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

These proceedings are a reinsurance dispute between the claimants as insurers and reinsured and the defendant as successor to the liabilities of the reinsurers. In accordance with the order made by Cockerill J at the case management conference on 28 June 2024, I have heard the Phase 1 trial of several disputed issues, with a further two disputed issues to be determined, if necessary, at a Phase 2 trial. The following summary of the background is taken largely, with gratitude, from the parties’ Agreed Case Memorandum and counsel’s written openings.

The claimants are part of the Royal & Sun Alliance Insurance Group, known prior to a merger with the Sun Alliance Group in 1996 as the Royal Insurance Group. As for the most part it is not important, for present purposes, to distinguish among the claimants, I shall generally refer to them simply as RSA. For the four years from 1 October 1981 to 30 September 1985 RSA provided worldwide general third-party liability insurance to a British multi-national manufacturing company, BOC Group Plc (previously BOC International Plc) (“BOC”), and its subsidiaries and associated or affiliated companies. The insurance was provided under global master policies (“the Royal Master Policies”), under which RSA (the first claimant or the second claimant, depending on the period) and an entity in the Eagle Star Group (referred to together as “The Insurers”) agreed to provide liability insurance to BOC in equal shares up to £20 million, subject to the specified terms, exclusions, conditions and limitations set out in the Royal Master Policies. The Royal Master Policies contemplated “subordinate policies” that would be issued “by or on behalf of The Insurers in different territories”, and the Royal Master Policies would apply only to the extent that an indemnity was not provided under the subordinate policies “by virtue of any limitation of cover”. In respect of the United States of America, the relevant subordinate policies (“the Newark Subordinate Policies”) were issued to BOC’s US subsidiary (Airco, Inc, subsequently known as The BOC Group Inc; here referred to as “BOC US”) by Newark Insurance Company (“Newark”), a subsidiary of the first claimant. The Newark Subordinate Policies, which are governed by New Jersey law, provided liability cover for BOC US’s personal injury liability caused by an occurrence taking place during the policy period anywhere in the world. The level of cover, which was intended to mirror in US currency the cover in UK currency under the Royal Master Policies, was up to $40 million each occurrence and in the aggregate, save in respect of the fourth policy year, when the limit was $30 million. Defence costs were payable in addition to the limits of liability and without the application of any excess. All premiums, risks and liabilities under the Newark Subordinate Policies were ceded to The Insurers under the Royal Master Policies, so that all liabilities under the Newark Subordinate Policies were ultimately borne and indemnified by The Insurers in equal shares. In respect of RSA, this cession took place by an intra-group reinsurance (“the Intra-Group Reinsurance”) made on or prior to 1 October 1981 and continued for the period of the Newark Subordinate Policies, by which the first claimant and/or the second claimant agreed to indemnify and/or reinsure liabilities incurred and/or losses suffered by the insurer under the Newark Subordinate Policies to the extent of RSA’s share.

From the mid-1980s BOC and its subsidiaries became subject to bodily injury claims in the USA in relation to the use of its products. As a result, BOC and its subsidiaries paid substantial damages and incurred extensive defence costs, for which they sought and obtained insurance recoveries. The first level of insurance was provided by Liberty Mutual Insurance Company (“Liberty”) under the “Liberty Mutual Policies”, which provided primary layer cover against bodily injury liability and had an aggregate liability of $2 million, which was revised to $3 million in the years 1983-1984 and 1984-1985 (with defence costs payable in addition). The Liberty Mutual Policies were quickly exhausted by the bodily injury claims against BOC’s subsidiaries, leaving Newark on risk under the Newark Subordinate Policies.

In these proceedings the claimants claim against the defendant under five excess of loss reinsurance policies covering the period from 1 October 1981 to 30 September 1985 (“the Reinsurance Policies”). (There are four policy years but five policies, owing to the structure of cover in the fourth year.) The Reinsurance Policies were underwritten by various Lloyd’s syndicates (“the Lloyd’s Underwriters”) and company market reinsurers (“the Company Market”): together, “the Reinsurers”. The Lloyd’s Underwriters’ liabilities under the Reinsurance Policies were transferred to the defendant by a Part VII transfer effective 30 June 2009. No claim is brought in these proceedings against the Company Market.

The liabilities and losses in respect of which the claimants seek recovery from the defendant are those said to be in excess of the £4 million excess in the Reinsurance Policies. They are as follows:

The total sum claimed, before interest, is £3,760,574.83. Equitas agrees that this figure reflects the best evidence of RSA’s outstanding losses, and to that extent it is agreed. Equitas does not accept that it has any liability for all or any part of those outstanding losses.

The order of 28 June 2024 approved an Agreed List of Issues. The issues have narrowed to some extent, and for the purposes of this trial it is necessary to consider the following four issues (my numbering is not that of the Agreed List of Issues):

In considering these issues, I have been greatly assisted by the extensive, detailed and lucid submissions of counsel: for the claimants, Miss Sushma Ananda and Mr Joseph Rich; for the defendant, Mr David Scorey KC and Miss Sarah Cowey.