedy the injustice highlighted in particular in In re Harrington Motor Co. Ltd., Ex parte Chaplin [1928] 1 Ch. 105, in which it was held that payment by an insurance company to an insolvent insured of a sum due under a liability policy, fell to be distributed among the creditors of the insured, of whom the injured party was only one: see Bradley v. Eagle Star Insurance Co. Ltd. [1989] A.C. 957, per  Lord Brandon of Oakbrook” and that “under the Act there were to be transferred to the third party only such rights as the insured had under the contract of insurance”.

 “Can the insurers invoke a right of set-off that was available against an assured as against the names who step into the shoes of the assured pursuant to the provisions of the 1930 Act? In my judgment they can. It seems to me that the rights transferred under the Act must be subject to any defences that would have been available had those rights been asserted by the assured from whom they are transferred.  Insofar as the decision in Murray v Legal and General Assurance Society Ltd., [1969] 2 Lloyd’s Rep. 405; [1970] 2 Q.B. 495 is inconsistent with this conclusion, I decline to follow it.” (p451 col 2)

“151. However Denso argues that Cox case does not concern set-off of premium, but of the effect on a third party of a costs-inclusive excess. Accordingly, the court was faced with an entirely distinct issue. Further there was no consideration by the Court of the doctrine of stare decisis. Murray is binding as a matter of precedent. Phillips J did not consider whether he was fully satisfied that the previous decision was wrong. The conditions for following a more recent decision are therefore not in place.

152. This is a very interesting point, although arising somewhat down the list of issues. To the extent that it may ever become relevant I prefer the argument of Denso. There is a distinction between the two cases, as is apparent from the judgment of Phillips J. This tends to be reinforced by the facts that Phillips J would be expected to have made it clear if he considered that the previous decision was inconsistent with the course he proposed. This also explains the absence of the full consideration of the previous authority before departing from it.

153. I take comfort in that conclusion from the decision of the Supreme Court in International Energy Group Ltd v Zurich Insurance plc [2016] AC 559 at [83]-[93]. The issue there was the slightly different one of the right to set-off contribution from the insured or third parties. The Court considered the point though leaving this debate open on the basis that any right of contribution in that case was best seen as arising from circumstances outside the insurance policy, and on that basis as not capable of giving rise to a set-off at all.

i)                    Up to 2011: work carried out by RMJM

ii)                  23 May 2013: ADNEC commences arbitrations against RMJM

iii)                9 April 2014: ASD commences arbitration against RMJM

iv)                24 September 2015: RMJM enters sequestration in Scotland

v)                  31 May 2016: tribunal issues final award in the ASD arbitration

vi)                27 July 2016: tribunal issues final award in the ADNEC arbitration

“85 When the 1930 Act applies, it therefore transfers to the mesothelioma victim the insured's rights under the insurance contract in respect of the insured's liability to the victim. The same is provided by the 2010 Act, not yet in force. Whether an insurer's right to contribution against the insured constitutes a full or partial answer to a victim's policy claim based on such a transfer is a question of great potential importance. It raises questions of some complexity, on which it is unnecessary to give a final answer on this appeal, but about which I wish to make some observations. One question is whether, apart from any statutory transfer under the 1930 or 2010 Act, the insurer's right to contribution would be a defence at common law to a claim by the insured for indemnity under the insurance, as opposed to giving rise to procedural remedies such as a stay. A second is whether it makes any difference to the application of the relevant common law rules in this context that the claim is being brought under the 1930 or 2010 Act. A third is whether the terms of the Act positively exclude or restrict any such defence.

86 The first and second aspects raise, as sub-issues, the existence of any right of relief based on set-off, circuity of action or other equitable basis. Zurich positively submitted that it would have no right of set-off, legal or equitable. One objection to set-off is that a right to contribution only arises on payment by the person seeking contribution: ... On the face of it, that presents a real obstacle to any suggestion by any insurer in Zurich's position of set-off, whether legal or equitable, against IEG's claim for the full amount of its loss.

