Rendall v Combined Insurance Company of America

On 11 September 2001, two hijacked commercial airliners were deliberately flown by terrorists into the North and South Towers (“the Twin Towers”) of the World Trade Centre in New York. The North Tower was struck at approximately 8.46 am and the South Tower at approximately 9.03 am. Several thousand people working in or visiting the Twin Towers were killed, either by the impacts of the aircraft or from the subsequent collapse of the Towers.

Various companies in the Aon Group, pursuant to the terms of leases with the Port Authority of New York and a sub-lease with Shearson Lehman Brothers Inc., occupied floors 92, 93, 98 to 103, 104 (part only) and 105 of the South Tower, which was 110 floors high. Because the South Tower was the second tower to be struck, Aon employees had the opportunity to evacuate their offices in the South Tower. Some did so pursuant to express instructions at that time and others pursuant to standing instructions from Aon on safety procedures.

The impact of the second aircraft was to the 78^th to 84^th floors of the South Tower, below the floors occupied by the Aon Group companies. (The 78^th floor contained what was known as the “Sky Lobby”, a concourse to which express elevators travelled directly from the ground floor main lobby, and from which local elevators served the upper floors.) By the time the second aircraft struck, many Aon employees had either escaped from the South Tower altogether, or had got sufficiently far down the South Tower to enable them to continue their evacuation even after the impact of the second plane and reach safety.

The lives of about 400 Aon employees were saved by the evacuation. But a total of 176 Aon Group employees were killed after the second aircraft collided with the South Tower. Those employees died either as a direct result of the impact of the second aircraft with the South Tower, or as a result of debris falling from the South Tower, or as a result of the subsequent collapse of the South Tower. Their precise locations at the time of their deaths are not known (and the issue of where they died is not for decision in this trial: by order dated 26 November 2004, the Court ordered that the trial “shall not include the issue of the probable locations of death of the 176 Aon employees who died on 11 September 2001”). However, it seems that most were in the process of leaving the South Tower by staircases or elevators, or waiting for elevators in the Sky Lobby.

It is from those tragic factual circumstances that the dispute between the parties in this case has arisen.

This case concerns a dispute that has arisen between the defendant, Combined Insurance Company of America (“the defendant”/“Combined”) and its London reinsurers, represented by the claimant (“the claimant”/“Reinsurers”). Combined is an insurance company organised under the laws of the State of Illinois, United States, and with its principal place of business in Chicago, Illinois. Combined is wholly owned by Aon Corporation.

The families of all of the victims of the attacks have been paid their due entitlements under the terms of the insurance that was provided by Combined, and the matters in dispute in this action concern only the respective rights and obligations under the Reinsurance as between Combined and the claimant. The rights of Combined against the claimant are in practice governed by the rights which the insured persons had against Combined as a matter of Illinois law.

The claimant Reinsurers, who have brought these proceedings for negative declaratory relief, seek declarations:

Combined counterclaims for a declaration that it is entitled to be indemnified by the claimant, and also counterclaims for damages.

In early 2000, the Aon group of companies (which is described in more detail below) was seeking new group insurance of three types: Life, Accidental Death & Dismemberment (“AD&D”), Business Travel Accident (“BTA”). To this end, in late January/early February 2000 Aon Consulting, an Aon Group broking company, sent out to various insurers, on behalf of Aon Corporation, two “Request for Proposal” (“RFP”) documents. One of these related to the prospective group life cover and is not relevant to this dispute. The other related to the prospective AD&D and BTA insurance, and sought the prospective insurers’ proposals as to the provision of certain insurance cover for (principally) the domestic employees of the Aon Group.

The Aon group consisted of a holding company, Aon Corporation, and its subsidiaries. In 1999, Aon Corporation had 1,571 worldwide subsidiaries, of which 382 were incorporated in the United States. The operating subsidiaries of Aon Corporation carried on business in three distinct segments: (a) insurance brokerage and other services; (b) consulting; and (c) insurance underwriting. The insurance brokerage and other services segment consisted principally of direct and reinsurance brokerage operations, including specialty and wholesale activity. The consulting segment provided a range of consulting services including employee benefits, human resources, compensation and change management. The insurance underwriting segment wrote direct life and accident/health insurance, extended warranty, specialty and other insurance products. The revenue generated by these three segments for the United States in 1999 was split as follows: 53% insurance brokerage and other services; 10% consulting; and 37% insurance underwriting. In 1999, the Aon group of companies had about 25,500 domestic employees.

The AD&D/BTA RFP (“the RFP”) stated in its Introduction Section that: -

“This Request for Proposal (RFP) has been prepared to achieve the following objectives:

Provide a proposal on a fully insured/pooled basis for Aon’s existing Basic and Supplemental AD&D Plan at the existing terms and conditions to be effective April 1, 2000.

Provide a proposal on a fully insured /pooled basis for a new Aon Business Travel Accident Insurance Plan as described herein to be effective April 1, 2000.

Provide a proposal on a fully insured/pooled basis for a new Aon Basic & Supplemental AD&D Plan and Travel Assistance Program as described herein to be effective January 1, 2001 with an open enrolment period during November 2000.

…

Please provide a three-year policy provision and rate guarantee on a non-cancellable basis for each of the plans being quoted.

Your written proposals are due in this office February 15, 2000”

The RFP set out what was requested in respect of BTA coverage in Section II. It set out those who were to be eligible to become insured, Class 1 of which was described as “All domestic employees including US employees employed outside the US”. It then stated, in relation to the requested BTA coverage, as follows: -

“A benefit is payable if an insured suffers a loss as defined in the plan as a direct result of an “accident” which occurs while travelling on the business of Aon.

Coverage starts when an insured begins a trip – either from home or the place they normally work (whichever occurs later) and stays in force until they return to either of these locations (whichever is first).

…

While travelling on the business of Aon means while an insured is carrying out authorized activities for the furthering of Aon’s business.

Coverage is worldwide and includes commutation, sojourn and personal deviations (side trips incidental to a business trip)…….”

Other important elements of the RFP were that the benefit which was sought for each Class 1 employee was 6 times annual income, with a maximum benefit of $1m; and that there was to be an aggregate limit (air only) of $20m.

Section V of the RFP listed data “contained in the RFP package to enable you to price the programs and features contained herein.” This data included two “diskettes” (floppy disks) containing Microsoft Excel spreadsheets of two categories of Aon group employees: the “1999 Field Life Census” and the “1999 Staff Life Census”. These spreadsheets were the primary source of data about the Aon Group’s domestic employees. Nowhere in the Section V data was there any historical information from the Aon Group quantifying the amount of travel which its domestic employees had undertaken.

Combined was one of seven insurers selected to tender for the insurance requested in the RFP. Combined was and is a substantial insurance company, owned by Aon Corporation. Combined delegated the preparation of Combined’s response to the RFP to Johnson Rooney & Welch (JRW”).

JRW was and is a specialist in group life and AD&D covers. It had been underwriting on behalf of Combined since the autumn of 1999, having previously been underwriting for Transamerica. JRW was itself a part of the Aon Group, also as of autumn 1999. The AD&D/BTA RFP and supporting information were considered by JRW’s AD&D/BTA underwriter, Janet (“Jan”) Massara. Ms Massara was based in California.

Although Combined and JRW were both part of the Aon group, they were tendering for the insurance on a competitive basis.

Ms Massara examined the RFP and supporting data, and noted that they contained no historical travel data. To rate the risk, she therefore turned to make an estimate of the likely amount of travel (in terms of employee “travel days”).

