Gard Marine & Energy Ltd. v Tunnicliffe & Ors

In an energy facultative reinsurance policy, the notation (100%) qualifying a limit or excess has its established market meaning: the limit or excess scales to reflect the assured’s interest in the relevant assets. Construction requires consideration of the policy’s wording, the underlying insurance and relevant market practice known to the parties. Words stating that the cover concerns losses to the original placement identify the exposure as non-ground-up cover, but do not displace the established meaning of (100%). Alleged misrepresentations must be proved by reliable evidence, assessed against contemporary documents, probabilities and the parties’ motives.

Gard participated in Devon Energy Corporation’s original energy package policy and purchased facultative reinsurance from Lloyd’s Syndicate 780 and others through Agnew Higgins Pickering & Company Ltd. The reinsurance provided cover over the original package policy limits, excess of US$250 million, with the excess qualified by (100%).

After Hurricane Rita, Gard claimed that the excess had to be scaled according to Devon’s interest in the relevant assets. Advent contended that the excess referred to losses attributable to the full market’s insurance participation and that it had discharged its liability. Advent also alleged that the broker had made material misrepresentations during placement. The court therefore had to determine the construction of the reinsurance wording and whether the alleged misrepresentations were proved.

1. Construction. The court applied the ordinary contractual approach of ascertaining the meaning conveyed to a reasonable person with the relevant background knowledge. In reinsurance written on terms following the original policy, the underlying policy and the circumstances surrounding it formed part of the factual matrix. Relevant, established market practice could also be considered where known to both parties.
2. Meaning of “(100%)”. The evidence overwhelmingly established that, in the market for offshore energy insurance and facultative reinsurance, (100%) qualifying a limit or excess meant that it scaled to reflect the assured’s interest in the relevant assets. The wording “losses to the original placement” did not counteract that meaning. At most, it confirmed that the exposure was not ground-up. The US$250 million excess therefore referred to the total insured value of the original lost asset, rather than Devon’s particular interest in it, and scaled accordingly.
3. Avoidance. The alleged representations by the broker were not proved. The pleaded case changed materially during the proceedings, the alleged calculations were not corroborated by the contemporary underwriting records, and the surrounding evidence was more consistent with reconstruction than with reliable recollection. The court rejected the allegation of misrepresentation. It was consequently unnecessary to determine materiality, inducement or Gard’s alternative claim against the broker.
4. The claim succeeded on the construction issue. Advent’s contrary construction and avoidance case failed.

First-instance decision in the High Court (Commercial Court). The claim against Glacier Reinsurance AG had been settled before judgment.