LM-2024-000252 - [2025] EWHC 2704 (Comm)

This issue concerns the TTSA alone and arises if (as is the case) Issue 2 is determined adversely to Equitas, so that prima facie Equitas is bound to follow the settlement.

In Scor, Robert Goff LJ said at 330:

“In my judgment, the effect of a clause binding reinsurers to follow settlements of the insurers, is that the reinsurers agree to indemnify insurers in the event that they settle a claim by their assured, i.e., when they dispose, or bind themselves to dispose, of a claim, whether by reason of admission or compromise, provided that the claim so recognized by them falls within the risks covered by the policy of reinsurance as a matter of law, and provided also that in settling the claim the insurers have acted honestly and have taken all proper and businesslike steps in making the settlement.”

(Fox LJ agreed, and Stephenson LJ expressed himself in similar terms at 322.)

If the insurer discharges the burden of showing that the claim it has settled falls within the risks covered by the policy of reinsurance (which is not in issue in these proceedings), the burden then moves to the reinsurer to plead and prove that the insurer failed to take proper and businesslike steps in settling the claim. See Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd [2002] EWCA Civ 248, [2002] CLC 870, at [41].

An allegation of failure to take proper and businesslike steps is tantamount to an allegation of professional negligence: see Insurance Co. of the State of Pennsylvania v v Grand Union Insurance Co [1990] 1 Lloyd’s Rep 208 (Hong Kong Court of Appeal), per Hunter JA at 223; and Tokio Marine Europe Insurance Ltd v Novae Corporate Underwriting Ltd (No. 2) [2014] EWHC 2105 (Comm), [2014] Lloyd’s Rep IR 638, per Field J at [28] and [31], holding also that, if the final settlement figure was a good one, it cannot be said that there was anything improper or unbusinesslike in not taking points that would not have affected the bottom line, because the purpose of Robert Goff LJ’s second proviso “is to protect reinsurers against prejudicial settlements”. Miss Ananda has told me that there is no case in this jurisdiction where a finding has been made of failure to take all proper and businesslike steps; I certainly have not been referred to any such case. (Mr Scorey said that the lack of decided cases was because such disputes all go to arbitration.)

Equitas contends that in entering the TTSA the Newark Insurers failed to take all proper and businesslike steps, because they adopted an unreasonable interpretation of the applicable New Jersey law and failed to obtain information relevant to decisions regarding settlement and consequently agreed to bear an unreasonably high proportion of BOC US’s losses. Equitas’s pleaded case is set out in paragraph 39A.2 of its re-re-amended defence:

“Further or alternatively, it is denied that in settling the claims on the terms set out in the TTSA, the Newark Insurers (as defined in the TTSA) took proper and businesslike steps in making the settlement:

(i)

Before entering into the TTSA, the Newark Insurers took legal advice from Charles W. Miller III. As appears from his reports and witness statement, Mr Miller did not obtain or see copies of the Global Excess Policies yet nevertheless advised that they should be taken into account in relation to the proposed settlement. In particular, Mr Miller failed to verify (i) the policy limits of the Global Excess Policies; and/or (ii) the attachment points for the Global Excess Policies.

(ii)

Further or alternatively, as appears from his reports and witness statement, Mr Miller did not obtain or see any primary policies issued to BOC US after 1 October 1988. In the premises, Mr Miller failed to verify (i) the assertion by BOC US that any such primary policies contained pollution exclusions; and/or (ii) that any such pollution exclusions excluded the Asbestos Claims and/or Welding Product Claims, despite Mr Miller recognising in his report dated 16 August 2000 that this cutoff in respect of the primary policies substantially limited the policy limits used for any allocation.

(iii)

Further or alternatively, as appears from his reports and witness statement, Mr Miller did not obtain or see any excess policies issued to BOC US after 1 October 1985. In the premises, Mr Miller failed to verify (i) the assertion by BOC US that any such excess policies contained pollution exclusions; and/or (ii) that any such pollution exclusions excluded the Asbestos Claims and/or Welding Product Claims, despite Mr Miller recognising in his report dated 16 August 2000 that this cutoff in respect of the primary policies substantially limited the policy limits used for any allocation.