Ms Massara recorded her workings/calculations in manuscript at the time.

She sent her estimates by email to Combined’s Chief Actuary, Mr. Lippai, on 7 February 2000. This email read: -

“With respect to your conversation with Mr. Welch concerning the rating of the captioned coverage without the benefit of standardized assumptions of travel exposure, I would like to offer the following liberal assumptions of travel day exposure which could be used to promote adequate rating and uniformity amongst BTA responses:

21,360 Staff Employees: 93,350 days of travel

4,100 Field Employees: 61,500 days of travel

Please let me know if you feel these are appropriate assumptions, and if so, how they may be communicated to Al Grippo at Aon Consulting”.

In the event Ms Massara’s travel day exposure figures were not communicated to the other potential insurers, and all insurers were left to make their own assessments of the risk on the basis of the information provided. It is agreed that Ms Massara received no written response to her email; whether she received an oral response is in issue.

Once she had made her estimate, Ms Massara turned to the question of potential reinsurance. This was first addressed in a fax sent on 10 February 2000 by Ms Massara to Mr. Nigel Garner, a broker employed in London by another Aon Group company (then named Aon Group Limited); Mr. Garner worked for Aon Re Worldwide, a trading division of Aon Group Limited.

At this point Ms Massara was only seeking a limited reinsurance: she believed that what was required was only an additional cover for the “air only” aggregate of $20m. She was seeking a quotation for a layer of $5m in excess of $15m (what she believed to be JRW’s existing surplus treaty cover) so as to complete the reinsurance for this aggregate.

The fax consisted of two pages. The first set out what was described as “The plan design and estimated travel data”, setting out the way in which the cover would be structured, including stating that the benefit amount for Class 1 employees would be “6 x Annual Salary, maximum of $1m”. It then stated “Estimated days of travel for Class 1 is 160,000”, and “Current Number of Board of Directors: 14”. The “estimated days of travel” number was a rounding up by Ms Massara of the total of 154,850 days produced by her calculations referred to above. The second page attached a list giving details of corporate aircraft, pilots and chauffeurs.

Mr. Garner took the fax to Reinsurers’ underwriter, Mr. Boyd, on 15 February 2000. Mr. Boyd was at the material time underwriting for Syndicate 510, one of three Leading Underwriters, each with a 20% written line (15.385 % signed line), on an Aon Group Ltd “Lineslip for Personal Accident & Sickness and Travel Business”. The other Leading Underwriters of the Lineslip were the active underwriters of Syndicates 582 and 55 at Lloyd’s.

The Lineslip authorised “the Leading Underwriter and/or any first 3 Underwriters”, for the period of 12 months at 1 July 1999, “to bind business …emanating from Aon Group Limited…”, with any business so bound being “automatically binding upon all other Underwriters … following the agreement of the Leading Underwriter and/or any first 3 Underwriters”. The Lineslip further provided that there was to be a “maximum period of 3 years any one risk regardless of the expiration of [the] Lineslip”, and that “all off-slips were to be initialled by Leading Underwriter”, and that no declaration was to “exceed 36 months plus odd time..”. Mr. Garner and Mr. Boyd saw each other regularly in relation to business under the Lineslip.

When Mr. Garner saw Mr. Boyd on 15 February 2000, he did not ask Mr. Boyd to write only the layer $5m excess $15m which had been set out in Ms Massara’s fax. Ms Massara had intended to purchase that layer on top of a treaty which provided cover up to $15m. In fact, however, Combined had not renewed that treaty and so it was not in place. Mr. Garner therefore broked the business to Mr. Boyd on the basis of seeking a facultative reinsurance of the full risk (i.e. from the “ground up”).

The fax did not explain how the estimated figure of 160,000 days of travel had been arrived at; Mr. Garner did not provide to Mr. Boyd any information as to how it had been arrived at; and Mr. Boyd did not ask for any such information.

Despite the fact that the fax had obviously not been prepared with a 100% reinsurance in mind, Mr. Boyd took the view that it contained sufficient information for him to give a quote, which he did. He quoted a premium of $70,000. The only additional information which he requested was a loss history, which he asked for by noting “sub record” (i.e. “sub[ject to loss] record”) on the fax. Neither side relies on anything which passed orally at the broking meeting.

On the same day (15 February 2000) Mr. Garner passed Mr. Boyd’s quotation back to Ms Massara. His email reminded Ms Massara that the surplus treaty had not been renewed and went on “We have therefore obtained a quote for the complete 24 hour cover whilst on trips. Subject to a claims co-operation clause, and satisfactory loss record.”

On or about 15 February 2000, Combined provided its AD&D insurance proposal to Aon Consulting in response to the RFP. The creation and preparation of the proposal was in fact effected by JRW. Page 3 of the proposal read: -

“Please allow us this opportunity to introduce you to the makers of this proposal.

[Combined] is among the largest life carriers in the world…….and has become the fastest growing provider of Group Accident Insurance Coverages.

This growth has been the result of a unique marriage between an excellent insurance company, [Combined], and an underwriting management firm, [JRW], which specializes in underwriting Accidental Death & Dismemberment Insurance coverages.

Working for Combined exclusively, the underwriting duties of [JRW] include all administrative functions attendant to these coverages……”

On 16 February 2000, Aon Consulting asked for confirmation of Combined’s final AD&D premium numbers, and this was given by Ms Massara the same day.

On 25 February 2000, Aon Consulting prepared a document described as a “supplement to the Accident Insurance RFP”. After setting out a summary of what cover had been sought, the document proceeded to an analysis of the various quotations which had been received. The conclusion at this stage was that the two most competitive quotations were from AIG and CNA (both US insurers), and Aon Consulting recommended selecting CNA.

On 9 March 2000, Mr. Lippai of Combined faxed through to Mr. Welch (the General Manager of JRW), care of Ms Massara, a table showing a comparison of all the 7 competing bids. Combined’s price for the BTA cover was the middle of the 7 bids.

On 13 March 2000, a manuscript note, made by Mr. Lippai of a conversation with Mr. Welch, records “Agreed to go + match the competition”. Similarly, an undated note on a copy of the price comparison schedule records “CICA [ie Combined] agrees to match Met Life rates for Life and CNA rates for AD&D/BTA.”

On 16 March 2000, Ms Massara sent a fax to Aon Consulting setting out “revised rates”. The premium for the BTA coverage had been reduced to $30,000, which was the rate which had been quoted by CNA.

On 18 March 2000 Ms Massara in an email to Mr. Garner stated, “We want to further pursue the offer you provided … on February 15. This would be for the entire BTA coverage. … Please advise if there is any additional information you will need prior to issuing a firm quote”. Mr. Garner showed Mr. Boyd this email on 20 March 2000, and he scratched it “sub record” again. This repeated request for a loss record was relayed by Mr. Garner by email to Ms Massara on 20 March 2000, stating, “We have seen the underwriter who has confirmed that the requirements are the same as previously advised within our email dated 15 February 2000”. She responded the same day stating “There is no existing program and so no loss record is available”.

On 7 April 2000 Ms Massara told Mr. Garner that Combined had been awarded the Aon group BTA insurance and placed a firm order for the reinsurance. Her email to Mr. Garner stated “We would like to bind the coverage as quoted by you, on February 15, for a net premium of $70,000 as a complete reinsurance of a Combined Policy, subject to a minimum retention.”

On 14 April 2000 Mr. Garner saw Mr. Boyd again. He showed Mr. Boyd Ms Massara’s email of 20 March 2000 stating that there was no existing programme and therefore no loss record, and Mr. Boyd scratched it. At the same time Mr. Boyd scratched the slip and bound the reinsurance.

