Enterprise Oil Ltd v Strand Insurance Company Ltd

A liability policy ordinarily indemnifies only liability actually incurred to a third party, not merely arguable liability, unless its wording clearly provides otherwise. A settlement does not itself establish the insured’s liability or the reasonableness of the settlement. The insured must prove those matters by reference to the applicable law and facts.

Where the underlying claim was not determined by a foreign court, an English court must decide what that court should have concluded according to the applicable foreign law and procedure. It should not speculate about an irrational or legally erroneous jury verdict.

A settlement need not identify within the agreement the precise amount attributable to an insured peril. Extrinsic evidence may establish the insured loss. Defence costs are recoverable only where the policy wording provides cover and any contractual trigger is satisfied.

Enterprise Oil claimed an indemnity from its captive insurer, Strand Insurance Company Ltd, for its share of a settlement of proceedings brought in Texas by Rowan and associated companies. Rowan had alleged, among other matters, that Enterprise had tortiously interfered with a service agreement between Rowan and its subsidiary, BAO.

The policy covered sums payable because of liability imposed by law or assumed under contract or agreement, on account of defined personal injuries including infringement of contract rights. Enterprise also claimed its defence costs. The central issues were whether the policy covered settlement of an arguable liability, whether Enterprise would have been liable under Texas law, whether the settlement was reasonable, whether a global settlement prevented recovery, and whether defence costs were covered.

1. Actual liability required. On the proper construction of section IV(a), clause 1(a), the policy covered actual liability to a third party. The words relating to liability assumed under contract or agreement did not convert an arguable liability into an actual liability merely because it was compromised by a settlement. Enterprise therefore had to establish that it would have been actually liable to Rowan for tortious interference and for an amount at least equal to the relevant settlement sum.
2. Method of determining foreign liability. Applying the approach in Commercial Union Assurance Co plc v NRG Victory Reinsurance Ltd [1998] 2 Lloyd’s Rep 600, the court had to decide what the Texas court should have concluded under Texas law and procedure. It had to act as both judge and jury. Predictions about what a jury might have decided for extraneous or legally improper reasons were irrelevant.
3. No actionable interference. Under section 766 of the Restatement (Second) of Torts, the relevant question was whether Enterprise prevented BAO from performing a contractual obligation, not merely whether Rowan received fewer expected benefits. BAO’s obligation was to remit hire actually received under its drilling contracts. Enterprise’s conduct did not prevent performance of that obligation. The alternative argument under section 766A was also rejected.
4. Alternative findings. Enterprise had not acted wilfully and intentionally because it did not know of the service agreement and did not believe interference was substantially certain to result. The proposed unity-of-interest defence was not established as a matter of Texas law; if necessary, it would have failed. The stock buy-back losses were unforeseeable and were not proximately caused. The relocation and lost-profit claims likewise lacked the necessary causal connection.
5. Policy construction and settlement ascertainment. The court’s conclusion on the settlement’s reasonableness did not arise because there was no insured liability. However, the court stated that a global settlement would not by itself defeat recovery merely because it did not allocate sums to particular insured liabilities. Extrinsic evidence could establish the insured loss. The court expressly declined to follow Lumbermen’s Mutual Casualty Co v Bovis Lend Lease Ltd [2005] 1 Lloyd’s Rep 494 on that point.
6. Defence costs. Clause 6 required a positive requirement by the insurer that the claim be contested. Mere non-association with the defence did not satisfy that requirement. The words “plus legal expenses” did not independently cover Enterprise’s own defence costs.
7. Disposition. The action was dismissed.