87 There is however first instance authority endorsing the availability of a further remedy in cases where a person A (here, for example, Zurich), liable to make a payment to person B (here, the person suffering mesothelioma), has a potential right to receive contribution (or a full indemnity) from a third person C (here, IEG). …

88 Accepting the fairness of the thinking behind this first instance authority without further examination, I doubt whether it could or should affect the application of the general principle mentioned in para 86 in the particular context of a claim by a victim under the 1930 or 2010 Act. Zurich's obligation under the insurance and that Act would be to indemnify the victim. Any consequential right to contribution from IEG would arise not “under”, but outside, the insurance contract in terms of section 1(1) of the 1930 Act. Considerations of justice and policy would also support the treatment of the insurance and the contribution positions as legally separate, when an opposite approach would be to the prejudice of the victim, in whose favour the insurance would otherwise operate and who is not concerned with the circumstances giving rise to any contribution claim.

…

“Beazley assumed liability for and in fact paid the ADNEC Defence Costs as they were incurred and did not at any time indicate that the limit of liability available to RMJM in respect of the ASD Claim was limited as now asserted or that Beazley would subsequently be entitled to recover the ADNEC Defence Costs (or part thereof) from RMJM or offset it against any indemnity in respect of the ASD Claim”.

“Whether, to the extent that the amount recoverable by ASD and/or ADNEC under the 2008/2009 Primary Policy falls to be reduced by reason of the matters addressed by issue 5.a., and on the assumption that the Excess Insurers consented to the incurring of the ADNEC defence costs, any shortfall in ASD’s and/or ADNEC’s recovery under the 2008/2009 Primary Policy or any amount set off by Beazley can be recovered by ASD and/or ADNEC under the Excess Policies, including: (a) whether a claim by ASD and/or ADNEC under the Excess Policies in respect of any shortfall in recovery under the 2008/2009 Primary Policy would be a claim in respect of ADNEC defence costs; and; (b) whether ASD and/or ADNEC has title to sue in respect of such defence costs.”

i)                    Beazley seeks to set off costs said to be owed by RMJM against ASD’s claim.  Clearly ASD is not liable for those costs: rather, Beazley relies on RMJM’s liability for those costs as a defence which it says reduces what it would have had to pay to RMJM and therefore what it now has to pay to ASD.

ii)                  As between ASD and RMJM, the effect of Beazley paying less than the full amount of RMJM’s liability to ASD (on any ground) is that that liability is not fully discharged.  ASD retains a right against RMJM in respect of the non-discharged part of RMJM’s liability.

iii)                It follows that when ASD seeks to claim against Excess Insurers for the amount of any set off by Beazley, ASD is simply claiming in respect of the balance of RMJM’s liability to it.  It is not a claim for defence costs (for which ASD could never be liable).

i)                    Any set-off to which Beazley is entitled to make of the Pro Rata Share (i.e. of overpaid defence costs), or indeed of any other claim, against its liabilities to indemnify under clause 1.1 is in principle a way of partially discharging by way of set-off the sum that would otherwise be due under clause 1.1.  The position would be the same if the offset arose from some other claim, such as for unpaid premia.

ii)                  The effect would therefore be that (a) Beazley had paid the claim in full up to the available policy limit of $10m (less a minor claim already paid) but (b) Beazley had recouped by the set-off the overpaid defence costs, with the result that RMJM would not ultimately have received that portion of its defence costs relating to the ADNEC Claim.  In other words, the effect of the set-off would in substance be to reverse Beazley’s previous payment to RMJM of the Pro Rata Share of defence costs.

iii)                RMJM’s claim against Excess Insurers would not therefore be a claim to excess policy cover in respect of RMJM’s liability to ADNEC as a result of Beazley being entitled to reduce the limit of indemnity available under the 2008/09 Primary Policy.  The offset would not reduce the limit of indemnity.  Instead it would be a means by which Beazley discharged its liability to pay up to the full available limit of indemnity, i.e. the full $10m less the small claim previously settled.  Thus RMJM’s claim against Excess Insurers would be for Excess Insurers’ share of the defence costs, i.e. the Pro Rata Share.

