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Allocation of Losses – Recent Developments in English Law

Allocation of Losses – Recent Developments in English Law. Dr Keren Wu University of East Anglia. Equitas Insurance Ltd v. Municipal Mutual Insurance Ltd [2019] EWCA Civ 718. Summary of facts: Underlying Employers’ Liability Insurance between 1 Jan 1950 and 31 Dec 1981, each on annual basis.

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Allocation of Losses – Recent Developments in English Law

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  1. AllocationofLosses–RecentDevelopmentsinEnglishLaw DrKerenWu UniversityofEastAnglia

  2. EquitasInsuranceLtdv.MunicipalMutualInsuranceLtd[2019]EWCACiv718EquitasInsuranceLtdv.MunicipalMutualInsuranceLtd[2019]EWCACiv718 • Summaryoffacts: • UnderlyingEmployers’LiabilityInsurancebetween1Jan1950and31Dec1981,eachonannualbasis. • MMIreinsureditsliabilitywithLloyd’ssyndicates,withannuallyvariedretentionsandvariouslayers. • Employerinsuredshavefacedalargenumberofmesotheliomaclaims. • Asforinwardclaims,MMIsettledwithoutapportionmenttoparticularyearswith aprecisestartoffinishdateoftheexposureperiod; • Asforoutwardsclaims,MMIinitiallypresentedclaimsonthebasisofatimeonriskallocation,butchangedlatersothatitpresentedthewholeclaimtooneyearofreinsurance.

  3. QuestionsofLaw • (1)IstheELinsurerobligedtopresentanyoutwardsclaimonaprorata,timeonriskbasiseitherbecauseof: • A.thedeemedallocationoflosses(impliedterm)ineachengagedpolicyonthisbasis; • or • B.thedoctrineofgoodfaithrequirestheclaimtobepresentedonthisbasis. • (2)IftheELinsurerisnotsoobliged,thenhowtocalculatethereinsurers’rightsofrecoupmentandcontribution?

  4. Time-on-riskallocation • MunicipalMutualInsuranceLtdv.SeaInsuranceCoLtd[1998]EWCACiv946. • Onesuccessiveinsurancecontractfrom1986to1989. • 3separateannualreinsurancecontractsfromJun1986toJun1989. • LossesoccurredbetweenMar1987andSep1988. • Inwardsclaims:alllossesallocatedtotheunderlyingpolicywithoutdoubtasthecoveragewasconsecutive. • Outwardsclaims:reinsurancecontractonlyrespondstolossesoccurringduringtheperiodofcover. • “Straightline”approachadoptedastospreadtheunderlyinglossesproportionatelyineachperiodofreinsurancecover.

  5. Time-on-riskallocation • WasaInternationalInsuranceCoLtdv.LexingtonInsuranceCo.[2009]UKHL40. • “serviceofsuit”clauseledtotheuncertaintyagainstthegoverninglawoftheinsurancecontracts. • 36-month’sv.50-year’sliability. • Inwardsclaims:50-year’sliability; • Outwardclaims:36-month’sliability. • Oustingofback-to-backprincipleappliestothemostfundamentaltermsofthereinsurance–durationofcoverage.

  6. Time-on-riskallocation • TealAssuranceCompanyLtdv.WRBerkleyInsurance(Europe)Ltd[2013]UKSC57. • “Ground-up”allocation:followingthechronologicalorderthattheclaimswereestablishedandquantified.

  7. ComplexitieswithinFairchildenclave • Fairchildv.GlenhavenFuneralServicesLtd[2002]UKHL22: • Negligentexposuretoasbestosisasufficientcauseifithasmateriallyincreasedtheriskofcontraction; • Anyemployeris100%liable. • Barkerv.CorusUKLtd[2006]UKHL: • Eachemployershouldbeproportionatelyliableaccordingtotherelativedegreeofcontributiontotherisk. • CompensationAct2006,s.3: • Anypersonnegligentlycausingthevictimtobeexposedtoasbestosshallbeliableforthewholeofthedamagecausedtothevictimbythedisease.

  8. Durhamv.BAI(Runoff)Ltd,Employers’LiabilityTriggerLitigation[2012]UKSC14.Durhamv.BAI(Runoff)Ltd,Employers’LiabilityTriggerLitigation[2012]UKSC14. • “Injury sustained”/“disease contracted”: cause-triggered • “weaker” causation rather than a “new tort” causation. • Every exposure giving rise to mesothelioma was a causation, and that it attracted 100% of the liability to the victim. • Dissenting opinion: an insurer should not be bound to pay for liability arising outside the period of insurance.

  9. ZurichInsurancePLCUKBranchv.InternationalEnergyGroupLtd[2015]UKSC33.ZurichInsurancePLCUKBranchv.InternationalEnergyGroupLtd[2015]UKSC33. • 27-year’semployment. • ELpolicies:EIfor2yearsandZurichfor6years. • 19yearsuninsured. • Twoparticularpoints: • GoverninglawwasthelawofGuernsey,sothatCompensationAct2006didnotapply; • Bothinsurersandtheinsuredemployerwereallsolvent.

