Equitas Insurance Ltd v Municipal Mutual Insurance Ltd

Permission to appeal under the Arbitration Act 1996, section 69, requires a question of law arising from the award, substantial effect on rights, consideration by the tribunal, and satisfaction of the statutory conditions concerning error or serious doubt, public importance, and justice. General public importance alone is insufficient.

Questions concerning allocation of mesothelioma losses between triggered employers’ liability reinsurances, good faith in exercising any allocation choice, and recoupment and contribution satisfied that threshold. Permission was granted without expressing final views on the substantive issues.

Equitas applied under section 69 of the Arbitration Act 1996 for permission to appeal an arbitration award dated 7 April 2017 made by Flaux LJ sitting as a judge-arbitrator. The arbitration concerned the treatment of mesothelioma claims under employers’ liability reinsurance contracts.

The tribunal held that Municipal Mutual Insurance Ltd could allocate, or “spike”, each reinsurance claim to any applicable year of cover. It also accepted Municipal Mutual’s method for calculating recoupment and contribution. Equitas sought permission on three questions concerning implied pro-rata allocation, good faith, and the calculation of recoupment and contribution.

Lady Justice Gloster gave the judgment, with which Sir Jack Beatson agreed. Permission to appeal was granted on all three questions. The court expressly reserved final views on the merits for the court hearing the appeal.

1. Statutory requirements. The three proposed questions were questions of law arising out of the award under section 69(1) of the Arbitration Act 1996. They substantially affected the parties’ rights because they would determine the legal treatment of 178 existing claims and future claims. The tribunal had also been asked to determine each question, satisfying section 69(3)(a) and (b).
2. General public importance and serious doubt. The issues were of general public importance because they concerned significant and unresolved questions for the insurance and reinsurance market and were likely to recur in other arbitrations. That conclusion did not itself suffice. The tribunal’s decisions were also at least open to serious doubt within section 69(3)(c)(ii).
3. Allocation and good faith. There was a seriously arguable distinction between the liability of insurers and reinsurers. The tribunal had therefore been wrong, or at least arguably wrong, to treat the conclusion in International Energy Group Ltd v Zurich Insurance plc UK Branch [2016] AC 509 as necessarily determining the reinsurance position. It was also arguable that, if Fairchild and IEG gave the reinsured a choice of allocation, good faith could constrain the exercise of that choice and require allocation in accordance with the principles in Barker v Corus UK Ltd [2006] AC 572.
4. Recoupment and contribution. Serious doubt arose because the authorities, including IEG, did not address retentions; the Fairchild enclave might require a different approach; and there was force in the argument that higher layers of reinsurance in later years should be made good first.
5. Justice and propriety. Although arbitral finality deserved respect, section 69(3)(d) was satisfied. The parties had not excluded section 69, the issues were market-wide, and they were likely to recur.

Sir Jack Beatson agreed that permission should be granted on questions 1 and 3. Although initially attracted by the argument that question 2 involved fact and law, he considered it sufficiently linked to question 1 to justify permission on all three questions.

• Court of Appeal (Civil Division): In [2018] EWCA Civ 991, permission to appeal under section 69 of the Arbitration Act 1996 was granted on all three questions. The court expressed no final view on the substantive issues.
• Arbitration before Flaux LJ sitting as judge-arbitrator: The award dated 7 April 2017 resolved the relevant issues in favour of Municipal Mutual Insurance Ltd.