English Justice: Reinsurance Triggers After Exhaustion Of Underlying Insurance

English Justice: Reinsurance Triggers After Exhaustion Of Underlying Insurance

LONDON — An English justice recently found for a pair of reinsurers and held that a reinsurance contract only covers underlying policies after those policies have been exhausted (Teal Assurance Company Limited v. W R. Berkley Insurance (Europe) Limited, No. 2010 FOLIO 1045, England and Wales High, QBD, Comm.; [2011] EWHC91[Comm]).


Teal Assurance Co. Ltd. is a captive insurer of the Black & Veatch Holding Co. (BV). W R. Berkley Insurance (Europe) Limited and Aspen Insurance UK Ltd. reinsured a policy that Teal issued to BV.


On Oct. 28, 2010, Mr. Justice Simon ordered a trial on a question regarding the construction of the reinsurance contract.


The reinsurance policy covers claims outside America.


The underlying dispute involves claims against BV alleging professional negligence in respect of technical problems that have affected a sewage treatment plant in the United Arab Emirates and a gas processing facility in Trinidad. There are a number of other claims, but because they involve American projects, they are not covered by the agreement.


Teal contended that the agreement "respond[s] to claims arising in any one year outside the USA and Canada if and to the extent (subject to the limit of indemnity and any other applicable policy terms and conditions) that the total value of worldwide claims paid in any one year was to be such as to exhaust the insurance afforded by [covered insurance layers], regardless of the order and timing of the establishment and ascertainment of the original Insured's liability or of the incurring of loss by the original insured."




As an alternative, Teal asked the court if the agreement "respond[s] to claims having regard to the order in which claims are actually paid by [Teal] so that if and when payments made by [Teal] in respect of claims arising in any one year, whether within or outside of the U.S.A. and Canada, exhaust the reinsurance available in the [covered insurance layers], the [agreement] responds to provide an indemnity in respect of payments made by [Teal] in respect of claims arising outside the U.S.A. and Canada (subject to other terms and conditions of the [agreement], for example as to limits of indemnity and exclusions)?"


Upon review of the evidence, Mr. Justice Andrew Smith agreed with W R Berkley and Aspen's contention that the agreement "respond[s] to provide indemnity only upon exhaustion of the limits of liability of the underlying [covered insurance layers] and any original Insured thereafter becoming liable to make any payments in respect of any claims against it or incurring costs and expenses falling within [a certain endorsement] to the Primary Policy, subject to the exclusion of US and Canadian claims and losses and subject to all other applicable policy terms and conditions."


Roger ter Haar, instructed by Davies Arnold Cooper in London, represents Teal. Colin Edelman, instructed by Barlow Lyde & Gilbert in London, represents W R. Berkley and Aspen.