King v Brandywine Reinsurance Company

An insurance policy must be construed as a whole, in its commercial setting, to identify the parties’ objective intention. A property policy covering the removal of debris did not thereby cover the containment and clean-up of oil pollution. Spilled oil was not naturally described as debris, and pollution was treated expressly and separately elsewhere in the insurance package.

General non-marine liability cover for transportation activities did not extend to pollution arising from ocean carriage in a self-propelled tanker. In context, those activities were incidental to drilling, production, exploration, terminal and pipeline operations. Express marine liability cover was provided under a different section.

The appeal concerned excess-of-loss reinsurance claims arising from settlements made by insurers of Exxon Corporation following the Exxon Valdez oil spill. The Global Corporate Excess policy contained separate property, marine liability and non-marine liability sections. The insurers paid US$300 million to settle a claim under the property section and later US$480 million to settle claims under the marine liability sections.

Colman J held that the reinsured claimants could not recover from the respondent reinsurers for the disputed payments. The principal questions were whether pollution clean-up costs fell within property cover for the removal of debris, whether the general liability section covered marine transportation, whether Exxon Shipping Corporation had a recoverable claim, and whether a seepage and pollution exclusion in certain retrocessions applied.

The Court of Appeal also considered whether the policy was governed by English or New York law.

1. Disposition. The appeal was dismissed. Although the Global Corporate Excess policy was governed by New York law, the disputed pollution clean-up costs were not covered by either the property section or the general non-marine liability section. The Court considered that the material questions of construction had the same answer under New York and English law.
2. The New York arbitration and service-of-suit provisions, viewed with the policy as a whole, demonstrated an inferred choice of New York law. In particular, section IIIB required arbitration in New York at either party’s request and contemplated the application of New York law. The London placement and location of the leading insurers did not displace that inference.
3. The words “removal of debris” in section I did not cover the containment, neutralisation or clean-up of spilled oil. Debris was not a natural description of oil or pollution from oil. Clean-up also involved substantially more than removal. The policy and its commercial setting treated pollution as a recognised and separately described risk, while the structure of the three sections placed pollution liabilities within the liability cover. The contrary reasoning in Lexington Insurance Co v Ryder System Inc was insufficiently persuasive in the context of this materially different policy.
4. Section IIIB did not cover liability arising from marine carriage merely because article I referred broadly to “all transportation activities”. Read contextually, those activities were incidental to drilling, production, exploration, terminal and pipeline operations. Section IIIA expressly covered marine liabilities, whereas section IIIB was identified as non-marine cover. The absolute exclusion relating to self-propelled tank or supply vessels reinforced that division.
5. Exxon Shipping Corporation had made no claim under section I and was not a party whose claim had been settled. In any event, neither it nor Exxon had property cover for the clean-up costs under the removal-of-debris language.
6. The retrocession exclusion for seepage, pollution or contamination “on land” was moot. Waller LJ and Sir Martin Nourse indicated that the expression directed attention to the active process and source of contamination, which in this case occurred at sea; Rix LJ expressed doubt. The Court gave no concluded decision on the separate requirement that the risks be insured solely on a sudden or accidental basis.

1. Court of Appeal (Civil Division): The appeal was dismissed. The court upheld the absence of cover for pollution clean-up costs under sections I and IIIB, while differing from Colman J by holding that New York law governed the policy.
2. Commercial Court: Colman J held on 10 May 2004 that the respondent reinsurers were not liable under the excess-of-loss contracts for the disputed settlements. No neutral citation for that judgment is stated.