The High Court has ruled that various settlements made by Exxon’s general corporate excess insurers in 1996 and 1997 are not recoverable from London Market excess of loss reinsurers.
Mr Justice Coleman accepted the grounds upon which defendant reinsurer Brandywine (formerly Cigna Re) had contested the claims of DG King Syndicate 745 and other syndicates through Equitas.
The ruling was made under both English and New York law, said law firm Holman Fenwick & Willan (HFW).
Since a 1998 Court of Appeal ruling that excess of loss reinsurers had arguable defences to many reinsurance claims arising from the Exxon Valdez oil spill, million dollar claims have been caught in the Lloyd’s LMX spiral.
The Exxon General Corporate Excess insurance policy was in three parts: Section 1 in respect of Loss of or Damage to Property; Section 3A in respect of Marine Liabilities; and Section 3B in respect of Public and Third Party Liability.
The judge handed down several rulings concerning the case, including:
1. The GCE policy was ruled by English and not New York law;
2. Oil pollution clean-up expenses were not recoverable from Exxon under Section 1, which covered property loss and “removal of debris”, because oil sludge was not “debris.
3. Even if Section 1 did prima facie cover Exxon’s oil clean-up expenses, there was definitely cover for such expenses under Section 3, the Liability section of the policy, and so certain GCE clauses which prevented overlap of cover between Sections (the so-called “notwithstanding clauses”) defeated the Section 1 cover.
4. There was no cover in respect of Exxon’s clean-up expenses under Section 3B, the Public and Third Party Liability section, because of restrictions in that section.
5. If New York law had been applicable (which it was not), then there would have been clean-up cover under Section 3B, and whilst in New York Section 1 cover for “removal of debris” would have extended to oil spill clean-up expense, nevertheless there would still have been no cover under Section 1 because of the “notwithstanding” clauses.
As far as the reinsurance polices between the syndicates and Brandywine were concerned:
1. There could be no claim against reinsurers in respect of Exxon Shipping’s clean-up expenditure because (i) Exxon Shipping had made no claim against insurers under Section 1 of the GCE policy, (ii) the 1996 settlement agreement did not effect any settlement of any claims made by Exxon Shipping, and (iii) any claim which Exxon Shipping might have made at the time of the 1996 settlement was time-barred (under English law) by then.
2. Regardless of whether New York or English law governed the GCE policy, and even if, contrary to the judgment, GCE insurers had been liable to Exxon under sections 1 and 3B, nevertheless the Seepage and Pollution exclusion in most of the reinsurance contracts (which was taken from the JELC 1988 wording) barred recovery from reinsurers in respect of all pollution affecting land which originated from an offshore source. (Since 98% of Exxon’s expenditure related to onshore clean-up of the shoreline, rather than offshore pollution clean-up, this ruling eliminates the majority of these losses from reinsurance coverage.)
HFW said: “Mr. Justice Colman validated reinsurer’s defences, and removed the uncertainty from the reinsurance market, in a judgment which makes clear that the contested claims are unrecoverable.
“These potentially recoverable claims may be too small to make any further impact on the excess of loss spiral in any event.
“Furthermore, there is a probability that many Exxon reinsurance claims which were settled before the 1998 freeze, can now be recovered from those reassureds to who they were paid.
The syndicates were granted leave to appeal against the ruling.
