Berwin Leighton Paisner for claimants, DLA Piper for defendants
The reinsurance contract which the parties entered into provided for a limit and excess of USD 1.5 million and USD 1 million, respectively, "each and every loss". Loss was defined as meaning "loss…or a series thereof arising from one event".
The reinsured had insured the Port of New York during the 9/11 WTC attacks. The Port was the subject of multiple claims from employees, many of which arose from respiratory complaints sustained by employees engaged in rescue and recovery operations. It was alleged that the Port had negligently exposed the employees to personal injury because of a failure to provide adequate protective equipment or to provide adequate training.
The reinsured submitted that the respiratory claims and the WTC attacks were sufficiently linked to amount to loss arising from "one event" and so the claims could be aggregated together. The reinsurers countered that the WTC attacks were too remote and instead there had been a "continuing state of affairs" (ie an ongoing failure to provide equipment/training) which did not amount to an event. The dispute went to arbitration and the arbitrators found in favour of the reinsured. The reinsurers appealed to the court, arguing that the arbitrators had erred in law.
The judge has now found as follows:
- A factor to be taken into account was the arbitrators' view that the underlying claims had been properly settled by the reinsured. The reinsurance contract had contained a follow the settlements clause and reinsurers had sought to argue that the reinsured had failed to pursue "strong defences", but the arbitrators had found that the settlement was made for "good practical reasons". The judge commented that "The reality, as the Arbitrators and the parties would have been aware, was that, faced with some 10,000 claimants, the realities of mass tort litigation in the United States of America and the general approach adopted by the courts towards E&O Insurers, a compromise settlement where liability was highly questionable made very good sense, as well as falling within the ambit of the insurance and reinsurance contracts".
- The judge also found that the arbitrators had applied the correct legal test. It has been established by prior caselaw that there should be:
- a common factor which could be described as an event (in assessing whether there is a sufficient degree of unity to find an event, the court will take into account factors such as cause, locality and time, and the intentions of the human agents);
- a causative link (which is looser than proximate cause) between the losses and event; and
- an absence of remoteness for the purposes of the (re)insurance.
Applying that test here, the judge found that the arbitrators had been entitled to find that there had been sufficient causal connection between the attack on the WTC and the respiratory claims, even if the negligence of the Port was sufficiently causative for liability to be established: "the claims against [the Port] all arose as a result of the attack on the WTC and the destruction of the Twin Towers with resultant debris and the exposure of people at the site at the time, and following the event, to harmful and toxic substances, whether or not there was any failure on their part to protect those who came to rescue or clear up the site". It was held that such a conclusion had been within the ambit of the exercise of judgment with which the court would not interfere. Put another way, the conclusion was not one which no reasonable arbitrator could reach.
COMMENT: It is interesting to contrast this case with the only other reported English decision so far on aggregation and the WTC attacks, Aioi Nissay Dowa v Heraldglen. In that case, the arbitrators had found that the attacks on the WTC themselves constituted two events, whereas in this case, the arbitrators decided that the same attacks were one event (albeit, whilst focusing on the connection between that "event" and the claims against the insured, rather than on whether the attack on the WTC itself was one or two events – indeed, it does not appear from the judgment that this had been a contested issue between the parties). In both cases, though, the context was an appeal under section 69 of the Arbitration Act 1996 and so the Commercial Court's role was not to consider the question of law afresh and impose its own conclusion. The court would only interfere if the decision reached by the tribunal was outside the range of permissible decisions open to them in the circumstances.
The point concerning the follow the settlements clause is also noteworthy. It reflects the earlier decision of Tokio Marine v Novae Corporate, which considered one of the provisos of an unqualified follow the settlements clause: namely, that the reinsured has acted honestly and "taken all proper and businesslike steps in making the settlement". There, it was held that the reinsured had been entitled to conclude that there was nothing further to be gained from an investigation of potential legal defences because the settlement figure reached was “undoubtedly a good settlement”. Similarly, here, although the issue was not whether the proviso of the settlements clause had been met, the judge again adopted a pragmatic approach, taking into account commercial and practical realities.