The Reinsurance provided inter alia, and insofar as is relevant, as follows: -

“TYPE: Personal Accident Reinsurance

REASSURED: Combined Insurance of America (sic)

FORM: As original. Agree sign Slip Policy.

ORIGINAL ASSURED: Aon Corporation

PERIOD: 12 months at 30 April 2000

INTEREST: Covering US based employees of the Original Assured for Business Travel Only ... for the following Classes:

I Domestic Employees 6 times Annual Salary - up to a maximum of USD1,000,000 any one person

…………….

CONDITIONS: Coverage is for 24 hour cover whilst on Business Travel. Including flying as a passenger or pilot in corporate aircraft. Claims Cooperation Clause.

....

PREMIUM: USD70,000 in full

... ….

INFORMATION: Facsimile dated 10 February 2000, seen.”

The Reinsurance was subsequently varied by endorsement.

By email on 3 May 2000, Ms Massara asked Mr. Garner “What is the chance of getting a three-year term?” On 10 May 2000, Mr. Garner saw Mr. Boyd, who offered an increase in the period of the Reinsurance to 36 months with slightly increased premium for the second and third years. At first Mr. Garner scratched “sub no material change in travel patterns over period”; he then altered this to “sub no greater increase in travel days more than 20% at 30/4/01, or 30/4/02”.

On 10 May 2000 Mr. Garner sent an email to Ms Massara setting out what had passed between him and Mr. Boyd and asking for confirmation whether the offered terms were acceptable. By email on 30 May 2000, Ms Massara replied accepting the terms. The variation was formally recorded in an endorsement on 6 July 2000, stating “Coverage is subject to there being no more than a 20% increase in the travel exposure which was advised to Underwriters at inception. An annual audit of the travel exposure will be carried out at 30 April 2001 and 30 April 2002.” This increase in the period of the Reinsurance brought it into line with the period of the BTA Insurance.

There was a further endorsement dated 6 December 2000, which recorded the fact that Combined’s retention on the reinsurance was nil.

Combined subsequently issued a Business Travel Accident Group Master Insurance Policy to Aon, with an effective date of 30 April 2000 (“the BTA Insurance”). The policyholder was Aon Corporation. The “persons eligible to become insured” were 5 classes of persons, the first of which was “All Full-time Employees of a US Subsidiary … of the Policyholder”, and “Insured” was defined as “an individual covered under this policy as shown on the Policy Schedule”.

The BTA Insurance provided cover with regard to a range of separate Business Travel and Personal Accident hazards, which were recorded on separate “forms.” They included “24 Hour All Risk Hazard (Business Only)”, “Felonious Assault Hazard”, “Specified Aircraft Hazard”, and “Terrorism Hazard”.

More specifically, the BTA Insurance provided, in material respects, as follows: -

“….

If you suffer an Accidental Bodily Injury from one of the Hazard(s) which is attached to this Certificate, and which results in any of the losses described herein, We will pay You as shown in the What We Will Pay Sections.

DEFINITIONS:

Covered Loss means Accidental Death or Dismemberment that occurs within 365 days of an Accidental Bodily Injury. Subject to the Hazards covered …….

“24 HOUR ALL RISK HAZARD

(Business Only)

If You suffer a Covered Loss while on an Authorized Business Trip … We will pay the benefit(s) as set forth in Your Certificate and any applicable riders.

Authorized Business Trip means: (1) a trip that the Policyholder authorizes You to take for the purpose of furthering its business (excluding daily commuting to or from work, vacations and leaves of absence); or (2) a relocation to a new residence that is closer to another office of Your Employer’s business. An Authorized Business Trip: (a) starts when You leave Your residence or Regular Place of Employment, whichever is later; and (b) ends when You Return to Your residence or Regular Place of Employment, whichever is earlier. Excursions for personal reasons, which are taken during the course of authorized business travel, shall also be covered.

Regular Place of Employment means the business premises at which you spend at least 50% of Your working hours and which is located within 50 miles of Your primary residence.”

TERRORISM HAZARD

If You suffer a Covered Loss because of an Act of Terrorism and the applicable premium has been paid for this Hazard, We will pay the benefit(s) as set forth in Your Certificate…..

DEFINITIONS:

Act of Terrorism means any clandestine use of violence by an individual terrorist or a terrorist group to coerce or intimidate the civilian population to achieve a political, military, social or religious goal. Such acts shall include but not be limited to murder, kidnapping, hijacking, sabotage or bombings. It shall not include conventional warfare designed to result in wholesale loss of life through use of missiles launched from outside the United States or Canada, aerial bombardment, nuclear, chemical or biological warfare or outright invasions.”

It is now common ground between the parties that Combined did not reinsure with the claimant its exposure under the Terrorism Hazard cover included in the BTA Insurance, but did reinsure its exposure under the 24 Hour All Risk Hazard (Business Only).

The deaths of the 176 Aon group employees were caused by an “Act (or Acts) of Terrorism”, as defined in the Terrorism Hazard section of the BTA Insurance. It is therefore common ground that the losses represented by the deaths of the Aon employees all fell within the scope of the cover provided by the BTA Insurance and that Combined was bound to indemnify (as it has done) the families of all of the Aon employees who perished. However, Combined says that the claimant was also liable under the 24Hr All Risk Hazard (Business Only) section. The claimant disputes this.

The claimant has indemnified Combined with regard to payments that were made by Combined to the families of certain Aon employees who were visiting the World Trade Center premises from other Aon offices (ie employees who, it is common ground, were not at their “regular place of employment”, were on “authorized business trips” to the World Trade Centre, and were covered under the 24 Hr All Risk Hazard (Business Only) section). These claims involve overall payments by the claimant of $6.402 million, and relate to 7 Aon employees. The sums were paid by the claimant before discovery of the alleged grounds of avoidance, and so could potentially be affected by the outcome of the claimant’s avoidance case.

Agreed Facts

At the material time Mr. Boyd was employed as Personal Accident underwriter by Kiln plc. The reinsurance was bound by Mr. Boyd as lead underwriter under the Aon Lineslip. The core complaint made by Mr. Boyd was as follows – “I believed when I was presented with the risk that the estimated number of business travel days as presented was a figure produced from Aon’s own historical travel data which Aon would be happy to endorse as an estimate of the future days travelled over the future twelve months and that would now appear not to be the case. It [was] an intermediary’s interpretation of information, none of which relate[d] to actual physical travel days.”

Mr. Boyd explained how he arrived at his quote of $70,000.

Mr. Boyd said that if he had been told that the figure of 160,000 was calculated by Ms Massara’s own “liberal assumptions”, and not by any reference to any Aon specific facts and figures, he would certainly have asked for details of Ms Massara’s method, and the underlying information and data used, in the calculation of her estimated figure, and then applied his own assessment.

The (unchallenged) witness statements of Mr. Tim Prifti and Ms Tanya Saunders were admitted in evidence.

At the material time Ms Massara worked as deputy to the Chief Underwriter at JRW (Bob Rooney). JRW had recently been acquired by the Aon group.

Ms Massara assessed the annual number of travel days for staff employees. She assessed the likelihood of travel by reference to salary levels. She assumed that those earning $100,000 or above would travel for an average of 25 days a year each, and that those earning less than $100,000 per annum would travel for an average of 2 days a year each. She looked at the staff diskette supplied with the RFP to obtain information about salaries and about how many employees fell into each category. There were 2,200 employees at $100,000 or above and 19,160 employees below $100,000. The result was an estimated total of 93,320 days of staff travel per annum, with an average per staff employee of about 4.37 days travel per annum.