(iv)

Further or alternatively, the TTSA was entered into when the Newark Insurers had filed their brief submitting that the Global Excess Policies should be disregarded for the purposes of allocation, but no opposition briefs had been filed and therefore no reply briefs had been filed either. There was no urgency or need to settle the claims before such opposition briefs had been filed and the merits thereof considered. In the premises, the settlement of the claims pursuant to the TTSA was premature, improvident and did not take into account the full ambit of any arguments as to the extent of the Newark Insurers’ legal liability.

(v)

Further or alternatively, in the absence of case law as to the allocation of losses amongst ‘triggered’ policies, the position asserted by BOC US as to allocation and, specifically, the inclusion of the limits of the Global Excess Policies for the purposes of allocation, was not reasonable or principled and resulted in an inequitable and disproportionate allocation of losses to the years in which the Global Excess Policies were included. The Newark Insurers and/or Mr Miller failed to recognise that BOC US’s position as to allocation was unlikely to be correct and accordingly advised that the claims were settled at an unreasonably high level which did not reflect the Newark Insurers’ actual legal liability to BOC US.”

On this issue, factual evidence was given by Mr Charles W. Miller III, a New Jersey lawyer, who advised RSA as coverage counsel in respect of the BOC claims before the TTSA was entered into. Expert evidence on New Jersey law was given via video-link by two highly experienced New Jersey lawyers: for RSA, Mr Kevin T. Coughlin; for Equitas, Mr Joseph J. Schiavone.

Before considering the specific allegations, I should set out more detail regarding the background to the TTSA.

The TTSA was made between BOC entities and its insurers, including the Newark Insurers, and related to claims against BOC entities for bodily injury alleged to have been caused by exposure to asbestos-containing and/or welding-related products. The claims were allocated to the period from 1917 to 1988. The years for which the Newark Insurers were on cover were the years commencing 1 October 1981, 1 October 1982, 1 October 1983 and 1 October 1984. BOC’s insurance cover for those years was layered, so that any insurer incurred liability only when the liability of any insurer below it had been exhausted. The bottom layer was under the Liberty Mutual Policies, which provided primary indemnity cover against bodily injury liability up to $2 million in the first two years and $3 million in the third and fourth years; defence costs were payable in addition to the limits of liability and without the application of any excess. The next layer of cover was under the Newark Subordinate Policies, which provided indemnity cover of $ 40 million in each of the first three years and $30 million in the fourth year. Above this layer cover was provided under certain Global Excess Policies, which were purchased by BOC for the period 1981 to 1985; I shall say more about these later. Both the Liberty Mutual Policies and the Newark Subordinate Policies were subject to New Jersey law.

BOC US first provided RSA/Newark with notice of bodily injury claims arising out of exposure to BOC US’s products in February 1984. It was not long before the claims had exhausted the Liberty Mutual Policies: by January 1987 only the policy for 1984/1985 had not been exhausted, and that policy had been exhausted before March 1989. This left Newark on risk under the Newark Subordinate Policies.

In 1988 BOC US commenced proceedings in the Superior Court of New Jersey against its primary and excess insurers for the period 1948 to 1986. Newark was one of the defendants. (The second claimant and Eagle Star, as the Insurers under the Royal Master Policies, were also originally named as defendants, but the action against them was dismissed for lack of personal jurisdiction.) In the action, BOC sought declaratory judgments as to coverage for certain environmental damage claims and certain bodily injury claims. The bodily injury claims in question related to allegations of long-term exposure to fumes said to have been produced by BOC’s welding products and to asbestos said to have been released by other BOC products: these have been referred to as “toxic tort claims”, and there were thousands of them. (The great majority of the bodily injury claims concerned alleged exposures to welding fumes; those relating to asbestos were far fewer.) The particular difficulty raised by those claims was the determination of the time of loss for the purposes of identifying insurance cover, as the alleged exposures were over an extended time and the manifestation of injury was typically many years later than exposure.

