King & Ors v Brandywine Reinsurance Co (UK) Ltd.

Insurance contracts placed on the London market will generally be governed by English law unless strong contrary indications exist. An unexercised option to sue in, or arbitrate under the law of, a foreign jurisdiction normally contributes little to the choice-of-law analysis.

“Removal of debris” ordinarily does not include oil-pollution clean-up costs where the policy distinguishes debris removal from pollution cover and the commercial background supports that distinction. Express provisions for pollution cover in another section may also prevent overlapping recovery.

A contractual notice provision is not a condition precedent to an effective claim without sufficiently clear wording. A reinsured must nevertheless establish an actual payment made in settlement of an ascertained loss or liability of the primary insured.

The claimants were reinsurers seeking indemnity from retrocessionaires for payments connected with the Exxon Valdez oil spill. The payments arose under settlements of Exxon’s primary insurance policies, comprising property, marine-liability and third-party-liability sections.

The court determined the governing law of the primary policies, the scope of cover for oil-pollution clean-up expenses, the effect of overlapping-cover provisions, whether Exxon Shipping Corporation could establish a recoverable claim, and the operation of the retrocession pollution exclusion.

1. The three sections of the GCE Policy were governed by English law. They had been presented as a single London-market package, used substantial London-market wording, and were predominantly negotiated and placed in London. The service-of-suit and arbitration clauses did not displace that inference. An unexercised option to select foreign law did not normally create more than a minimal implication as to the governing law.

2. Under English law, “removal of debris of property” in Section I did not cover oil-pollution clean-up expenses. The ordinary meaning of debris contemplated broken solid material. The policy separately and repeatedly referred to pollution where pollution cover was intended. Article VIII.2(b) dealt with debris removal relating to cargo and stock but did not enlarge the meaning of “debris”.

3. Even if Section I could cover the clean-up, its notwithstanding clauses excluded recovery because the expenditure was covered under Section IIIA. The marine-liability cover extended to pollution liabilities and to sue-and-labour expenses incurred to avoid or minimise an anticipated liability. The exclusion of overlapping cover therefore applied to expenditure incurred before liability was formally established.

4. Article IX.3 of Section I would not, by itself, have excluded debris-removal costs merely because the debris threatened or affected third-party property.

5. Exxon Shipping Corporation had an insurable interest in the cargo. Its contract of affreightment made it a carrier and bailee with contractual pollution-prevention responsibilities. Nevertheless, its claim could not be included in the retrocession net loss. Any claim was time-barred under the governing English law, and the Section I settlement discharged Exxon’s claims and provided an indemnity against future affiliate claims; it did not settle an asserted or ascertainable claim by Exxon Shipping Corporation.

6. Section IIIB did not cover Exxon’s ocean-carriage pollution expenses. “All transportation activities” was confined, in the context of the policy structure, to transportation associated with drilling, production or exploration. Endorsement No. 2 likewise concerned pollution arising from industrial operations associated with an insured facility, not ocean transit.

7. The retrocession seepage, pollution and contamination exclusion applied to pollution or contamination affecting land, whether the pollution originated on land or offshore. It therefore provided a defence in respect of the land-based clean-up costs.

8. The claimants’ claims failed. The court also stated that, if New York law applied, Section I recovery would still be barred by the notwithstanding clauses, although Section IIIB would probably provide primary-policy cover; the retrocession pollution exclusion would nevertheless defeat recovery.