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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> GE Reinsurance Corporation & Ors v New Hampshire Insurance Company & Anor [2003] EWHC 302 (Comm) (27 February 2003) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2003/302.html Cite as: [2004] Lloyd's Rep IR 404, [2003] EWHC 302 (Comm) |
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Case No: 2001 Folio 616 Case No: 2001 Folio 625 |
QUEENS BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL | ||
B e f o r e :
____________________
(1) GE REINSURANCE CORPORATION (formerly known as "Kemper Reinsurance Company") (2) GREAT LAKES REINSURANCE (UK) PLC - and - (3) SPHERE DRAKE INSURANCE LTD (formerly known as "Odyssey Re (London) Ltd") -and (4) ROYAL & SUN ALLIANCE INSURANCE PLC | Claimants | |
and | ||
NEW HAMPSHIRE INSURANCE COMPANY - and WILLIS LIMITED (Formerly "Willis Faber & Dumas Limited") | Defendants/Pt 20 Claimants Part 20 Defendants |
____________________
Mr M. Howard QC and Mr S. Salzedo (instructed by Messrs Norton Rose) for the Part 20 Claimants/Defendants
Mr M. Hapgood QC and Miss H. Davies (instructed by Lovells) for the Part 20 Defendants
Hearing dates : 10th 13th February 2003
____________________
Crown Copyright ©
Mr Justice Langley :
The Reinsurance Slip
TYPE: Contingency Reinsurance As Original
FORM: JI NMA 2037 and/or Companies equivalent
REINSURED: AIG Europe (UK) Limited .
ORIGINAL INSURED: The Trustees in respect of: finance provided under Destination Distribution, Production and Acquisition Facility .
PERIOD: To accept Film Declarations made under Facility during the policy period of 5 years from date to be agreed As Original.
INTEREST: To indemnify the Reinsured in respect of their obligations under original policy no MCC 1018.
ORIGINAL INTEREST: Whereas Destination intends to invest in various motion pictures
.
Whereas Destination intends to raise USD 100m for their Distribution, Production and Acquisition Facility via a bond issue or bank financing .
Now this Policy is to indemnify the Insured in respect of any shortfall in revenue necessary to satisfy the obligations due to the bond holders or lenders arising from the failure of recoupment of the approved films described within the "Operating Agreement" between Destination and Insurers.
ORIGINAL SUM INSURED: .
SUM INSURED HEREON: 40% part of 60% part of 100% of Original Limits.
Ceding Company retains 20% (with Reinsurance). (My Emphasis).
As set forth in the original Policy and Operating Agreement.
CONDITIONS:
Full Reinsurance Clause
Simultaneous Settlements Clause
As per Original Policy to be issued.
Claims Co-operation Clause.
Film declarations and Prints and Advertising Expenditure falling outside of the parameters set forth in the "Operating Agreement" between Destination and the Original Insurers to be approved by Reinsurers.
In years two through five overhead will be deducted from revenue.
Contracts of employment in respect of Steve Stabler as Chief Executive Officer and Brent Baum as Chief Operating Officer to be maintained for the duration of the Policy.(My emphasis).
Reinsurers shall be entitled to their pro-rata proportion of the adjustment premium calculated at an amount equal to 5% of the Net Profit as defined in the Operating Agreement .
Destination shall be entitled to roll revenues earned into new projects to be declared hereunder subject otherwise to the approval of insurers.
.
ORIGINAL NET PREMIUM: USD 10,285,000
REINSURANCE PREMIUM HEREON: USD 4,114,000 being 40% part of 60% part of 100% of original net premium.
OVER-RIDER COMMISSION: 5% of original net premium.
BROKERAGE HEREON: Nil
INFORMATION: All information as seen and agreed by Reinsurers hereon, as contained in the Original "Underwriting Information" package dated 5 August 1998.
The Stabler Wording
The Retention Provision
"Being a Reinsurance and warranted that [the reinsured] retains during the currency of this Policy at least the amount stated in the Schedule as the retention but, in the event of the retention being less than that stated in the Schedule [reinsurers] lines to be proportionately reduced."
The Endorsement
The co-insurance Slip.
Fronting
The Insurance Slip.
The Insurance Policy.
Clause VI.4
"Employment Contracts. At the time of execution of this Agreement, Steven Stabler and Brent Baum shall have executed an employment contract.