In April 1993 BOC US filed a motion for partial summary judgment, seeking among other things declarations that the “continuous trigger” theory of liability applied, and that accordingly the bodily injury claims against BOC US triggered the defence obligations of all the policies in force from first exposure through manifestation. In a ruling delivered on 23 January 1996 Judge Weiss handed down his ruling on the motion and granted those declarations. He referred to the decision of the Supreme Court of New Jersey in Owens-Illinois, Inc v United Ins. Co. 138 N.J. 437, 650 A.2d 974, given on 22 December 1994 (“Owens-Illinois”), and said:

“The ‘overwhelming weight of authority’ elsewhere acknowledges the progressive nature of asbestos-induced disease, and affirms that ‘bodily injury’ occurs when asbestos is inhaled and retained in the lungs.’ … [W]e are satisfied, like most American jurisdictions, that medical science confirms that some injury to body tissue occurs on the inhalation of asbestos fibers, and that once lodged, the fibers pose an increased likelihood of causing or contributing to disease. …

The Court went on to say that although asbestos diseases are progressive in nature, the question remains as to when the CGL [commercial general liability] policies should be ‘triggered.’ In considering this issue, the Justices recognized that any determination on this point is ‘necessarily imperfect’ due to the lack of scientific certainty as to when the body is irrevocably altered. … However, the Court concluded:

‘[8] To recapitulate, we hold that when progressive indivisible injury or damage results from exposure to injurious conditions for which civil liability may be imposed, courts may reasonably treat the progressive injury or damage as an occurrence within each of the years of a CGL policy. That is the continuous-trigger theory for activating the insurers’ obligation to respond under the policies.’

In the present case, it is clear that the ‘continuous trigger’ theory should apply, as mandated by the New Jersey Supreme Court.”

For present purposes, the most important part of Judge Weiss’s ruling concerned the allocation of liability among the triggered policies, and for that reason I shall set it out at some length. The problem of allocation is acute, because the continuous trigger theory means that, where exposure may precede manifestation of injury by many years, liability may potentially be triggered under a large number of policies. Judge Weiss said:

“After adopting the ‘continuous trigger’ theory, the Owens-Illinois Court went on to mandate that losses must be allocated among the various triggered policies with respect to ‘the degree of risk transferred or retained in each of the years of repeated exposure to injurious conditions.’ … Justice O’Hern expounded:

‘[10] Because multiple policies of insurance are triggered under the continuous-trigger theory, it becomes necessary to determine the extent to which each triggered policy shall provide indemnity. … (Footnote: ¹) A fair method of allocation appears to be one that is related to both the time on the risk and the degree of risk assumed. When periods of no insurance reflect a decision by an actor to assume or retain a risk, as opposed to periods when coverage for a risk is not available, to expect the risk-bearer to share in the allocation is reasonable. Estimating the degree of risk assumed is difficult but not impossible. … Courts must take an active role in the management and resolution of such coverage controversies. A trial court may repose a large measure of discretion in a special master to aid the court in developing a formula for allocation of the costs of defense and indemnity. …’

Justice O’Hern further recognized that such an endeavor involves many complex issues. The Court further admitted:

‘We realize that many complexities encumber the solution that we suggest involving, as it does, proration by the time and degree of risk assumed – for example, determining how primary and excess coverage is to be taken into account or the order in which policies are triggered. … Still, we do not believe that the issues are unmanageable. Constructing the model for analysis of the self-insurance portion of the risk assumed by O-I is difficult but not impossible. We recognize the difficulties of apportioning costs with any scientific certainty. However, the legal system “frequently resolves issues involving considerable uncertainty.” …

This case is undoubtedly more difficult to manage than most because of the great number of claims involved. On the other hand, the record is reasonably well-developed on the measure of risk assumed or transferred, at least since 1963. To extrapolate back from 1963 to establish a rough measure of the risk assumed or retained in the years from 1948 to 1963 should not be difficult. A rough measure is all that we can achieve in the imperfect resolution of these issues. Moreover, we do not have a sense of the extent to which exposures date back to 1948 or to other periods before 1963. …’

To assist in dealing with these admittedly complex issues, the New Jersey Supreme Court provided:

‘… the court shall appoint a master, one skilled in the economics of insurance, to create a model for allocating the claims. Above all, the master should develop a workable system for efficient assignment and administration of the claims. … Those losses for indemnity and defense costs should be allocated promptly among the companies in accordance with the mathematical model developed, subject to policy limits and exclusions. … Exact dates of exposure may not now be available. Available data should enable the master to grasp the generality of the underlying claims and exposures involved. …’

In light of the mandate of the Supreme Court, a special master should be appointed to allocate the claims according to the principles outlined above.”

