Case Alert - [2017] EWHC 3666 (Comm)

Court decides whether reinsurance contracts had been placed and whether there had been an acknowledgement of liability

The main issue in this case was whether the defendant had entered into four reinsurance contracts with the claimants (and if so, on what basis). The contracts were said to have been made some 35 years ago. The underlying risk being insured was the liability of an Australian building company which is now the subject of very substantial mesothelioma claims arising as a result of asbestos used in its building materials.

The claimants were unable to produce the original slip, cover note or equivalent document evidencing the reinsurance in question and the defendant denied that it was a party to the reinsurance. Accordingly, that was a question of fact and the judge noted that there was no basis for saying that there should be any gloss on the normal standard of proof. So unlike cases where there are allegations of fraud (where the court bears in mind that fraud does not usually occur), there is nothing inherently unlikely about placing reinsurance.

The judge further accepted that extensive efforts had been made by both parties to find the relevant documentation, but that such documentation was genuinely unavailable and so he concluded that "the issue for me then is to weight the evidence which I do have about the existence or otherwise of the claimed reinsurance...taking into account as I do that the primary evidence is not now available".

He concluded that the defendant was a party to the reinsurance and that, furthermore, it had agreed to "front" a pool of reinsurers (ie it was liable for 100 per cent of the risk placed with the pool, but that it would then have rights of recourse against other reinsurers).

Having established that, the judge went on to consider whether the claimants' claims were now time-barred. The claimants accepted that most of the claims were time-barred, but sought to rely on what it said were two acknowledgements of liability.

Section 29(5) of the Limitation Act 1980 provides that where there is a right to recover "any debt or other liquidated pecuniary claim", and the liable person acknowledges the claim or makes any payment in respect of it, time will start running only from the date of acknowledgement or payment.

There is no particular format for an acknowledgement (other than that it must be in writing and signed by the person making it). The judge referred to prior caselaw in which it was held that a party who had said that he would "check on the amounts owed" had acknowledged the claim (and had not just acknowledged that there might be a claim): "So the question is whether the amounts owing can be ascertained by extrinsic evidence assuming there is an acknowledgement of outstanding indebtedness generally". Here, a representative of the reinsurer had referred to items which had been "agreed" and the judge said that that clearly meant that the items "at least are agreed in the sense that [the reinsurer] is liable for them", subject only to a calculation of the actual sums owed (which could be proved by extrinsic evidence). Similarly, a reference to having "booked... amounts due" amounted to an acknowledgement of those amounts.

The defendant also sought to argue that the reinsured had not provided sufficient proof that it was liable to the insured. Although the judge agreed that the reinsured must show that it was liable, and that that liability has been ascertained (here, by settling the underlying claims), he said that the suggestion that the reinsured (along with the rest of the market) had wrongly accepted liability was "absurd" in light of the reports produced by the reinsured's lawyers.

Finally, the judge held that the reinsured had been liable to pay the costs and expenses of the insured in dealing with the claim because the definition of ultimate net loss in the underlying policy had included sums "...for settlement investigation/defensive claims and excluding only the salary of the insured..."

COMMENT: There has not been any prior English caselaw on whether a claim under a (re)insurance contract is a "liquidated pecuniary claim" (ie a debt of a fixed sum, with no need for the court to assess): the hold harmless principle has the effect of a (re)insurer being liable for unliquidated damages under an indemnity policy. However, this case apparently proceeded on the basis that section 29(5) did apply to the claim, and there was no discussion of this point.

This case might also be compared with Barnett v Creggy, where the "debtor" signed a letter effectively undertaking to acknowledge a debt should funds not be paid by a third party. Richards J held that a debt could only be acknowledged if it already existed and so the letter had "necessarily acknowledged" the creditor's claim. Care should therefore be taken by (re)insurers when dealing with (re)insureds to ensure that an acknowledgement of debt is not made unintentionally.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.