Colin Edelman QC and Alison Padfield appear for reinsurers in Teal v Berkley in the Supreme Court
Colin Edelman QC and Alison Padfield appeared for the respondent reinsurers in Teal Assurance Company Ltd v W R Berkley Insurance (Europe) Ltd [2013] UKSC 57. The appeal was argued on 17 and 18 June 2013 and judgment was given on 31 July 2013.
The case concerned a professional liability insurance programme for Black and Veatch Corp, an engineering company. The programme comprised a primary layer written by Lexington Insurance Co, three successive excess layers written by Teal, described as the ‘PI tower’, and a top layer, a ‘top and drop’ policy placed with Teal and reinsured with the respondents.
Unlike the PI tower, the top and drop policy excluded North American claims. Teal was an associate or ‘captive’ insurer of the insured engineering company, and Teal wished to be able to re-order its liabilities under the PI tower, according to whether they involved North American claims, in order to maximise its own liabilities as insurer to its associate BV under the top and drop policy, and thereby maximise its recoveries from the respondent reinsurers under the reinsurance.
Lord Mance (with whom Lords Neuberger, Clarke, Sumption and Toulson agreed) rejected Teal’s argument that it was free to re-order its liabilities, and accepted reinsurers’ argument that the ascertainment, by agreement, judgment or award, of the insured’s liability gave rise to a claim under the insurance, which exhausted the insurance either entirely or pro tanto (ie to the extent of the claim), and that this principle was not displaced by the wording of the policies. Similar considerations applied to the incurring of ascertained expenses.
Teal also argued that the case raised an issue in relation to what it called the ‘legal fiction’ that a claim under a liability insurance is for damages for the insurer’s failure to hold the insured harmless, and contended that a more appropriate analysis would be that insurers undertake to pay valid claims on the occurrence of particular events. This would have the potential effect that insurers could be liable in damages for non- or late payment, contrary to the rule presently established by cases such as Ventouris v Mountain (The ‘Italia Express’) (No 2) [1992] 2 Lloyd’s Rep 281 and Sprung v Royal Insurance (UK) Ltd [1999] 1 Lloyd’s Rep IR 111, and would also enter upon an area currently under consideration by the Law Commissions. The Supreme Court declined to consider these issues on the grounds that how an insurer’s liability to indemnify was formulated could make no difference to the outcome of the appeal.
Colin Edelman QC and Alison Padfield were instructed by James Roberts and Chris Dunlop of Clyde Co LLP.
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