iv)                Assuming Excess Insurers consented to the incurring of those defence costs, and no other coverage issues arise under the Excess Policies, RMJM could therefore recover those costs from Excess Insurers.

v)                  However, as set out below, such a claim would unfortunately not fall within the 1930 Act as it would not form part of “[RMJM]’s rights against the insurer under the contract in respect of the liability” i.e. RMJM’s liability to the third party.  The Act does not transfer to the third party the insured’s right to recover from his insurer the costs of defending the third party’s claim.

vi)                RMJM’s claim against the Excess Insurers for the Pro Rata Share would therefore remain with RMJM itself, in effect with its trustee in the sequestration.

i)                    So far as the handling costs were concerned in Freakley, the matter was common ground between the parties since there was no issue about a claim for such costs being transferred to any third party under the 1930 Act: thus Chadwick LJ’s comments are not authoritative.

i)                    ASD’s fairness point does not in my view indicate that Beazley’s set-off claim must be wrong.  Beazley’s set-off is founded on the straightforward propositions, each of which is unobjectionable, that (a) it will have overpaid defence costs by paying more than was due under section 1.2 of the policy, (b) it would have been entitled to recover the excess from RMJM by way of set-off against sums otherwise due to RMJM by way of indemnity under the same policy and (c) following the 1930 Act transfer it will remain entitled to offset the overpayments against sums that will now be due not to RMJM but to the 1930 Act transferees of the same rights to indemnity. 

ii)                  The fact that the claim Beazley seeks to offset happens to relate to an overpayment of defence costs which RMJM could prima facie have recouped from Excess Insurers but which the Claimants may not be able to recoup (because it falls outside the 1930 Act) does not mean that it would have been unfair for Beazley to have set off the overpayment as against RMJM.  If Beazley would have been so entitled, it must in my view follow that it is entitled to rely on the same set-off defence as against the Claimants. 

iii)                The position is no more unfair than it would be if Beazley were entitled to offset some other sum, such as unpaid premia or perhaps an overpayment made by Beazley on some other claim RMJM had made, which the Claimants would have no means of recouping.  However, it is inherent in the 1930 Act that claimants may fail to make a recovery to the extent that any defence would have been available to the insurer against the insured.  Any other view would mean that the Act had altered the position not merely between different classes of creditor of the insolvent assured but also as between the assured and its creditors on the one hand and the insurer on the other hand. 

“Whether, to the extent that the answer to issue 5.a. is “No” and/or the answer to issue 5.b. is “Yes”, Beazley is entitled to recover a pro rata share of the ADNEC defence costs from the Excess Insurers under the 2008/2009 Excess Policies pursuant to the Third Parties (Rights Against Insurers) Act 1930 (it being assumed for this purpose that the Excess Insurers consented to the incurring of such defence costs in accordance with clause 4 of the WNM 1989 Professional Indemnity wording as incorporated into the 2008/2009 Excess Policies)”

i)                    Beazley was only liable pursuant to section 1.2 of the 2008/09 Primary Policy to indemnify RMJM in respect of that part of the ADNEC defence costs which was proportionate to that part of the ADNEC Claim which fell within the limit of that policy, and accordingly was not liable to indemnify RMJM in respect of the Pro Rata Share;

ii)                  RMJM was liable to reimburse Beazley in respect of its funding of the Pro Rata Share;

iii)                RMJM was entitled to be indemnified by Excess Insurers pursuant to the 2008/09 Excess Policies in respect of its liability to reimburse Beazley for the Pro Rata Share; and

iv)                RMJM’s above entitlement to be indemnified by Excess Insurers has been transferred to Beazley under the 1930 Act.

i)                    an insured is insured against liabilities to third parties which he may incur;

ii)                  the insured incurs such a liability (“any such liability as aforesaid”);

iii)                the insured becomes insolvent; and

iv)                the insured’s rights against the insurer in respect of the liability are transferred to the third party.