Ms Massara said that as at 7 February 2000, when she emailed her estimates to Mr. Steve Lippai (a senior executive at Combined), she was using those estimates for the purposes of her own assessment of the risk on Combined’s behalf. She said, “I do not recall receiving a written reply from Steve Lippai and I am confident that I did not receive one. If I had received any written reply, I am sure it would have been filed, and would have been located as part of the disclosure process in these proceedings. I am also sure that I did not call Mr. Lippai myself to ask what his response was. However, I am confident that I was told that Mr. Lippai was OK with my numbers, even though I do not recall exactly how this happened. Tom Welch (one of the principals of JRW) was the real channel of communications with Mr. Lippai, and it could have been that Mr. Welch told me that this was what Mr. Lippai had said. What I am sure about is that I was told that Mr. Lippai was OK with my numbers.”

In her email to Mr. Lippai of 7 February 2000 Ms Massara offered “the following liberal assumptions of travel day exposure”. I accept her evidence that her assumptions were intended to be “very generous travel day assumptions” and that she considered “there was a potential for another underwriter to estimate lower.”

Ms Massara struck me as a credible witness. I find that Mr. Lippai probably communicated that he was in agreement with her estimates via Mr. Welch. Mr Lippai’s agreement with the estimates constituted material support for the estimates from a person with relevant knowledge/experience.

From November 1989 to April 2000 Mr. Hoare was Managing Director of Duncanson & Holt (Europe) Ltd., an underwriting management company specialising in accident and health business. During his tenure as Managing Director, Mr. Hoare was also Deputy Underwriter for four years from 1990. Mr. Hoare accepted that those four years represented the only time when he could describe himself as an underwriter. During those four years he did the underwriting on a full time basis. He accepted that the volume of business travel accident risks that Mr. Kurtz wrote would have far exceeded risks he wrote.

Mr. Kurtz’s first position was as an underwriter with the Continental Insurance Company. He then moved to American International Group where he served as a senior underwriter. After leaving AIG he worked for the next 24 years at IOA Re Inc., Duncanson & Holt Inc. and LDG Reinsurance Corporation, serving as both a direct underwriter and reinsurance underwriter. In December 2002 he began a second term at AIG. He has now left AIG in order to return to the reinsurance underwriting side of the business. All his work as direct underwriter has included business travel accident policies; approximately 75% of his work as reinsurance underwriter has involved such policies. Throughout over 32 years of professional experience he has been called upon almost daily to evaluate submissions for business travel accident coverage, both as a direct underwriter and a reinsurer, and to rate those risks.

It follows that Mr. Kurtz has had far greater experience of underwriting business travel accident policies than Mr. Hoare, although Mr. Kurtz’s experience has been in the United States and not in the London market. Mr. Kurtz struck me as a particularly impressive witness.

Mr. Bates is a founding partner of the Chicago law firm, Bates & Carey LLP. He has represented insurance companies in connection with insurance coverage disputes since 1984. He has represented reinsurance companies in reinsurance disputes since the late 1980s. Insurance coverage and reinsurance issues have been his primary areas of expertise, and he has been personally involved in over 500 insurance coverage and reinsurance matters in Illinois and throughout the United States.

Judge Gillis is a former judge of the Circuit Court of Cook County, Illinois, where he served for more than 18 years. From 1995 to 1999 he was a Commercial Calendar judge in the Law Division of the Circuit Court of Cook County. In this role he tried commercial issues in jury and bench trials, including cases involving insurance disputes. From 1993 to 1995 he served as a Motion Judge in the Law Division, where he often dealt with motions to dismiss and motions for summary judgment. Prior to that, from 1978 to 1990 he served as a judge of the Circuit Court of Cook County in both the Felony Trial Courts and the Chancery Division.

Prior to the start of the trial the experts had prepared a joint report. At the start of the trial I gave directions for a further meeting between the experts which resulted in a supplemental joint report containing further points of law on which the experts agreed, points of law offered by Judge Gillis with which Mr. Bates disagreed and points of law offered by Mr.. Bates with which Judge Gillis disagreed. After cross-examination of both experts in the usual way I called both experts forward and asked a number of questions with a view to narrowing the issues. This procedure worked well. The experts assisted by reordering the points that they had agreed. At the end of the day there was one major point of disagreement as to which see below.

The role of an expert as to foreign law, unless the court is concerned with special meanings, is to prove the rules of construction of the foreign law. It is then for the court to construe the contract in accordance with those rules. The view of an expert as to the meaning which would be given to a particular word is not admissible evidence unless he or she is saying that it has a special meaning under the foreign law (King v Brandywine [2005] EWCA. Civ. 235 paragraph 68, Waller L.J.).

Mr. Bates in particular went beyond the proper role of an expert as to foreign law in his first report, but by the conclusion of the trial both experts understood their role.

AVOIDANCE ISSUES

The first page of the fax of 10 February 2000 (see paras 23 to 30 above) was in the following terms: -

“To: Nigel Garner – Accident & Health

From: Jan Massara

Subj: Aon Corporation

Business Travel Accident Proposal

Pages: 2 (including cover)

Nigel:

We are currently quoting all of the AD&D coverages for Aon Corporation (perhaps you’ve heard of them?)

The only piece which exceeds our treaty limits, is the Aggregate Limit of Indemnity (Air Only) at $20,000,000. Under our surplus treaty, our limit is $15,000,000.

Please price for the facultative placement of the additional $5,000,000.

The plan design and estimated travel data is as follws:

Class	Description	Benefit Amount
I	Domestic Employees	6 x Annual Salary, maximum of $1 Million
II	All non-empoyee BOD Members	$500,000
III	Dependents of Class I & II	Spouse: $100,000, Children $50,000
IV	Independent contractors	Amount specified in the Insured’s contract
V	Guests of the Poicyholder	$100,000

Estimated days of travel for Class I is 160,000

Current Number of Board of Directors: 14

Attached is a listing of Corporate Aircraft, Corporate Pilots and their salaries and corporate Chauffeurs.

…..

Jan Massara

Accident & Health Underwriting Manager

Johnson Rooney Welch, Inc.”

The claimant’s pleaded case as to misrepresentation and non-disclosure includes the following: -

“As presented, the “estimated days of travel” figure of 160,000 implicitly suggested, and was reasonably understood by the claimant’s underwriter, as representing an estimate that had been made on reasonable grounds by the defendant and/or Aon and that had been based on Aon’s own information and experience of the business travel undertaken by its Class 1 and/or other employees …

For the avoidance of doubt, the reference to “Aon’s own information and experience of the business travel undertaken by its Class 1 and/or other employees” means and is limited to Aon’s historical information and experience of the business travel undertaken by [its] Class 1 and/or other employees [in the Aon Group].

The defendant and/or its brokers failed to disclose to the claimant the material fact that the number of travel days that had been estimated for Class 1 employees had been arrived at by the application of assumptions, and not on the basis of the actual travel experience of Aon’s own Class 1 or other employees.

For the avoidance of doubt, the reference to the “actual travel experience of Aon’s own Class 1 or other employees” means and is limited to Aon’s historical information and experience of the business travel undertaken by [its] Class1 and/or other employees [in the Aon Group].”

It is important to note that the claimant has not made the following allegations:-

The representation as to 160,000 estimated days of travel included a representation of fact that the estimate was based on Aon-specific historical information/experience.

This conclusion is reached by considering “by whom and in what circumstances the representation was made” (Peter Gibson L.J. in Economides v Commercial Union [1998] QB 587). From the circumstances in this case, a specific assertion of fact is implicit.

