Faraday Reinsurance Co Ltd v Howden North America Inc & Anor

The court considered an application by the defendant to set aside an order permitting service out of the jurisdiction in proceedings concerning the proper law and contractual effect of three excess insurance policies formerly underwritten by General Star International Indemnity Ltd (GSIIL) and subsequently transferred to Faraday Reinsurance. The judgment applied the established threefold test for service out (jurisdictional gateway, merits/real prospect of success, and forum conveniens) under CPR 6.36, CPR 6.37 and Practice Direction 6B.

The judge held that Faraday had a good arguable case that the first (1998–99) policy contained an implied choice of English law and/or was otherwise closely connected with England because the risk was placed in the London market, used London brokers and market conventions, and the underwriter acted in London. That meant the jurisdictional gateway was satisfied for the first policy and England was an appropriate forum for determining the proper law and related construction issues (for example, the meaning of "injury" and whether there is a "single occurrence").

By contrast, in relation to the second and third policies the defendant had made a clear position in correspondence that it was not and would not seek coverage under those two policies for the United States asbestos personal injury litigation; consequently proceedings in respect of those two policies lacked the necessary utility and the order permitting service out should be set aside as to them. The court therefore refused to set aside service out in respect of the first policy but concluded that David Steel J's order should be set aside in respect of the second and third policies.

Background and parties. Faraday Reinsurance Co Ltd (claimant), as successor to GSIIL, sued Howden North America Inc (defendant) for declarations about the proper law and contractual effect of three excess public and products liability policies issued to "Howden Group Ltd and/or subsidiary companies" for the periods 1998–99, 1999–2000 and 2000–01. The defendants applied to set aside an earlier order of David Steel J permitting service out of the jurisdiction.

Procedural posture and relief sought. Faraday sought declarations that the policies are governed by English law and jurisdiction and that Faraday's liability is limited by the stated policy periods and by the policies' section 1 and section 2 wording concerning injury and claims-made triggers. Permission to serve out was granted on 9 March 2011 and the defendants were served on 1 June 2011. The defendants applied to set aside that service out order.

Issues framed by the court.

• Whether the claimant satisfied a jurisdictional gateway for service out under Practice Direction 6B (in particular PD6B 3.1(6), claims in relation to contracts).
• Whether the claimant had a reasonable/real prospect of success on the merits (the merits requirement).
• Whether England was the appropriate forum for the determination of the issues (forum conveniens).
• Whether, in relation to declaratory/negative relief, the proceedings served a useful purpose or were hypothetical or premature.

Material facts. The policies were composite excess policies placed in the London market by London brokers; the second and third policies contained express insurance disputes clauses selecting UK/English law and English jurisdiction. The first policy did not contain an express choice-of-law clause. HNA's asbestos coverage litigation in Pennsylvania has been long-running (proceedings since 2003), involving many insurers and a range of policies. HNA had notified occurrences to higher-level excess carriers in August 2010 but later, in correspondence of 18 July 2011, stated it would not make coverage demands under the 1999/2000 and 2000/2001 policies for US asbestos personal injury claims. After service of the English proceedings, HNA sought to join Faraday/GSIIL to then-pending Pennsylvania coverage proceedings.

Court's reasoning and conclusions.

• On the jurisdictional gateway and the law applicable to the first policy: the court applied the higher standard appropriate to service out (asking which party "has the better of the argument") and concluded Faraday had much the better of the argument that the first policy was governed by English law by implied choice or closest connection. Factors included placement and broking in the London market, use of London market clauses and London brokers and underwriters, and notification to London brokers.
• On forum conveniens: the court recognised the strength of the Pennsylvania proceedings but held that England was an appropriate forum for the legal issues in the first policy (proper law, construction as to "injury" and "occurrence"), particularly given the policy's London-market connections and the importance of English law to construction of the policy terms.
• On utility/justification: the court held that at the time proceedings were issued Faraday had a legitimate commercial interest in an English ruling on the proper law. However, because HNA in correspondence had disavowed any present or future claim under the 1999/2000 and 2000/2001 policies in respect of US asbestos personal injury proceedings, the court concluded that the proceedings concerning those two policies lacked utility and the earlier order should be set aside as to them. The court did not accept the proposition that developments in the Pennsylvania litigation meant the English proceedings were necessarily futile as to the first policy.

Subsidiary findings and wider context. The judgment observed material differences between English law and some United States jurisdictions on triggers for liability in latent disease/asbestos cases and emphasised caution in exercising the jurisdiction to grant negative declaratory relief, applying the guidance in New Hampshire Insurance Co v Philips Electronics North America Corp and related authorities. The court indicated it would hear further submissions on whether HNA's concession in correspondence should be formalised as a court undertaking to assist enforceability.

The defendant's application to set aside the order permitting service out was allowed in part and dismissed in part. The court refused to set aside service out in relation to the first (1998–99) policy because Faraday had a good arguable case that the policy is governed by English law (implied choice/closest connection) and England is the appropriate forum to determine the legal issues arising under that policy. The court concluded that service out should be set aside in relation to the second (1999–2000) and third (2000–2001) policies because the defendant had represented in correspondence that it would not make coverage demands under those two policies for the US asbestos personal injury litigation, such that proceedings in respect of them lacked the necessary utility.

Prior to this hearing David Steel J granted permission to serve the claim form out of the jurisdiction on 9 March 2011; permission was sought on 8 March 2011 and the claimant effected service on 1 June 2011. The defendants made an application (issued 17 July 2011) to set aside that order; the application was heard in the Commercial Court on 7 October 2011 with judgment delivered 1 November 2011 by Beatson J.