“Whether ASD is entitled to recover an indemnity in respect of post-award interest under the Policies and in particular:

(a) Whether such interest is compensation and/or damages; and/or

(b) Whether any liability which RMJM has for such interest is an insured liability falling within the cover provided by clause 1.1 of the Primary Policies”

“Mr. Sumption suggested that the remedy of the assured, or of third parties in the shoes of an insolvent assured, for delay in receipt of an indemnity after the third parties have established a quantified claim is an award of interest under s.35A of the 1981 Act. No defendant seemed inclined to challenge this, perhaps not surprisingly, for it leaves it open to the Court to award interest which will match any Judgment Act interest to which the third parties are entitled without regard to the limit of cover.” (pp 449-450)

i)                    While an award of interest may be said to amount to “compensation”, it is not a right to compensation which arises out of the exercise of the insured’s Professional Business (as defined). It is a sum awarded to the claimant as compensation for delay in payment of the award, if any. 

ii)                  If the insured does then delay in paying the award, it is that delay which is the proximate cause of the liability, not anything done by the insured in the conduct of its Professional Business. That is self-evidently true if the failure to pay is deliberate, for example, and none the less true if it is the result of impecuniosity or insolvency.  In the latter situation, the insured is no longer conducting any Professional Business at all. 

“Whether, in respect of any sums due to ASD in respect of which post-award interest was not awarded by the arbitral tribunal and/or if the answer to issues 8 and/or 9 is that ASD and/or ADNEC is not entitled to recover an indemnity in respect of post-award interest under the Policies, ASD and/or ADNEC is entitled to interest on sums found due pursuant to section 35A of the Senior Courts Act 1981 at such rate and for such period or periods as the Court may hereafter determine.”

i)                    RMJM did not breach Claims Condition 3.2 of that policy by failing to notify Beazley of relevant matters as soon as practicable.

ii)                  Had I found such a breach to have occurred, I would have concluded that Beazley did not waive it and is not estopped from contending that there had been any such breach.

APPENDIX – THE PRELIMINARY ISSUES

Policy period issues

1.               Whether and to what extent the ASD Claim (or any part of it, and which part(s))
(a) arises out of circumstances notified during the 2008/2009 policy year, and (b) falls within the period of cover provided by the 2008/2009 Primary Policy?

2.               Whether and to what extent the ASD Claim (or any part of it, and which part(s))
(a) arises out of circumstances notified during the 2009/2010 policy year and (b) falls within the period of cover provided by the 2009/2010 Primary Policy?

3.               If and to the extent that the ASD Claim (or any part of it) arises out of circumstances notified during the 2009/2010 policy year, whether RMJM prior to its sequestration agreed with Beazley that the ASD Claim fell within the 2008/2009 Primary Policy and/or whether RMJM was (or ASD now is) estopped by RMJM’s conduct from denying the same.

4.               If and to the extent that the ASD Claim falls within the 2009/2010 Primary Policy:

a.                Whether RMJM breached Claims Condition 3.2 of that policy by failing to notify Beazley of relevant matters as soon as practicable.

b.               Whether Beazley waived any such breach and/or is estopped from contending that there has been any such breach.

Issues concerning ADNEC defence costs (which may or may not arise depending on the answers to issues 1-3)

5.               What is the available limit of cover under the 2008/2009 Primary Policy for the ASD Claim and/or the ADNEC Claim allowing for the amount of £62,500 (equivalent to US$ 107,181.25 using the rate of exchange on the date on which the payment was made) already paid by Beazley under the 2008/2009 Primary Policy in respect of an earlier claim against RMJM), and in particular:

a.                Whether Beazley is entitled to set-off a pro rata share of the costs incurred in defending the ADNEC Claim against its liability under the 2008/2009 Primary Policy to ADNEC in relation to its Claim and (insofar as the pro rata share exceeds the amount available to be set off against ADNEC’s Claim) against its liability under the 2008/2009 Primary Policy to ASD in relation to its Claim; and/or