  10. IssueI:100%liabilitygoingforanyoneofinsurers? • Unanimous:Barkerremainsgoodlaw. • Majority:theemployerinsuredwasallowedtoallocatethelosstoanyoftheinsurersinanyyearofcover(spiking),subjecttotherightsofpursuingcontributionandrecoupment. • Minority:theemployerwasonlyliableforhiscontributiontothechanceofcausingthedisease.

  11. IssueII:therightofcontribution • Legaldisguise:doubleinsurance • Majority:Abroaderviewof“doubleinsurance”shouldbetakenunderthenewFairchildcontexttoadapttomeettheuniqueanomalies.Themeasurementofcontributionincross-yearpolicieshadtobetimeonrisk. • Minority:nolegalbasisfortheextensionoftheconceptofdoubleinsurancetothecross-yearpolicies.

  12. IssueIII:therightofrecoupment • Controversies: • Law of restitution: non-entitlement of restitution where the defendant was contractually entitled to the enrichment. • Subrogation in insurance: the insurer can stand into the assured’s shoes to sue a third-party; • “Self-insurance”: a concept when a person did not insure at all??

  13. AreviewofthelawatinsuranceleveluntilIEG • “Significantanomaliesinthelaw”. • “Intendedasitwastoensurearemedyforvictimsofnegligentexposuretoasbestos.”: • Eitherfromasolventemployer; • Orasolventinsurer; • Orincaseswheretheinsurerisinsolvent,astatutoryorindustrycompensationscheme. • “Onceunorthodoxyhasserveditspurpose,weshouldreverttoorthodoxy.” • “Unnecessarytoperpetuatethematthereinsurancelevel.” • “ReverttotheprinciplesofthecommonlawwherebyliabilityshouldbeapportionedinaccordancewithBarkerbyreferencetocontributiontorisk.” • “Aprincipledsolutionmustbefound,evenifitinvolvesstrikingnewground.”

  14. Equitas’solutioninsummary: • First: • Thedeemedallocation(impliedterm)ofinwardsmesotheliomaclaimsontimeonriskbasiswouldbeadangerinseekingtocounteractwhatiseffectivelyonedeemingprovision(theweakcausallinkinFairchild); • Thedeemedallocationwouldalsocollideheadlongwithotherfundamentalprinciples: • Thenatureofreinsuranceisaformofinsuranceontheoriginalsubjectmatterinsured(Wasa); • Absenceofanyvalidbasisonwhichtodistinguishtheinsuranceandreinsurancecontractsasamatterofconstruction; • Therefore,MMI’sunallocatedsettlementofinwardsclaimswereunproblematicandithadacontractualrighttopresentitsreinsuranceclaimstothepolicyyearofitschoice,BUTit’snotan“absolute”contractualright.

  15. Equitas’solutioninsummary: • Secondly: • Insurer’srighttopresentitsreinsuranceclaimsmustbeexercisedinamannerwhichisnotarbitrary,irrationalorcapricious. • “Rationality”requirestheclaimstobepresentedbyreferencetoeachyear’scontributiontotherisk,whichwillnormallybemeasuredbyreferencetotimeonriskunlessthereisagoodreasonforsomeotherbasisofpresentation. • Spikingisinconsistentwiththepresumedintentionsandreasonableexpectationsofthepartiesatthetimewhenthecontractswereconcluded.

  16. Equitas’solutioninsummary: • Thirdly: • Therightsofcontributionandrecoupmentshouldbecalculatedineachyearfromthegroundup. • “Thecriticalexposurestoagroupofvictimswillhaveoccurredinanumberofyears,ineachofwhichMMIagreedtobeararetention,sothatitisunjustthatonlyasingleretentionapplies.” • “Thehigherlayerreinsurersagreedtoparticipateonlyuntiltheretentionandanylowerlayershadbeenexhausted.” • “Thebroadequitableprincipleswhichwemustapplyaresufficientlyflexibleinthesecircumstancestoenableeffecttobegiventothismethodofcalculation.” • Therefore,thequestionofcalculatingthereinsurer’srightsofcontributionandrecoupmentwouldnotriseunlesstheimplicationof“goodfaith”asraisedinthesecondpointwaswrong,inwhichcasetheabovemethodshouldbeapplied.

  17. Furtherthoughts • Thenatureofreinsurance:whetherafurtherinsuranceorliabilityinsurance? • Thefinancialconditionsofinsurers:whatiftheyareinsolventsothatthevictimisstillnotsufficientlycompensatedattheinsurancelevel? • The“goodfaith”inEnglishlaw:afirmgroundornot? • Newanomalies? • Aprincipledsolution??

  18. Thankyou!

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