Reinsurers often ask why we recommend English law to govern reinsurance contracts.
The short answer, with apologies to the New York bar, is that English law has the richest reinsurance case law and provides a more level playing field for reinsurance disputes than any other system of law.
An even shorter answer might be: read Hamilton Corporate Member Ltd & Ors v Afghan Global Insurance Ltd & Ors[1].
The insured (Anham) owned and operated a warehouse at Bagram Airfield in Afghanistan, used to distribute provisions for the US military. Afghan Global Insurance Limited (AGI) insured the warehouse under a political violence policy.
Hamilton and others reinsured AGI excess of USD1m under primary and excess layer reinsurance contracts both on the AFB Political Violence Wording, covering physical loss or physical damage caused by various political risks such as terrorism, sabotage, riots or coups.
In August 2021, as US forces were withdrawing from Afghanistan, the Taliban took “armed possession of the warehouse” by “force of arms”. It was common ground between the parties that the Taliban’s armed seizure of the warehouse caused the loss.
AGI claimed USD41m under the reinsurance contracts. Reinsurers sought summary judgment for a declaration of non-liability on the strength of the following exclusion:
This Policy DOES NOT INDEMNIFY AGAINST:
…
2. Loss or damage directly or indirectly caused by seizure, confiscation, nationalisation, requisition, expropriation, detention, legal or illegal occupation of any property insured hereunder, embargo, condemnation, nor loss or damage to the Buildings and/or Contents by law, order, decree or regulation of any governing authority, nor for loss or damage arising from acts of contraband or illegal transportation or illegal trade.
Reinsurers argued that the Taliban seizing the warehouse caused the loss, so the exclusion applied. AGI said it did not because the seizure was by the Taliban, which was not a “governing authority”.
At the heart of the court’s decision was its finding that the word “seizure” in the exclusion was not qualified by the words “by … order … of any governing authority”. This was because, on a plain reading, those words only applied to loss or damage to “Buildings and/or Contents”.
You might already have reached the same view yourself.
As Mr Justice Calver emphasised: “Where the parties have used unambiguous language, the court should apply it”.[2]
The judge went on[3] to reject an argument for construing the key policy exclusion by reference to other, separate, market clauses (the Institute War and Strikes Clauses Hulls – Time 1.11.95 and LMA3030).
He emphasised that courts can only reinterpret a clause in accordance with a disputed commercial purpose if the clause is ambiguous[4] and that a strong case – backed by evidence – is needed to show that something has gone wrong with contractual language, especially when the contract is drafted by professional people in the relevant market[5].
He also helpfully confirmed that:
“Whatever may be regarded as a paradigm case of a significant risk is not relevant to construction.”[6]
In other words, it is not permissible to work backwards from a type of peril insured by a particular (re)insurance market in construing a (re)insurance contract’s terms.
Finally, the judge rejected the submission that summary judgment was inappropriate because the AFB Political Violence Wording was a standard wording in the political violence (re)insurance market and so deserved consideration in light of broking and insurance expert evidence.[7]
In short, Calver J resisted all efforts to complicate the picture. His view of the ordinary and natural meaning of the exclusion prevailed.
The FCA v Arch judgments might have given some the impression of fundamental changes to English law on causation but, as time goes on, the reasoning in that case increasingly appears fact specific.
Importantly, a signature feature of English insurance law on concurrent causation is unchanged. As Hamilton v AGI reminds us, English law upholds an express exclusion which applies to a particular cause of loss even if a concurrent cause of loss is covered i.e. the Wayne Tank principle:
“…if [the] loss were in some way caused by an insured peril, in circumstances where the cause of loss was also caused by seizure [expressly excluded] the exclusion will apply.”[8]
In other words – absent contractual terms to the contrary – English law gives exclusions their proper due weight.
The Hamilton v AGI judgment follows the trend for recapitulating the principles of policy construction, referring with approval to the case law retrospective from the Divisional Court in FCA v Arch[9].
Calver J also, however, reminds us that there is broad “parity of arms” between underwriters and brokers and quoted Lord Justice Popplewell LJ in Brian Leighton (Garages) Limited v Allianz[10]:
in a case … which concerns a commercial insured acting by and through a specialist broker, the insured is taken
“to be familiar with the basic principles of insurance law and the meaning which has been put on phrases used in insurance contracts by consistent judicial authority. Many policies of insurance in many fields contain terms of art which have acquired their meaning by consistent use and judicial interpretation, which it is the duty of brokers to understand and, if necessary, advise on.” [11]
In other words, a (re)insured represented by a broker is – like a (re)insurer – taken to be a reasonably sophisticated party.
The judge also made the point, specifically about construing reinsurance policies, that:
…an exclusion in a reinsurance policy … is part of the definition of the scope of cover, not an exemption from liability from cover which would otherwise have existed: Impact Funding Solutions v Barrington Services Limited[12] and Brian Leighton (Garages) Limited v Allianz Insurance plc [13]... There is, therefore, no room in this case for any presumption that the exclusion in clause 4.2 is to be narrowly construed or construed against Reinsurers.
These findings highlight that, under English law, it is not necessarily the case that the contract is construed against the carrier.
A reinsurance case resolved by summary judgment and based on the plain meaning of the contract? Yes indeed, and for reinsurers a compelling advertisement for English law and the English Commercial Court to boot.
If you would like to discuss this topic further, please get in touch.
Andrew Schütte - aschutte@keoghs.co.uk
Yasin Bangee - ybangee@keoghs.co.uk
[1] [2024] EWHC 1426 (Comm)
[2] Paragraph 61, supra.
[3] Paragraphs 53 – 60 and 64, supra.
[4] Paragraph 1, supra.
[5] Paragraph 62, supra, citing with approval FCA v Arch [2020] EWHC 2448 (Comm) at paragraph 65.
[6] Paragraph 51 supra, citing with approval Corbin & King Limited v AXA Insurance UK plc [2022] EWHC 409 (Comm) at [178], [202].
[7] Paragraph 66, supra.
[8] Paragraph 91 supra, citing with approval The B Atlantic [2018] UKSC 26.
[9] [2020] EWHC 2448 (Comm) referring to Rainy Sky SA v Kookmin Bank [2011] UKSC 50, Wood v Capita [2017] UKSC 24 and [2017] AC 1173 and Chartbrook v Persimmon Homes Limited [2009] 1 AC 1101.
[10] [2023] EWCA Civ 8 at paragraph 40.
[11] Hamilton v AGI [2024] EWHC 1426 (Comm), paragraph 22.
[12] [2016] UKSC 67 at [6] – [7] per Lord Hodge.
[13] [2023] EWCA Civ 8 at [26].
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