(1) WR Berkley Insurance (Europe) Limited (2) Aspen Insurance UK Limited and Teal Assurance Company Limited  EWCA Civ 25
Court of Appeal, 25 January 2017 Lord Justice Lewison, Mr Justice Arnold and Sir Stephen Tomlinson
The Reinsurers appealed against the judgment of Mr Justice Eder of a preliminary issue in Teal Assurance Co Ltd v Teal Assurance Company Limited and (1) WR Berkley Insurance (Europe) Limited (2) Aspen Insurance UK Limited  EWHC 1000 (Comm) that the liability to pay settlement monies was “ascertained” when the monies were drawn down from funds in an escrow account and not when they were paid into that account.
The Court of Appeal upheld Eder J’s judgment.
The background and findings of Eder J are set out in our article here.
In summary, Teal is a captive insurance company that insured Black and Veatch Corporation (“BVC“) and the wider BVC group. BVC’s insurance programme for the period 1 November 2007 to 1 November 2008 (the “Policy Period“) comprised a number of policies including a “Top and Drop” policy which WR Berkley Insurance (Europe) Limited and Aspen Insurance UK Limited agreed to reinsure (”Reinsurers“).
Teal commenced proceedings in 2010 against the Reinsurers in relation to a number of claims it faced during the Policy Period, seeking an indemnity under the “Top and Drop” insurance policy for the amounts paid. Following a first found of preliminary issues before Mr Justice Andrew in 2011, the court found in favour of the Reinsurers, finding that the policy responded to claims “By reference to the order and timing of the establishment and ascertainment of BVC’s liability” and not when the claims were paid.
Following this finding, Teal revised its case and a second round of preliminary issues flowed from a settlement that BVC reached with a contracting party on terms which required BVC to pay in excess of US$13 million into an escrow account in accordance with the terms of an escrow agreement. It was common ground before Eder J (and before the Court of Appeal) that BVC’s liability to its contracting party was “established”. Eder J was asked to decide when BVC suffered a loss for the purpose of its entitlement to an indemnity under the “Top and Drop” policy– was that loss “ascertained”: (1) when the monies were paid into the escrow account; or (ii) as and when the contracting party drew down on those funds in accordance with the escrow agreement.
The judge held that it was (ii) – as and when the contracting party drew down on those funds in accordance with the escrow agreement, relying on Post Office v Norwich Union and Bradley v Eagle Star and distinguishing it from Cox v Bankside Members Agency Limited, relied on by the Reinsurers.
The Reinsurers appealed against Eder J’s Judgment on the basis that lability was ascertained when the monies were paid into the escrow account for the following reasons:
- It is necessary to identify a loss suffered by the insured, not a gain secured by a third party, and an insured will have suffered a loss if an established liability requires him to part with a sum of money.
- Ascertainment means a quantified loss sustained by the insured which is caused by the established liability.
- The payment into the escrow account by BVC was a partying of money for a fixed sum and should be regarded as the equivalent of an award of damages – thus the liability was ascertained at the date the monies were paid into the escrow account.
The Reinsurers relied again on Cox v Bankside, in which it was held that an order for an interim payment on account of and in anticipation of an eventual order of damages would trigger the right to an indemnity under an insurance policy, notwithstanding that the amount of the interim payment could change. Reinsurers submitted that the requirement that BVC pay the monies into the escrow account was analogous to an interim payment as it required a parting of monies.
The Court of Appeal disagreed and dismissed the Reinsurers’ appeal.
The Court of Appeal held:
- The payment by BVC into the escrow account did not amount to a parting of monies. It represented the maximum extent of BVC’s unascertained lability from which payments may or may not be made, thereby contrasting it to an interim order which represented the likely minimum extent of the defendant’s ultimate liability to pay damages to a third party claimant. The closer analogy is judgment for damages to be assessed as in the case of Burns v Shuttlehurst Limited  1 WLF 1449, where the Court of Appeal held that judgment for lability with damages to be assessed is not an ascertainment of liability so as to generate a right to indemnity under a typical liability policy.
- The settlement agreement clearly distinguished between the delivery of funds into the escrow account for the purpose of security and any payments out which, if made, would constitute compensatory damages. Putting aside money to pay compensatory payments is not paying damages pursuant to a legal obligation. The payment into the escrow itself compensated no-one.
- The settlement agreement provided for the procedure by which payments out of the escrow agreement might be paid and a payment out occurred on the ascertainment of the extent of that liability. That constituted a loss, not the deposit of funds into the account.
The Court of Appeal also considered the finding in Cox v Bankside that an order for an interim payment on account of and in anticipation of an eventual order of damages gave rise to a right of indemnity under a liability insurance policy. The Reinsurers interpreted this to mean that the payment of any payment that can be described in this way was enough to be an insured loss. The Court of Appeal rejected this – its view was that Phillip J’s intention in making his observation that “the subject matter of an interim payment ordered under 0.29, r.11 can properly and naturally be described as damages” was not to suggest that any sum paid on account of and in anticipation of an eventual award of damages is paid “as damages”, but rather that such a payment could be so regarded. The Court of Appeal was also of the view that Philip J’s conclusion that liability insurers should be bound to an interim payment order was essentially a pragmatic solution which might protect an insured from insolvency. As there was no analogy to be drawn between this case and the payment of settlement monies, the Court of Appeal did not need to consider whether this point was correctly decided in Cox and Bankside.