An application of Economides to facts of this case is inappropriate, for reasons apparent in the judgments themselves, as subsequently applied in Sirius International Insurance Corp. v Oriental Assurance Corp. [1999] Lloyd’s Rep IR 343, and as explained in the final sentence of paragraph of 16-13 of MacGillivray (lay insured declaring truth of statement of values in proposal form to best of knowledge and belief, in contrast to commercial reinsured in Sirius).

The presentation was not a fair presentation. Absent fairness of presentation, waiver cannot apply and Mr. Boyd, who had an established relationship with the experienced placing broker, Mr. Garner, was not put on enquiry. The requirement of fairness of presentation as a precondition for waiver remains good law. In any event, in the circumstances Mr. Boyd was not put on enquiry. In the light of the terms for the three year period for the reinsurance, Ms Massara, when accepting those terms would not have been entitled to assume that Mr. Boyd was indifferent to or uninterested in the basis for the estimate.

Ms Massara’s knowledge/experience of Aon, its operations and the travel undertaken by its employees, was limited and inadequate for the assumption/estimation exercise that she undertook. It was one thing for Combined, as insurer, to proceed to quote on the basis of the estimate, but it was quite another for the estimate to be deployed as placing information for Reinsurers.

Ms Massara sought but never obtained any verification of the reliability or appropriateness of her estimate or, if she did, she did not obtain verification from anyone having the requisite knowledge/experience to render reliable the estimate that she reached.

Moreover, any claim to reasonableness of assumptions was undermined by the application of arbitrary dividing lines between employees at different salary levels, application of an arbitrary cap of maximum of 50 days, and arbitrary disregard of any local travel.

The words “Estimated days of travel for Class 1 is 160,000” were a representation that Combined (or its agent, JRW) estimated (i.e. expected) that the total number of days of travel to be undertaken by Aon’s Class 1 employees during a (future) annual period was 160,000. This was a representation as to a matter of expectation or belief.

It follows, pursuant to s. 20(5) of the Marine Insurance Act 1906 (“MIA 1906”) that the representation was true if it was made in good faith (i.e. if there was an honest belief in its truth), and there is thus no scope for any implied representation that there were reasonable grounds for the expectation or belief: see Economides supra.

In any event, the evidence demonstrated conclusively that the estimate made by Ms Massara as to the number of travel days was made on reasonable grounds.

The estimate of travel days carried no implied representation about how it had been made or on what information it was based. Nor was the presentation of the risk in any way unfair or misleading. It would have been obvious to any prudent underwriter that the estimate might very well not be based on historical travel days data, since (as Mr. Boyd knew) it was not unusual to estimate travel days for group BTA policies without such data, because the organisation did not have it.

When he considered the fax, a reasonably careful underwriter would naturally have been prompted to ask how the estimate of travel days had been made (as well as enquiring about the total number and average salary of Aon’s Class 1 employees). In fact, however, Mr. Boyd chose not to ask for any of this information, and made it clear that he did not require any additional information (apart from any loss record), although had he asked for any further information it would readily have been provided. In these circumstances there was the clearest waiver of any further information as to the data and assumptions on which the estimate of travel days was based.

There is no allegation and no evidence that the estimate of 160,000 travel days was in fact inaccurate (in the sense that the actual number of days travelled by Aon employees was more than estimated). Nor is it probable that, if Mr. Boyd had known how the estimate had been arrived at, he would have used any different figure.

The legal principles set out in paragraphs (87) to (90) and (92) to (95) below are common ground.

The principles governing the right to avoid a contract of insurance (or reinsurance) on grounds of misrepresentation or non-disclosure are those set out in sections 17 to 20 of the MIA 1906, which apply equally to non-marine as to marine insurance: see e.g. PCW Syndicates v PCW Reinsurers [1996] 1 WLR 1136 (CA).

MacGillivray, paragraph 16-10 summarises the law as follows: -

“Requirements of actionable misrepresentation.

In order for an innocent misrepresentation to entitle a party to avoid the contract of insurance it must satisfy the following conditions:

(1)

it must be a statement of fact or, in relation to the insurer’s remedy under section 20 of the 1906 Act only, a statement of opinion or belief ;

(2)

it must be untrue;

(3)

if made to the insurer, it must be material to his appraisal of the risk, and in other cases material in the wider sense;

(4)

it must be a statement as to present or past fact and not de futuro;

(5)

it must have induced the aggrieved party to enter into the contract of insurance.”

Section 20 of the MIA 1906 provides, in so far as is relevant, as follows: -

“Representations pending negotiation of contract.

(1)

Every material representation made by the assured or his agent to the insurer during the negotiations for the contract, and before the contract is concluded, must be true. If it be untrue the insurer may avoid the contract.

(2)

A representation is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk.

(3)

A representation may be either a representation as to a matter of fact, or as to a matter of expectation or belief.

(4)

A representation as to a matter of fact is true, if it be substantially correct, that is to say, if the difference between what is represented and what is actually correct would not be considered material by a prudent insurer.

(5)

A representation as to a matter of expectation or belief is true if it be made in good faith.”

A representation is material if it would influence the judgment of a prudent insurer in fixing the premium or determining whether he will take the risk: see s.20 (2) of the Act. For this purpose it is not necessary to show that a prudent insurer would have made a different decision if the representation had not been made, but only that a prudent insurer would have taken the representation into account as a factor in reaching his decision: see Pan Atlantic Ins Co v Pine Top Ins Co [1995] 1 AC 501 (HL). However, to show that the representation satisfies the requirement of inducement, it must be shown that the actual underwriter would have done something different (either in the terms which he would have agreed for the insurance, or in whether he would have entered into it at all): Pan Atlantic (supra).

There is a dispute between the parties as to whether the representation relied on by the Reinsurers is to be treated as being only a representation of expectation or belief or whether it can, consistently with s.20 (5) of the MIA 1906, involve an implicit representation that there were reasonable grounds for the expectation or belief:

In general, an insurer may avoid a contract of insurance on the ground of non-disclosure, if: -

A material fact is one which would influence the judgment of a prudent insurer in fixing the premium or determining whether he will take the risk: see s.18 (2) of the MIA 1906. For this purpose it is not necessary to show that a prudent insurer would have made a different decision if the fact had been disclosed, but only that the fact is one which a prudent insurer would have taken it into account as a factor in reaching his decision: see Pan Atlantic, supra.

There are certain facts which (in the absence of inquiry) need not be disclosed to the insurer, even if material. These include:

Disclosure of a fact is waived by the insurer (even though the fact which is not disclosed is material) if:

Reinsurers say that if there has been no fair presentation of the risk, the reinsurer will not have been put on enquiry, citing Iron Trades Mutual v Compania de Seguros [1991] 1 Re LR 213 (Hobhouse J).

Combined says that the position is more subtle following the decision in WISE, which did not apply the same approach as Iron Trades, and that the question of whether the presentation contained facts which would have put a prudent insurer on enquiry is relevant to the question of whether the presentation was fair.

It is important when considering the avoidance issues, and in particular the factual and expert evidence, to put on pre 9/11 spectacles, and not post 9/11 spectacles.

At the conclusion of her evidence Ms Massara was asked whether she believed Combined would have made money on the risk had it not been for 9/11. She replied, “At my price, it would have made money. Actually there were no claims on the BTA except for the 9/11 claims”.

The assessment of this type of risk may have changed since 9/11. But the issues must be examined through the spectacles of the relevant period of time.

