Amlin Corporate Member Ltd & others v Oriental Assurance Corporation [17.10.12]

Court of Appeal confirms reinsurance is not a general exception to principle that a stay of proceedings should only be granted in rare and compelling circumstances.

On 21 June 2008, the vessel "Princess of the Stars" capsized off the coast of the Philippines in the midst of typhoon "Frank", with the loss of over 500 lives and all of her cargo. In more than 40 separate proceedings commenced in the Philippines, the cargo owners brought claims against the vessel’s shipowner and their marine cargo liability insurers, Oriental Assurance Corp ("Oriental").

The policy between Oriental and the insured contained a typhoon warranty that the vessel would not set sail from sheltered port when there was a typhoon warning at that port or if her intended destination or route was within the possible path of a typhoon.

Oriental was reinsured out of the London market by Amlin and others ("Amlin"). The reinsurance contract incorporated the conditions of the underlying policy and contained an identical typhoon warranty and a follow-the-settlements clause. The reinsurance was subject to English law and the exclusive jurisdiction of the English courts.

In November 2010, Amlin brought proceedings in the English courts seeking a declaration that they were not liable to indemnify Oriental on the ground that there was a breach of the typhoon warranty. Oriental’s application to stay the English proceedings pending the outcome of the proceedings in the Philippines was dismissed, the High Court finding that a stay should only be granted in rare and compelling circumstances. Oriental appealed.

Decision

Oriental argued that, in circumstances where reinsurers were bound to follow the settlements of the reinsured, reinsurers should wait for the reinsured to settle a claim and only then address their own liability; particularly as to do otherwise would result in Oriental being placed in the unfair position of having to argue in England that the typhoon warranty had been complied with in seeking to avoid a finding in reinsurers’ favour, i.e. the opposite of their real case, namely that the vessel had set sail in breach of the typhoon warranty.

However, the Court of Appeal dismissed Oriental’s appeal, albeit with little enthusiasm, finding that the "experienced commercial judge" at first instance had directed himself correctly as to the principles that governed the exercise of his discretionary jurisdiction, that he properly took into account all material factors and that it could not be said his decision was obviously wrong.

Comment

Notwithstanding the perceived unfairness, this decision appears potentially to afford reinsurers with greater opportunities to seek to establish that they have no liability to their cedant before the liability of their cedant to the insured has itself been established. Whilst the decision is likely to be superficially attractive to reinsurers, particularly given the delays often inherent in foreign jurisdictions, its potential application is likely to be keenly contested. Will it, for example, be confined to cases where the proper law of the insurance and reinsurance are the same or where, if they are not, there are no material differences between the principles of construction under the differing laws? Its ambit is likely to be the subject of extensive debate.