T&N Ltd & Ors, In the matter of the Insolvency Act 1986

The court granted declaratory relief that Curzon Insurance Limited, by entering into the Settlement Agreement, the Collateral Settlement Agreement (CSA) and the T&N/Curzon Settlement Agreement, would not be in breach of the Reinsurance Agreement or the asbestos liability policy (ALP). The court treated the Part 8 claim as a live dispute and held that it was appropriate to resolve contested legal rights about future acts rather than to refuse an advisory declaration. The judge considered the construction and effect of key contractual provisions, in particular clause 3.2 of the CSA (mutual releases and preservation of reimbursement rights), clause 4.5.1 (Sedgwick’s entitlement to assert rights under the Reinsurance Agreement) and clause 4.7 (access to documents and claims reports), and concluded that:

• clause 3.2, as clarified by a proposed side-letter, does not prevent Curzon from claiming reimbursement of claims handling expenses from T&N;
• clause 4.5.1 does not confer on Sedgwick exclusive claims-handling powers that are vested in the Reinsurers and does not derogate from the Reinsurers’ several rights; rather it gives Sedgwick tag-along or parallel rights to assert those rights to the extent of its several liability;
• clause 4.7 does not in itself breach the Reinsurance Agreement, but the provision of particular documents might in specific circumstances amount to a breach; any requirement by the Reinsurers under article 8.1(f) to withhold disclosure must be reasonable;
• a limited implied term (or duty of good faith) will prevent Curzon from taking steps that would defeat the Reinsurers’ rights, but such implication is no wider than article 8.1(f) allows; and
• the court would not rule on alleged breaches of section 19 of the Financial Services and Markets Act 2000 in the absence of Sedgwick, but saw the arguments against a regulatory breach as stronger.

Background and parties: T&N Limited and numerous subsidiaries have been in administration since October 2001 and are also parties to Chapter 11 proceedings in the United States. T&N had an asbestos liability policy (ALP) with Curzon (a captive insurer) and Curzon reinsured the risk by a Reinsurance Agreement with three reinsurers: Centre Re, Munich Re and EIRC. EIRC issued litigation seeking to avoid its participation in the reinsurance on grounds of alleged non-disclosure and misrepresentation. That litigation was compromised by a package of three inter‑conditional settlement agreements executed in 2004–2005 reducing EIRC’s share and allocating part of the uncovered exposure to Sedgwick.

Nature of the claim/application: Curzon issued a Part 8 claim seeking a declaration that entry into and performance of the settlement agreements would not infringe the rights of Centre Re and Munich Re under the ALP and the Reinsurance Agreement. The administrators of T&N sought similar directions under section 14(3) Insolvency Act 1986.

Issues framed by the court: (i) whether declaratory relief was appropriate; (ii) construction and legal effect of clauses 3.2, 4.5.1 and 4.7 of the CSA; (iii) whether entering into and performing the CSA would amount to a breach of the Reinsurance Agreement (including in relation to claims-handling rights and disclosure of documents); (iv) whether the CSA might amount to an unauthorised contract of insurance under section 19 of the Financial Services and Markets Act 2000; and (v) whether any implied term or duty of utmost good faith prevented Curzon from disclosing documents or otherwise defeating reinsurers’ rights.

Court reasoning and conclusions: The judge held that (a) declaratory relief was appropriate because there was an existing, contested legal dispute about future acts; (b) clause 3.2, construed with a side-letter, does not bar Curzon’s reimbursement claims against T&N; (c) clause 4.5.1 does not permit Sedgwick to exercise claims‑handling rights which were exclusively transferred to the Reinsurers, but does allow Sedgwick to assert rights that flow from the Reinsurers’ exercise of their rights to the extent of its several liability; (d) clause 4.7 confers access rights on Sedgwick but does not, inherently and in every case, breach the Reinsurance Agreement — disclosure might be restrained by a reasonable requirement under article 8.1(f); (e) if there is a gap before a reinsurer has imposed a requirement under article 8.1(f), an implied term or the duty of utmost good faith will prevent Curzon taking steps which materially defeat the Reinsurers’ rights, but such implication is no wider than article 8.1(f) allows; and (f) the court would not determine the section 19 FSMA issue without Sedgwick present, though Sedgwick’s legal advice tending to show no breach had been produced and the judge considered the arguments against a regulatory breach stronger.

Subsidiary findings and procedural posture: the proposed side-letter was treated as providing clarity and as binding on Sedgwick by estoppel or collateral contract; the court declined to make any adverse ruling on regulatory breach in Sedgwick’s absence; and the judge invited the parties to agree a form of declaration.

The Part 8 claim succeeded. The court declared that Curzon’s entry into and performance of the Settlement Agreement, the Collateral Settlement Agreement and the T&N/Curzon Settlement Agreement would not put Curzon in breach of the Reinsurance Agreement. The declaration followed detailed construction of clauses 3.2, 4.5.1 and 4.7 and ancillary findings as to side-letters, the scope of article 8.1(f) and an implied term/duty of good faith limited to preventing acts that would unreasonably defeat the Reinsurers’ rights. The court declined to rule on alleged contraventions of section 19 of the Financial Services and Markets Act 2000 in the absence of Sedgwick.