Reinsurers submit that the question for the court to determine is whether, considering “by whom and in what circumstances the representation in question was made”, the representation is properly characterised as a representation only of “expectation or belief” (as Combined contends), or of or as including “an assertion of a specific fact” (as Reinsurers contend). If the former, it will be sufficient if the representation was made in good faith. If the latter, there must have been some reasonable justification for the belief. Reinsurers contend that the representation to Mr. Boyd that “estimated travel data …Estimated days of travel for Class I is 160,000” in the fax dated 10 February 2000 is properly characterised as a representation which includes an implicit assertion that the figure put forward to Mr. Boyd had been arrived at by reference to “Aon’s historical information and experience of the business travel undertaken by its [US domestic] and/or other employees.”

Combined submits that as a matter of construction, the words "Estimated days of travel for Class 1 is 160,000” in the fax dated 10 February 2000 clearly meant that Combined (or its underwriting agents, JRW) estimated (i.e. expected) that the total number of days of travel that Aon’s Class 1 employees would be likely to undertake during the (future) annual period of the insurance was 160,000. Not only is this how the words would have been understood by any reasonable reinsuring underwriter (and how Mr. Hoare would have understood them), but it was also how Mr. Boyd in fact understood them. Section 20(3) of the MIA 1906 states that a representation may be either a representation as to a matter of fact, or as to a matter of expectation or belief. Applying that distinction, the representation made in the present case was expressly one as to a matter of expectation or belief: it was an “estimate” of next year’s travel exposure. Reinsurers have not alleged that the representation made in this case was made in bad faith (nor could they). By operation of section 20(5), Combined says the representation is true.

I analyse the position as follows:

In the light of my conclusions set out above it is not necessary to consider these questions save to record that Combined accepted that the representation would have been material, had Reinsurers’ case been upheld.

I analyse the position as follows.

I analyse the position as follows.

For these reasons and in these circumstances I find that the presentation contained information which would have naturally prompted a prudent insurer to make further inquiry which, if made, would have elicited how the estimate was arrived at. This conclusion is supported by the evidence of Mr. Kurtz. Such further enquiry was not made. Thus I find that disclosure of the basis of the estimate (agreed by Combined to have been material) was waived by Mr. Boyd.

For the reasons set out above, the claimant’s claim for a declaration that he has validly avoided the reinsurance on the grounds of the defendant’s misrepresentation and/or non-disclosure fails.

The issue as to coverage is whether the Aon employees who were tragically killed on 9/11 in the course of leaving the South Tower were covered at the time of their deaths by the main coverage section (entitled “24 Hour All Risk Hazard (Business Only)”) of the Business Travel Accident policy issued by Combined.

It is common ground that the policy issued by Combined is governed by Illinois law. The rights of Combined against Reinsurers are in practice governed by the rights which the insured persons had against Combined as a matter of Illinois law.

The BTA Insurance provided, in material respects, as follows:

“….

If you suffer an Accidental Bodily Injury from one of the Hazard(s) which is attached to this Certificate, and which results in any of the losses described herein, We will pay You as shown in the What We Will Pay Sections.

DEFINITIONS:

Covered Loss means Accidental Death or Dismemberment that occurs within 365 days of an Accidental Bodily Injury. Subject to the Hazards covered …….

“24 HOUR ALL RISK HAZARD

(Business Only)

If You suffer a Covered Loss while on an Authorized Business Trip … We will pay the benefit(s) as set forth in Your Certificate and any applicable riders.

Authorized Business Trip means: (1) a trip that the Policyholder authorizes You to take for the purpose of furthering its business (excluding daily commuting to or from work, vacations and leaves of absence); or (2) a relocation to a new residence that is closer to another office of Your Employer’s business. An Authorized Business Trip: (a) starts when You leave Your residence or Regular Place of Employment, whichever is later; and (b) ends when You Return to Your residence or Regular Place of Employment, whichever is earlier. Excursions for personal reasons, which are taken during the course of authorized business travel, shall also be covered.

Regular Place of Employment means the business premises at which you spend at least 50% of Your working hours and which is located within 50 miles of Your primary residence.”

TERRORISM HAZARD

If You suffer a Covered Loss because of an Act of Terrorism and the applicable premium has been paid for this Hazard, We will pay the benefit(s) as set forth in Your Certificate…..

DEFINITIONS:

Act of Terrorism means any clandestine use of violence by an individual terrorist or a terrorist group to coerce or intimidate the civilian population to achieve a political, military, social or religious goal. Such acts shall include but not be limited to murder, kidnapping, hijacking, sabotage or bombings. It shall not include conventional warfare designed to result in wholesale loss of life through use of missiles launched from outside the United States or Canada, aerial bombardment, nuclear, chemical or biological warfare or outright invasions.”

Illinois rules/principles of construction are very similar to those in this jurisdiction. This is confirmed by the content of the many points that were agreed by the experts.

If the words in question are given their plain ordinary meaning and construed as a whole, the only sensible conclusion is that the employees who died were not on “authorized business trip(s)”.

Individual analysis of the constituent parts of the relevant wording leads to the same conclusion. The employees were neither on trips, nor doing what they were doing “for the purpose of furthering [Aon’s] business”, nor had they left their “Regular Place of Employment”, being Aon’s “business premises”.

Combined cannot point to any legitimate ambiguity, but seeks to do so in order to invoke the rule of contra proferentem.

In fact, the ambiguities asserted by Combined are no more than “creative possibilities” and involve the torture of words in an effort to force them to confess to ambiguity. The words have resisted and there are no ambiguities.

Even if genuine ambiguities can be identified, there are no reasons in the circumstances of this case, for the contra proferentem rule to be applied.

Illinois Courts plainly recognise that that rule is not to be applied in every circumstance against an insurer. This is apparent not only from the legal and public policy rationale(s) behind the rule, but also from decisions and judgments in, amongst other cases, Alberto-Culver, Outboard Marine and Associated Indemnity and Central Illinois (see below).

If there ever were factual circumstances in which Illinois Court would not apply the rule, these are they.

The relevant principles of Illinois law were ultimately agreed between the experts, except that Mr. Bates sought to qualify the rule that ambiguous words will be construed in favour of the insured, by suggesting that it does not apply if “both parties are equally sophisticated in the use of contract language”. As to this:

In principle, the rule that any ambiguity in a policy provision must be resolved in favour of the insured cannot be affected by the fact that cover is granted by some other section of the policy, quite separate from the one being construed.

The term “Authorised Business Trip” is a term defined in the policy. As agreed by the experts, the court must therefore apply the policy definition of this term even if it differs (indeed particularly if it differs) from the ordinary understanding of the term. Pursuant to the policy definition, the question which the court has thus to decide is whether each of the Aon employees tragically killed on 9/11 died during (1) a trip (2) that Aon authorized the employee to take (3) for the purpose of furthering its business.

Pursuant to the policy provisions and consistently with ordinary language, a “trip” refers to any journey that an employee makes (whatever its distance and duration) which involves the employee leaving his or her residence or “Regular Place of Employment”.

“Regular Place of Employment” is a defined term, which means “the business premises at which You spend at least 50% of Your working hours and which is located within 50 miles of Your primary residence”. Although the term “business premises” is not itself defined, as a matter of ordinary language it clearly and unambiguously refers to any premises (i.e. real property) occupied by Aon and at which Aon carries on business. (Alternatively, if there is any ambiguity in the term, it must be construed in favour of the insured employees).

Combined agrees that the identification of those premises is a question of fact. On the facts of the present case, the business premises at which the relevant employees spent at least 50% of their working hours were the areas in the South Tower which Aon leased.

