Allianz Insurance PLC and Ors v Tonicstar Limited [2018] EWCA 434

On 13 March 2018, the Court of Appeal handed down its decision on appeal from the decision of Teare J in Tonicstar Limited v Allianz Insurance PLC and Ors [2017] EWHC 2753 (Comm). [1]

The Court of Appeal (comprising the President of the Queens Bench Division, Sir Brian Leveson, and Underhill and Leggatt LJJ) unanimously allowed the appeal, ruling that the provision in the subject reinsurance contract providing for the appointment as arbitrators of “persons with not less than ten years’ experience of insurance or reinsurance” contemplated the appointment of Queen’s Counsel who had practised as a barrister specialising in the field of insurance and reinsurance for more than 10 years.

The respondents were underwriters of risks for the Port of New York, which claimed various losses arising from the attack on the World Trade Centre in September 2001. Underwriters settled those liabilities in May 2011 for approximately $42.5 million and then sought indemnity under its reinsurance contract with the respondents.

The Appellant reinsurers appointed an experienced Queen’s Counsel, but the Respondent applied to have him removed, arguing that the clause on its proper construction called for an appointee who had experience in the business of insurance or reinsurance, not in insurance or reinsurance law.

Teare J considered that he should follow an earlier decision of Morison J in Company X v Company Y (unreported 17 July 2000) in which it was held that a QC with considerable experience as a lawyer in insurance and reinsurance was not qualified to act as an arbitrator under a relevantly identical provision. His Honour did so having regard to what the Supreme Court had said in Willers v Joyce [2016] 3 WLR 534 [9], that, even though the earlier decision was not binding upon him, he ought follow it unless satisfied that there was a powerful reason for not doing so.

It was argued for the Respondent that an example demonstrating the difference between experience in the business and experience in legal matters relating to that business was to be seen in relation to sports. It was argued that a clause requiring experience in sport (for the purpose of a sport arbitration) would not be satisfied by experience in acting in legal matters concerning sport. The President, with whom the other members of the court agreed, drew a distinction between that example and the fields of insurance and reinsurance, observing:

16. …Unlike sports, engineering and telecommunications, which are clearly distinct from the law regulating those activities, no similar distinction can be drawn between insurance and reinsurance law and insurance and reinsurance “itself”. Insurance contracts create legal rights and obligations and those whose business it is to negotiate and draft insurance contracts, whether as underwriters or brokers, need to have some understanding of insurance law. They need, for example, to understand the duty of an insured to disclose facts which are material to the risk to the insurer before the contract is concluded and the scope of that duty. To take another example illustrated by the facts of the present case, a competent insurer or reinsurer of liability risks needs to have sufficient legal knowledge to appreciate how, even when a policy is written on a “losses occurring” basis, claims under the policy may arise many years after the period of cover has expired. Many more examples of the relevance of legal knowledge to the contractual process could be given. Furthermore, the business of insurance and reinsurance on any view encompasses not only the placing and underwriting of risks but the handling of insurance claims. Whether or not a claims manager is legally qualified, he or she cannot in many cases properly assess whether a claim is payable without having some knowledge of the applicable law.  

17. Conversely, barristers and solicitors who practise in the field of insurance and reinsurance need to understand practical aspects of the business. It is a safe inference that a lawyer who has specialised in insurance and reinsurance cases for at least 10 years will have acquired considerable practical knowledge of how insurance and reinsurance business is conducted from meeting and taking instructions from clients, having discussions with and reading reports written by expert witnesses, and from reviewing many insurance contracts and many documents generated in the placing and underwriting of insurance contracts and in the handling of claims made under such contracts. Such practical knowledge will inform and assist their legal analysis and their ability to give effective representation and advice.

18. It is precisely because the practical and legal aspects of insurance and reinsurance are so intertwined that both market professionals and lawyers who have specialised in the field for many years are commonly appointed as arbitrators in insurance and reinsurance disputes. It may well be true that, as Mr Burns submitted, many such lawyers would not know, for example, how to set an underwriting rate for a risk. But I see no reason to assume that an experienced claims manager would have that expertise either. Equally, an experienced underwriter or broker cannot be assumed to have expertise in analysing case law or in how to conduct arbitration proceedings. Both lawyers and market professionals have potentially relevant skills which make them suitable for appointment.

The President noted that the Court of Appeal was not under the same constraint as the primary Judge, who had correctly felt bound to follow the earlier decision in circumstances where he did not consider that there were sufficiently powerful reasons for departing from it. Notwithstanding the desirability of certainty in commercial law (the earlier decision having stood for some 17 years), the President considered that the ability of the legal system to correct error was also a powerful consideration.

Ultimately, the President considered that the earlier decision could not be defended and should be overturned. The others members of the Court agreed.

Adrian Duffy QC

Allianz Insurance PLC and Ors v Tonicstar Limited [2018] EWCA 434  

[1] See Case Note in Issue 81 of Hearsay