Judge Weiss went on to hold, in accordance with the principle of “horizontal exhaustion”, that all available primary coverage must be exhausted before BOC could seek to recover from excess policies and that “the distinction between primary and excess coverage must be factored into the time/risk allocation mandated by Owens-Illinois.”

Settlement discussions between BOC and the various insurers, and by the insurers among themselves, began in about 1997 and proceeded slowly thereafter, the court granting extensions from time to time to facilitate negotiations. For the Newark Insurers, decisions were made by RSA’s London office. Legal advice was received from Mr David Reston, a partner in Herbert Smith, and in respect of New Jersey law from Mr Miller.

On 8 July 1998 the New Jersey Supreme Court gave judgment in Carter-Wallace, Inc. v. Admiral Insurance Company et al. 712 A.2d 1116. The Court affirmed the approach it had espoused in Owens-Illinois and confirmed that the methodology of allocation according to “the degree of risk transferred or retained” intentionally assigned a greater part of the losses to years in which greater amounts of insurance were purchased. Importantly, however, the Court rejected the requirement, according to the horizontal principle adopted by Judge Weiss, that all available primary coverage be exhausted before an excess policy could be triggered; instead, it held that the court should first quantify the loss to be allocated to each policy year, and should then allocate the loss to the policies within that year, piercing excess policies in the normal way (“vertical exhaustion”). It followed that some policies might have no losses allocated to them, even though the limits in those policies had been taken into account in allocating losses to that particular policy year. Accordingly, referring to the application of the principle to the facts of that case:

“we perceive that this solution is consistent with the contract language, as Commercial Union’s second-level excess policy will not be pierced unless and until the primary and first-level excess policies in effect for a given year have been expended.”

The judgment in Carter-Wallace caused BOC to contend that the Global Excess Policies should be included in the allocation as available coverage, because they evidenced “the degree of risk transferred” in the years 1981 to 1985 as required by Owens-Illinois. The limits of the Global Excess Policies were substantial: in 1981-2, $394,000,000; in 1982-3, $412,100,000; in 1983-4, $395,250,000; in 1984-5, $269,000,000. These limits greatly exceeded the total limits in the other years between 1979 and 1990. This fact and its significance were adverted to by Mr Miller in his report dated 16 August 2000:

“BOC USA and most of the other carriers in this litigation have taken the position that, for purposes of allocation of the Bodily Injury Claims, costs should be allocated utilizing the policy limits not only of all primary and excess policies issued to BOC USA which are at issue in this litigation, but also the policy limits of all of the Global Policies issued to BOC plc, its parent. [Footnote: It should be noted that the policy limits of the coverage available to BOC USA for the years 1981 to 1985 when the Global Policies are not included are at levels similar to those levels of the policy limits purchased in earlier years. More specifically, BOC USA had total policy limits of $52 million for 1978 to 1979, $52 million for 1979 to 1980, and $52 million for 1980 to 1981.]

However, inclusion of the Global Policies in any allocation calculation substantially increases the allocation to the 1981 to 1985 years of coverage, since the Global Policies were, apparently, first purchased by BOC USA in 1981. More specifically, by inclusion of the limits of all of the Global Policies, in addition to the policy limits of the coverage issued to BOC USA itself (which are at issue in the litigation), the total policy Limits in effect for 1981 to 1985 increase as follows: [there followed a table showing the limits of the Global Excess Policies].

…

Thus, inclusion of the Global Policies coverage for BOC plc increases the policy limits for the 1981 to 1985 time frame from $220 million to more than $1.47 billion - nearly seven times as great.

Given, that BOC USA’s total policy limits per year prior to 1981 never exceeded $52 million per year, inclusion of the policy limits of the Global Policies has a tremendous impact on the percentage of allocation to the years 1981 through 1985. Without the Global Policies, the total coverage limits which BOC USA alleges to be available to provide coverage for the Bodily Injury Claims from 1917 through 1988 total $952.79 million. The coverage provided to BOC USA during the years 1981 to 1985, which totals $200 million, constitutes a proximately 23% of the total insurance coverage of BOC USA, which BOC USA claims provides coverage for the Bodily Injiny Claims ($220 million out of $952.79 million total).

