Unum Life Insurance Company Of America v Israel Phoenix Assurance Company Ltd

A leading reinsurer’s authority to bind following reinsurers under a clause providing for wording to be agreed ends when the relevant reinsurance has been validly avoided. This is especially so where litigation has begun concerning the avoidance. The leading reinsurer cannot thereafter retrospectively impose a varied wording or an arbitration agreement affecting the reinsurer whose contract has ended. General principles concerning incorporation and severability do not alter that result.

Unum commenced proceedings against Israel Phoenix concerning the validity of Unum’s avoidance of a reinsurance contract. The reinsurance slip stated that wording was to be agreed by the leading reinsurer, Liberty. After the alleged avoidance and commencement of proceedings, Liberty agreed wording containing an arbitration clause.

Andrew Smith J refused Israel Phoenix’s application under section 9 of the Arbitration Act 1996 to stay the proceedings in favour of arbitration in Tel Aviv. Israel Phoenix renewed its application for permission to appeal. The central issue was whether Liberty retained authority to bind Unum to the later arbitration agreement.

1. Permission refused. The renewed application was dismissed, with no order for costs.
2. The first-instance judge’s reasoning that a leading underwriter clause could not encompass agreement of an arbitration clause was open to serious challenge. Clauses providing for wording to be agreed by a leading reinsurer might operate through agency or through a trigger mechanism binding the following market. The authorities on incorporation of arbitration clauses in original insurance contracts did not materially determine that question.
3. The judge’s second reason was decisive. For the purpose of the application, Unum’s avoidance of the reinsurance on 19 July 2000 had to be treated as valid. Liberty was informed of the avoidance before agreeing wording on 5 December 2000.
4. Whether Liberty’s role was characterised as agency or as a trigger mechanism, its authority to bind Unum ended upon valid avoidance of the reinsurance. The subsequent litigation reinforced that conclusion. Unum was entitled to treat the contractual relationship governing its proportion as at an end and to act for itself in relation to the avoidance.
5. Liberty therefore had no power retrospectively to affect the validity of the avoidance or to impose a dispute-resolution mechanism, including arbitration, upon a contract which had ceased to exist. The Court of Appeal saw no real prospect of success on that issue and no separate compelling reason for an appeal.
6. Lord Justice Keene agreed that, if Liberty acted as agent, its authority to bind Unum to an arbitration clause was terminated by the avoidance. He agreed that the application should be dismissed.

• Court of Appeal (Civil Division): The renewed application for permission to appeal was dismissed. The court upheld the refusal of a stay in favour of arbitration.
• Queen’s Bench Division, Commercial Court: Andrew Smith J refused Israel Phoenix’s application under section 9 of the Arbitration Act 1996 to stay the proceedings.