The term of each employment contract shall not expire prior to the earlier of the final payments on the Notes or five years from the date of the execution of the respective contract."
The Insurance cover note.
The Reinsurance cover notes.
"Queries were raised with regard to the retention of Destination's principals should changes in their personal circumstances occur. As outlined in the Operating Agreement, employment contracts of five years will be required for both Steve Stabler as CEO and Brent Baum as COO".
THE STABLER WORDING
THE RETENTION PROVISION
CONTRIBUTORY NEGLIGENCE
i) In the case of the Stabler Wording, failing to appreciate from its inclusion in the insurance slip (first sent to New Hampshire on 7 August 1998) that the reinsurance was also likely to include it and questioning Willis about this; and
ii) In the case of the Retention Provision failing to question its inclusion in the reinsurance cover note received at a time which, whilst it postdated the inception of the insurance, pre-dated the reinsurance arrangements made by New Hampshire with Genstar.
The Law.
The Background
"In my judgment, once the six film term is established as a term of the insurance or reinsurance contract, the grounds for holding it to be a warranty are very strong. It is a question of construction, and the presence or absence of the word "warranty" or "warranted" is not conclusive. One test is whether it is a term which goes to the root of the transaction; a second, whether it is descriptive of or bears materially on the risk of loss; a third, whether damages would be an unsatisfactory or inadequate remedy. As Lord Justice Bowen said in Barnard v Faber, [1893] 1 QB 340 at p 344: "A term as regards the risk must be a condition." Otherwise the insurer is merely left to a cross-claim in a matter which goes to the risk itself, which is unbusinesslike (ibid.; see also Ellinger & Co vMutual Life Insurance Co of New York, [1905] 1 KB 31 at p. 38). In the present case, the six film term would seem to answer all three tests. It is a fundamental term, for even if only one film were omitted, the revenues are likely to be immediately reduced. That will not matter if the revenues already exceed the sum insured, for in that case there can be no loss in any event. Where, however, the revenues fall below the sum insured, the loss of a single film may be the critical difference between a loss and no loss, and will in any event be likely to increase the loss. For the same reason the term bears materially on the risk. A cross-claim would be an unsatisfactory and inadequate remedy because it would never be possible to know how much the lost film would have contributed to revenues ."
"In the present case [insurers] were Lloyd's agents. The personnel involved were marine underwriters of great experience. They admitted that they should have read carefully the terms of the cover on the three separate occasions when they received it. Those terms included a 48 month clause which did not reflect any provision of the original cover, which was in their experience unprecedented in a reinsurance cover on builders' risks, and which was unclear, albeit on true construction a cut-off clause. In my judgment an insurer who was exercising reasonable skill and care in relation to the business he was conducting would have noticed the 48 month clause and would have queried its presence and effect with the brokers."
Construction.
i) The reinsurance slip is not worded in the way for which New Hampshire and Willis contend. The Operating Agreement is referred to specifically in other contexts.
ii) The Stabler Wording appears as one of a number of "Conditions" which are in general exactly and plainly that: conditions of the reinsurance.
iii) Despite the forensic skill with which it was presented, the submission of New Hampshire and Willis comes close to an argument that because insurance and reinsurance were intended to be back-to-back they must be construed to be so. That would indeed be a charter for brokers they would welcome but is not one which I think finds recognition in the ordinary principles of construction of contracts. In this case it also ignores the fact that the insurance slip and reinsurance cover notes also contained the Stabler Wording. Indeed the reinsurance cover notes were prepared and sent at a time when if New Hampshire and Willis were right the Stabler Wording had ceased to be part of the reinsurance because the Operating Agreement had been finalised and approved.
iv) I accept that the Stabler Wording can fairly be criticised as imposing a condition which might operate uncommercially, albeit I think it would at least be arguable that it would not be broken in the case of Mr Stabler's death or the like. But it could operate sensibly in circumstances in which expenditure on films required advance approval or the funds advanced were to be distributed over time and whilst in the event that was not the case I am far from certain that the parties appreciated it. Nor do I think the wording approaches the degree of absurdity which might enable the court to search for an alternative meaning let alone one which would result in the reinsurance slip making no provision at all for a matter of the importance of Mr Stabler's employment.
Warranty?
Construction.
Warranty?
19% or 20%