However, when the coverage limits of all of the Global Policies are included in the total coverage limits available to BOC USA for the Bodily Injury Claims, the total coverage limits that BOC USA alleges should be used for allocation calculations increases to $2,054,102,500 because of the inclusion of the limits of all of the various Global Policies whose policy limits allegedly exceed $1 billion. By inclusion of the Global Policies for 1981 to 1985, the percentage of coverage limits provided during the years 1981 to 1985 increases dramatically. When the policy limits of all of the Global Policies are included in allocation calculations, the policy limits for coverage from 1981 through 1985 constitutes nearly 72% of all policy limits ($1,470,350,000 out of $2,054,102,500). Thus, the mere inclusion of the Global Policies in allocation calculations, using BOC USA’s own calculations, increases the percentage of the overall policy limits provided during the years 1981 to 1985 (and, accordingly, the allocation to those years of coverage), from approximately 23% to nearly 72%, more than a threefold increase in allocation.”

Thus the inclusion of the limits of the Global Excess Policies in the allocation exercise would place 72% of BOC’s total coverage limits in the four-year period covered by the Reinsurance Policies, leaving 28% of the liability to be allocated to the years 1917 to 1981 and 1985 to 1988. (In the event, the TTSA adopted an allocation of 47% to the 1981-1985 policy years.) Accordingly, not just BOC but also most of the other Insurers were pressing for the inclusion of the Global Excess Policies’ limits, which would significantly increase the allocation to the years of the Newark policies and correspondingly reduce the allocation to the years in which the other Insurers had been on risk.

In a letter dated 23 February 1999 to Mr Reston, Mr Miller gave his opinion on the issue. This letter and the letter mentioned in paragraph 58 below are protected by legal professional privilege belonging both to the claimants and to Eagle Star, and they were referred to at the trial subject to and in accordance with the terms of the order made, by consent, by His Honour Judge Pelling KC on 14 May 2025. For that reason, I shall not set out the terms of either letter. It suffices to say here that Mr Miller mentioned the argument that BOC’s approach to allocation would yield an inequitable result but that his assessment of that argument was consistent with the assessment later communicated by RSA to the Reinsurers (see paragraph 56 below). It is also relevant to note that Mr Miller confirmed that he had asked counsel for BOC to provide him with a listing of the policies that BOC had included in its allocation proposal as total coverage limits for the years 1981 to 1985, as well as copies of those policies, in order that the accuracy of the policy limits being used by BOC could be verified.

Because the question of the inclusion of the limits in the Global Excess Policies in the allocation calculation was a major issue in the ongoing negotiations, Judge Weiss directed the parties to file briefs setting out their positions on the issue. On 22 September 1999 Newark filed its brief in support of the exclusion of the Global Excess Policies’ limits from the allocation calculations. The key argument, among others that were put forward, was that the inclusion of the Global Excess Policies’ limits would result in an inequitable allocation to the years in which Newark was on risk, namely 1981 to 1985. In October 1999 Judge Weiss gave further directions for the filing of opposition briefs by 22 November 1999 and oral argument to follow shortly thereafter. In the event, opposition briefs and reply briefs were never filed, because all the interested insurers, including Liberty Mutual, Northbrook and London Markets as well as Newark, agreed to seek settlement of the allocation issue before it was decided by the court.

On 20 December 1999 Mr John Davey, RSA’s Technical Claims Manager, with overall charge of RSA’s handling of the bodily injury claims, reported to the Reinsurers and summarised the position as it then stood:

“Reinsurers will recall that both BOC and Newark have, on the basis of the possible inclusion or otherwise of the global excess policies, prepared various allocation calculations. Reinsurers will have seen a copy of the Newark’s Illustrative Alternative Allocation Calculation, sent to you under cover of my letter of 26 May 1999 (a further copy was supplied to you under cover of my fax dated 23 August). That calculation, which was based on the premise of the global excess policies not being included in an allocation, had the Newark’s share of the losses at approximately 25%. Should the global excess policies be included in an allocation, the Newark’s UK lawyers’ view is that the proportion of the losses the New Jersey Court will find applicable to the Newark is likely to be as high as 72%.