It is common ground that the evacuation of Aon’s offices was authorized and took place pursuant to Aon’s instructions.

Moreover, it is plain that the employees were authorized to leave Aon’s offices for the purpose of furthering Aon’s business in circumstances where:

Combined was accordingly liable under the main “24 Hour All Risk Hazard” section of its Business Travel Accident policy to the estates and families of the deceased insureds. Liability under the reinsurance follows.

The witness evidence as to events on 9/11 comes from Combined, which put in evidence statements from 9 employees of Aon who survived the disaster. Their evidence was not challenged.

In addition to the facts set out in the Introduction to this judgment, the witness evidence shows the following further facts about the evacuation of Aon’s offices on 9/11.

After the South Tower was hit by the second hijacked jet, cracks started to appear in the walls and even the stairs themselves started to buckle. Almost everybody gave in to an impulse to try to run down the flights of stairs, although after about ten flights down, it became easier to try and move in a more orderly way.

The role of an expert as to foreign law and proof of foreign law

The role of an expert as to foreign law, (unless the court is concerned with special meanings), is to prove the rules of construction of the foreign law. It is then for the court to construe the contract in accordance with those rules. The view of an expert as to the meaning which would be given to a particular word is not admissible evidence unless he/she is saying that it has a special meaning under the foreign law (King v Brandywine [2005] EWCA. Civ. 235 paragraph 68, Waller L.J.).

“Where an expression is ambiguous, which of the possible meanings was intended by the parties is ascertained in accordance with the canons of construction which form part of the governing law. If the governing law ascribes a particular meaning to particular words, the parties are bound by that meaning. In other cases, where foreign law is the governing law, the expert proves the foreign rules of construction, and the court, in the light of these rules, determines the meaning of the contract.” Dicey and Morris, The Conflict of Laws 13^th Edition paragraph 32 – 189.

Where foreign decisions conflict, the court may be asked to decide between them, even though in the foreign country the question still remains to be authoritatively settled (Dicey and Morris on The Conflict of Laws 13^th Edition volume 1, paragraph 9 – 020, citing Re Duke of Wellington [1947] Ch. 506).

I must address myself to the question, what is the law on the issues in question which would be expounded by the Illinois Supreme Court, if the case were before that Court? (Duke of Wellington supra at 514, Wynn-Parry J).

My duty is to find as a fact what is the relevant law as it would be expounded in the Illinois Supreme Court. For that purpose I have to proceed as if I were notionally sitting in the Illinois Supreme Court and I have to put on the legal spectacles of a judge of that court. The task is particularly difficult if an English judge is required to expound for the first time the relevant law as it would be expounded by the Illinois Supreme Court, if and to the extent that that court has made no pronouncement on the subject (see Duke of Wellington supra, at page 515).

The federal court system is generally comprised of the Supreme Court of the United States, the United States Courts of Appeals, and the United States District Courts.

Illinois is part of the Court of Appeals for the Seventh Circuit. The Seventh Circuit also includes the states of Wisconsin and Indiana.

Federal court decisions are not binding upon Illinois courts, although they can provide guidance and serve as persuasive authority.

Each state and the District of Columbia has its own independent court system.

The state court system in Illinois consists of the Illinois Circuit Court (trial level), the Illinois Appellate Court (intermediate or appellate court), and the Supreme Court of Illinois, the highest court in the state

Decisions of the courts of other states are not binding upon Illinois courts, but again they can provide guidance and serve as persuasive authority.

Like the federal system, Illinois has an intermediate appellate court to handle cases in which a party seeks review of a trial court decision. The Illinois appellate court is made up of five geographic districts. Each district has its own appellate Court. Cook County, which includes Chicago, is the First District. The First District has 18 appellate judges. Each of the remaining 4 Districts has 6 appellate judges.

The Supreme Court of Illinois is the state’s highest court. It has 7 justices, with 3 from the First District (Cook County) and one each from the remaining 4 Districts.

This court serves as a reviewing court of Illinois appellate court decisions. Although some cases have a right of appeal to the Illinois Supreme Court, most cases are only appealed to the Illinois Supreme Court if the Illinois Supreme Court accepts the appeal at its discretion.

Decisions of the Illinois Supreme Court are final, except for certain cases which are reviewable by United States Supreme Court.

Decisions of the Illinois Supreme Court are binding upon the lower Illinois courts.

The Illinois Supreme Court is the highest court in Illinois. It is the ultimate arbiter of Illinois law. Its decisions are binding on all appellate and circuit courts.

All Illinois appellate courts are equal. No district or division is superior to any other.

When faced with the task of construing an insurance contract, Illinois law requires a court to apply the principles applicable to construing contracts generally. The primary goal of the court in construing a contract is to give effect to the intent of the parties.

These contract law principles require that a court enforce the contract as made by the parties.

In the case of an insurance contract, where a policy provision is clear and unambiguous, an Illinois court will give the policy provision its plain and ordinary meaning.

Absent a finding of ambiguity, an Illinois court cannot look beyond the four corners of a contract to ascertain its meaning.

In order to ascertain the meaning of the policy and the parties’ intent, the court must construe the policy as a whole and take into account the type of insurance purchased and the nature of the risks involved and the overall purpose of the contract.

The Illinois Supreme Court in Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill.2d 90, 607 N.E.2d 1204 (1992), stated that: -

‘Usual and ordinary meaning’ has been stated variously to be the meaning which the particular language conveys to the popular mind, to most people, to the average, ordinary, normal [person], to a reasonable [person], to persons with usual and ordinary understanding, to a business [person] or to a lay [person]. 2 Couch on Insurance 2d § 15.18 (rev.ed. 1984).

An Illinois court will construe the policy as a whole, with due regard to the risk undertaken, the subject matter that is insured, and the purpose of the entire contract.

A policy term is ambiguous if it is subject to more than one reasonable interpretation.

Whether an ambiguity exists turns on whether the policy language is subject to more than one reasonable interpretation, not whether creative possibilities can be suggested.

In determining whether policy language is ambiguous, a court will not search for ambiguity where there is none.

A court will not strain to find an ambiguity where none exists.

An insurance policy is not rendered ambiguous merely because the parties disagree as to its meaning.

The contra proferentem rule does not apply where there is no ambiguity in the contract language.

In order to enforce the agreement between the parties regarding coverage, the court must not inject terms and conditions different from those agreed on between the parties in the policy.

Courts will not insert exclusions beyond those already in the policy.

If there are definitions in a policy, the definitions contained within the policy are controlling. This is particularly true when an insurance policy defines terms in a manner that differs from the ordinary understanding of a term or phrase.

In construing a contract, it is presumed that all provisions were inserted for a purpose.

In addition to considering the particular language of a policy and applying applicable canons of construction, an Illinois court may also look to decisions from other jurisdictions interpreting similar insurance policy language.

The point of law on which the experts disagreed is as follows: -

The cases establish that the contra proferentem rule is applied where wordings are “standard- form”, are offered on a “take-it-or-leave-it basis”, where there is “little or no negotiation” and where “the insurer has total control of the terms and the drafting of the contract” (all from Outboard Marine supra at p.13); the rule “being intended to aid a party whose bargaining power was less than that of a draftsperson” (Alberto-Culver 351 Ill.App.3d 123, at p.7, citing Corbin on Contracts).

However, as the decisions in the Alberto-Culver and Central Illinois Light Company v Home Insurance Co, 2004 WL 2743593 (Ill. 2004) cases demonstrate, the rule is not slavishly to be applied to all insurance cases, but will only be applied where the features identified in Outboard Marine are present.

