Astrazeneca Insurance Company Ltd v XL Insurance (Bermuda) Ltd & Anor

Under English law, liability insurance ordinarily indemnifies against actual legal liability, not merely alleged liability. The insured must prove that liability on the balance of probabilities, applying the governing law to the properly analysed evidence. A judgment or settlement may ascertain the insured’s loss, but does not necessarily establish that the loss is covered or that actual liability existed. Clear contractual wording is required to displace that principle. References to actual or alleged injury in occurrence or notification provisions may define a gateway to potential cover without extending the insuring clause. Defence costs are not recoverable under a liability policy as free-standing cover unless the contract clearly provides for it.

AstraZeneca Insurance Company Limited insured companies in the AstraZeneca group under a Bermuda Form liability policy. The defendants reinsured the claimant. Following numerous claims alleging personal injury caused by Seroquel, the claimant sought indemnity for settlements and defence costs.

The parties agreed two preliminary issues concerning whether the policy responded to settled alleged liability rather than actual liability, and whether defence costs were recoverable without proof of actual liability. The policy was expressly governed by English law and contained no duty to defend.

1. First preliminary issue. The claimant was entitled to indemnity only if it demonstrated that the insured was under an actual legal liability. Where liability had been settled, the claimant had to establish, on the balance of probabilities, that the insured would have been liable under the correct law applied to the properly analysed evidence.
2. The general English law principle was not displaced by the policy. Article I covered sums paid by reason of liability imposed by law. That wording required an actual legal liability. The definitions of Damages and Ultimate Net Loss did not enlarge the Article I coverage.
3. A judgment or settlement was a necessary condition for the ascertainment of loss, but was not necessarily conclusive as to coverage or liability. The insurer could examine the underlying facts and challenge whether the liability was legally established and covered.
4. The references to actual or alleged personal injury in the occurrence and integrated-occurrence definitions operated as gateways to potential coverage and allowed notification and aggregation before liability had crystallised. They did not extend the substantive indemnity to alleged liability.
5. The choice of English law excluded reliance on substantive New York principles under which an insurer declining a duty to defend may be bound by a reasonable good-faith settlement. The policy expressly stated that the insurer had no duty to defend.
6. Second preliminary issue. Defence costs were not free-standing cover. The words including defence costs were attached to the definition of Damages, and did not authorise the court to rewrite the policy by adding a separate indemnity. Defence costs were recoverable only in circumstances in which covered damages were recoverable, including proof of actual liability.
7. The answers to both preliminary issues were therefore determined in favour of the reinsurers.