My fax to you of 23 August also included a copy of the Carter-Wallace Appeal decision. At the meeting at your London offices on 25 August you will recall that Mr Miller advised those present that it would be an uphill struggle to convince the Court in New Jersey that the inclusion of the global excess policies in an allocation would be inequitable. In the context of the Liberty Mutual proposal, Mr Miller has advised that even if the Newark were able to convince an allocation master (the judicial officer deciding the allocation issue in New Jersey) that a 72% share of the losses would be an inequitable allocation, it is very unlikely that the allocation master would reduce the Newark’s allocation to 45%. In short, the settlement proposal advanced by Liberty Mutual would see the Newark contributing less to the bodily injury costs than the Newark are advised is the likely outcome of a determination by the New Jersey Court.

…

At a subsequent meeting of insurers’ lawyers, those representing Liberty Mutual advised they had revisited their calculations which has resulted in the Newark contribution increasing from 45% to 55%. This figure of course remains well below the 72% we are advised is likely to be attributed to Newark by the Allocation Master. A further settlement meeting of the insurers’ lawyers is being arranged and is likely to be held during the first week of January 2000. We are told that the ‘window of opportunity’ for the settlement negotiations is likely to close at that time as the brief to the Court opposing the Newark’s brief on the allocation issue is to be filed by 17 January (and that date had already been put back to accommodate the settlement negotiations). The judge in charge of this case is now apparently keen to push the litigation forward and a decision on the allocation issue could be made relatively quickly.

You will appreciate that together with our co-insurers Eagle Star/Zurich we must give very serious consideration to the Liberty Mutual’s settlement approach in view of the advice received from the Newark’s lawyers. Our combined view is that faced with this advice there is no option but to seek to settle the allocation issue along the lines put forward by Liberty Mutual. Such a settlement would, of course, also be of benefit to our reinsurers on the basis that, as we contend is the case, these sums are payable under the reinsurance policies. Whether a settlement at a 55% contribution by the Newark is achievable remains to be seen. …”

On 4 January 2000 the response of the Reinsurers’ leader, Equitas Limited, was sent to Mr Davey:

“Welcome update & on balance of info. contained herein would agree that it would appear sensible for RSA/ESZ to consider settlement approach at 55% iro Newark. Notwithstanding R/I’s maintain stance that we reserve our rights with regard to coverage etc. …”

Further negotiations resulted in Newark offering a contribution of 45%, subsequently increased to 47%. In a letter to Mr Reston dated 21 June 2000, Mr Miller explained the state of the negotiations (which at that stage were solely among the several insurers, who were seeking an agreed position to propose to BOC) and his approach to them. I have regard to the detailed contents of the letter but, for reasons explained above, shall not set them out here. Suffice it to say that Mr Miller considered the offered contribution of 45% to be very reasonable and to represent advantageous terms of settlement. He also commented on the period for the allocation, extending back to 1917, and commented on what he regarded as the improbability of either the Judge or the Allocation Master conducting the allocation by reference to each of the many individual claimants.

The TTSA was eventually signed between 28 March 2001 and 24 April 2001. The parties were BOC, BOC US, Liberty Mutual, Newark, the second claimant, Midland Assurance Limited and Eagle Star Insurance Company Limited (both Eagle Star entities), Affiliated FM Insurance Company, and Appalachian Insurance Company. The TTSA allocated 47% of past and future costs to Newark under the Newark Subordinate Policies. That allocation was split among the four policy years to which those policies related: 12.5% to 1981-2, 12.5% to 1982-3, 12.5% to 1983-4, and 9.5% to 1984-5.

On 26 November 2001 BOC’s action in New Jersey against Newark and the other insurers was dismissed by consent, in accordance with the TTSA.

In the light of that background, I turn to address the pleaded allegations that the Newark Insurers, by their agents, failed to take proper and businesslike steps in making the TTSA. At this stage, however, it is relevant to note that the matter of settlement was considered in detail by Mr Miller in conjunction with Mr Reston and was referred both to Eagle Star and to the Reinsurers, both of whom were content with the approach being taken. As for the particular matters raised by Equitas, for convenience of exposition I shall take the final pleaded allegation first, as it concerns the overarching approach to allocation and took up most time at trial.