Municipal Mutual Insurance Ltd v Sea Insurance Company Ltd & Ors

Facultative reinsurance contracts defined by annual periods provide cover only for physical loss or damage occurring during the relevant period. The phrase conditions as underlying cannot override express period or excess provisions.

Where an excess applies to occurrences attributable to one source or original cause, separate acts may be aggregated if they form a continuing series with a sufficient unifying cause. The insured must prove, on the balance of probabilities, both the loss occurring within the relevant period and that its aggregate value exceeded the applicable excess.

The respondent insurer indemnified the Port of Sunderland for loss caused by prolonged theft and vandalism of machinery. It sought recovery from reinsurers under three annual facultative reinsurance contracts containing excesses and incorporating the underlying policy’s aggregation wording.

Waller J held that the loss could be aggregated and awarded the respondent the full claim against reinsurers subscribing to the 1987/88 contract. The reinsurers appealed, challenging aggregation, construction of the annual contracts, allocation of loss between policy years, amendment of the pleading and costs.

The central issues were whether the separate acts could be treated as occurrences attributable to one source or original cause, and how much loss was proved to have occurred during each reinsurance period.

1. Appeal allowed in part. The Court of Appeal, in a judgment delivered by Lord Justice Hobhouse and agreed by Lord Justice Brooke and Sir John Vinelott, held that the individual acts of pilferage and vandalism were capable of aggregation. The Port’s continuing want of care as bailee was a sufficient unifying factor, so the acts constituted a series of occurrences attributable to one source or original cause.
2. The annual reinsurance contracts were distinct and independent time contracts. Their stated periods were fundamental and imposed a temporal limit on cover. The words conditions as underlying could not contradict the express period or limits of the individual contracts. The court rejected the assumption that the inward insurance and outward reinsurance had to operate back-to-back where the contracts and the parties’ arrangements differed.
3. The excess under each contract had to be applied to the aggregate physical loss and damage occurring during that contract’s period. The relevant questions were factual, not legal: whether loss during the period exceeded the excess and, if so, the amount probably occurring during that period.
4. The first-year claim failed because loss before 24 June 1987 was not proved to exceed £500,000. The third-year claim failed because loss between 24 June and 25 September 1988 was not proved to exceed £1,500,000. The court assessed two thirds of the total loss as probably occurring during the 1987/88 period and awarded £1,606,267.68 against the reinsurers subscribing to that contract.
5. The issue concerning the post-judgment amendment therefore did not arise. Costs were dealt with by the order of the court, and leave to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): appeal from the judgment of Waller J in the Queen’s Bench Division, allowing the appeal in part and reducing the recovery to £1,606,267.68.