Whilst, of course, in this case the fact that the employees would be the claimants under the policy cannot be disregarded, this would not cause the Illinois Courts to apply contra proferentem because:

Judge Gillis was right to say that the exception to the contra proferentem rule contended for by Mr. Bates is inconsistent with the decision of the Supreme Court of Illinois in Outboard Marine

In Outboard Marine, the Supreme Court of Illinois gave an authoritative statement of principles governing the construction of an insurance policy in Illinois law. The facts were that OMC had discharged toxic chemicals into Lake Michigan. It agreed to pay redress to government agencies and brought an action against its liability insurers seeking (inter alia) a declaration that it was covered. Insurers disputed coverage and relied on a policy provision whereby liability for pollution damage was covered only if the release of pollutants was “sudden and accidental”. On the facts, the release of pollutants had occurred gradually over many years, and insurers argued that it therefore was not “sudden”. The Illinois Supreme Court rejected this contention. The Court found that the word “sudden” could reasonably be interpreted to mean merely unexpected or unintended, without any temporal connotation, and was therefore ambiguous. It was argued by the insurers that the rule of construction which directs the court to construe ambiguities in favour of the insured should not apply because the insured was a large corporation, “sophisticated and counseled in insurance matters”. This is to all intents and purposes the same exception to the rule which Mr. Bates has contended for in the present case. The Supreme Court rejected the contention. In its reasoning, the court drew attention to certain general facets of the insurance contracting process, such as that most policies are standard form, and that any insured, whether large and sophisticated or not, must enter into a contract with the insurer, “which is written according to the insurer’s pleasure by the insurer”. The Supreme Court concluded:

“Like any insured, OMC is entitled to its application where the court has determined that the policy is ambiguous. After all, the insurer chose the words used in the policy.”

In the light of this clear holding of the Illinois Supreme Court, “any insured” is entitled to the application of the rule, whether sophisticated or not.

As to the authorities on which Mr. Bates relied:

Furthermore, even if there are some circumstances in which an Illinois Court would decline to apply the contra proferentem rule in a dispute between parties who are “equally sophisticated in the use of contract language”, the present case is not such a case. This is because:

I turn to consider these conflicting submissions.

In Outboard Marine the Supreme Court of Illinois at page 13 said: -

“The insurers and their amici argue that the rule of construction which directs the court to construe ambiguities in favour of the insured should not apply in the instant case. They assert that this rule of construction was developed to aid the unwary insured who was unsophisticated in insurance matters. The insurers argue that it should not apply here because OMC is a large corporation, sophisticated and counseled in insurance matters. We disagree with this contention. The insurance industry is powerful and closely knit. As evidenced by the CGL policies in the instant case, most policies are standard-form, are worded very similarly (see Zurich Insurance Co v Raymark Industries Inc. (1987) 118 Ill.2d 23, 33 112 Ill.Dec. 684, 514 N.E.2d 150), and are offered on a take-it-or-leave-it basis (Aetna Casualty & Surety Co. v Condict (S.D.Miss. 1976), 417 F.Supp. 63, 73). Any insured, whether large and sophisticated or not, must enter into a contract with the insurer which is written according to the insurer’s pleasure by the insurer. (See AIU Insurance Co. v Superior Court (1990), 51 Cal.3d 807, 822, 799 P.2d 1253, 1264-65, 274 Cal.Rptr. 820, 831-32; Broadwell Realty Services. Inc. v Fidelity & Surety co. (1987), 218 N.J. Super, 516, 524, 528 A.2d 76, 80.) Generally, since little or no negotiation occurs in this process, the insurer has total control of the terms and the drafting of the contract. (AIU Insurance Co. 51 Cal. 3d at 822, 799 P.2d at 1264-65, 274 Cal.Rptr. at 831-32; Broadwell Realty Services, Inc. 218 N.J. Super, at 524, 528 A.2d at 80.) This rule of construction recognises, inter alia, these facets of the insurance contracting process. (AIU Insurance Co. 51 Cal.3d at 822, 799 P.2d at 1264-65, 274 Cal.Rptr. at 831-32; Broadwell Realty Services, Inc. 218 N.J. Super, at 524, 528 A.2d at 80.) Like any insured, OMC is entitled to its application where the court has determined that the policy is ambiguous. (See Boeing Co v Aetna Casualty & Surety Co. (1990), 113 Wash. 2d 869, 882, 784 P.2d 507, 514. But see AIU Insurance Co. 51 Cal. 3d at 823, 799 P.2d at 1265, 274 Cal.Rptr. at 832.) After all, the insurer chose the words used in the policy. Cf. Claussen, 259 Ga. at 337, 380 S.E.2d at 688. ”

In Central Illinois Light Company the Supreme Court said: -

“We conclude that the policy language, standing alone, does not require the insured to have been served as the defendant or respondent in an adversarial proceeding before the duty to indemnify arises. If this were a dispute involving the construction of an insurance contract between a consumer and his insurer, we might stop at this point in the analysis and conclude that the language of the policy should be construed against the drafter because it is “obscure in meaning through indefiniteness of expression”. Platt, 351 Ill. App.3d at 330, 286, Ill.Dec, 222, 813 N.E. 2d 279. However, both parties to these policies are sophisticated business entities that can be assumed to have specialised knowledge of the contractual terms they employ. Indeed, both parties cite to the substantial body of case law from Illinois and other jurisdictions interpreting similar policy language in similar factual situations. We now turn to those authorities to aid in our construction of the policies to determine whether the filing of a lawsuit or other adversarial action is a precondition to indemnification …

However, the question presented in this case, while complex, is merely one of construction of the language of an insurance policy. The terms of the policies are either plain in their meaning, in which case they will be given effect unless they violate public policy, or else they are ambiguous and may be construed against the drafter. We are not permitted to rewrite the language of the policies agreed upon by the parties simply to suit our idea of desirable social goals.”

The point of law on which the experts disagreed is as follows: -

I have to proceed as if I were notionally sitting in the Illinois Supreme Court and I have to put on the legal spectacles of a judge of that court.

I prefer the view of Judge Gillis that the Illinois Supreme Court would hold that the qualification advanced by Mr. Bates does not apply. In particular (as Judge Gillis pointed out) the spouses and children of the Aon group employees who died were the claimants under the policy. Even if there is a “sophisticated parties” exception under Illinois law it would not apply on the facts of the present case. The rights of Combined against Reinsurers are in practice governed by the rights which the insured persons had against Combined as a matter of Illinois law. As between the insured persons and Combined if the words in the policy are ambiguous they will be construed in favour of the insured and against Combined.

It follows that I have to construe the material words in the policy applying the principles of Illinois law set out in paragraphs 149 to 168 above with the following addition. If words in the policy are ambiguous they will be construed in favour of the insured and against the insurer who drafted the policy. In the circumstances of the present case Combined would be treated as the insurer who drafted the policy.

The question is whether the employees were on an “Authorised Business Trip” and in particular (1) were on a trip, (2) that they were authorized to take, (3) for the purpose of furthering the business of an Aon Group company, (4) having left their “Regular Place of Employment” as defined.

I turn to construe the policy in accordance with the rules of construction of Illinois law referred to in paragraph 184 above.

It is common ground that no Illinois case has considered the meaning of the words “business trip” or “business travel”.

It follows that the claimant is entitled to a declaration to this effect.

Even by the very high standards of the Commercial Court this case has been conducted during the hearing in an exemplary manner by counsel and solicitors for the parties. I am grateful for the assistance afforded to the Court.