IRB Brasil Resseguros SA v CX Reinsurance Company Ltd

I gave permission to appeal on 3 March in this case with some expressed reluctance on the basis that I was concerned (i) that this is one of those cases where, albeit that the Arbitrators might have expressed themselves erroneously on occasion in the Award (e.g. those passages pointed out and relied upon in the Grounds of Appeal attached to the Claim Form), nevertheless where, as here, they had, at least on the main ground relied upon by the Claimant, referred to, and quoted, the correct authorities, their Award might be unimpeachable: and (ii) that delay would be caused by an appeal, the significance of which was pointed out by the Respondent in its response to the application for permission to appeal.

So far as the latter concern is concerned, not of course a reason for refusing permission if it were otherwise appropriate, it has been allayed by the speed with which this appeal has come on for hearing. The former aspect has occupied the bulk of the argument before me, and I shall be addressing it from the outset of my judgment.

Miss Sara Cockerill, who appeared before the Arbitrators and has appeared before me, has argued the matter forcefully on behalf of the Appellant: she submits that, on an analysis not only of the general approach adopted by the Arbitrators, but in particular of each of the six different individual cases which they considered, the subject of this Appeal (two others are not appealed), the Arbitrators’ erroneous approach in law is exemplified by the conclusions which they reached.

Mr Harry Matovu QC, who also appeared below and has argued the matter equally ably on behalf of the Respondent, submits however that, on analysis of the whole of the Award and of each of the six specific cases, there has been no error of approach in law by the Arbitrators. He submits that, in reality, this is an appeal as to fact, by way of challenge of the Arbitrators’ conclusions on those facts, which (in the absence of perversity, which Miss Cockerill abjures) cannot constitute a ground of appeal. He refers in this regard to TAG Wealth Management v West [2008] 2 Lloyd’s Rep 699 at 706 (para 49) per Aikens J, and to the reference by Akenhead J in Trustees of Edmond Stern Settlement v Levy (No 2) [2009] 1 Lloyd’s Rep 345 at 349 (para 20) to a “complaint about the Arbitrators’ findings of fact masquerading as a point of law”.

He points out not only that this panel of Arbitrators contains, within its membership, a very significant amount of experience of the insurance and reinsurance market, but that they are careful to set out in their Award four important findings as to the factual matrix in paragraph 10 of the Award (stating that the Reinsurance Contract cannot properly be interpreted “without an appreciation of the market in which they were executed and deployed”), which have not been challenged by the Claimant on this appeal. As to the exercise which, at the instance of the Claimant, the Court has carried out, of analysing the Award to assess whether the Tribunal can be shown, notwithstanding its correct citations, to have erred in law, Mr Matovu reminds me of the caution by Bingham J in Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14 (repeated by Morison J in Fidelity Management SA v Myriad International Holdings BV [2005] 2 Lloyd’s Rep 508 at 509 (para 2)), namely:

“As a matter of general approach the courts strive to uphold arbitration awards. They do not approach them with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults in awards and with the objective of upsetting or frustrating the process of arbitration. Far from it. The approach is to read an arbitration award in a reasonable and commercial way expecting, as is usually the case, that there will be no substantial fault that can be found with it.”

The dispute between the Claimant and the Respondent concerns various reinsurance claims arising from the Claimant’s participation in an excess of loss reinsurance programme which protected the Respondent’s casualty book of business worldwide from 1976 to 1983. 25 reinsurance contracts are in issue, the total amount claimed being some US$ 1.6 million plus interest. As explained in paragraphs 2 and 5 of the Award, this total consists of a large number of small claims, some of which are, by themselves, de minimis in value, and in November 2008 it was agreed that the Arbitrators should in the first instance determine claims in relation to eight selected losses, which amounted to a significant proportion of the total sums claimed under the programme. The Arbitrators, Messrs Simon Twigden, William Bower and Richard Outhwaite, found for the Respondent in respect of each of the eight selected losses, and ordered the Claimant to pay a sum of US$ 665,055.51 accordingly: the six out of the eight matters upon which this appeal is based relate to sums totalling US$ 489,958.73.

The six cases where there are appeals relate to US liability insurance. Two of these claims are in respect of the liability of manufacturers of silicon breast implants (AHS and 3M), two of liability of producers of products derived from blood contaminated by HIV or Aids (Baxter Travenol (“Baxter”) and Revlon), one in respect of the liability of a company engaged in a business involving the use of asbestos (Owens Corning (“Corning”) and one in respect of environmental pollution claims against a manufacturer of chemical and agricultural products (Stauffer). All the claims were compromised by the underlying insurers, including the Respondent, by compromise settlements which were in each case “agreed, presented and almost universally supported/paid by the London market”(paragraph 19 of the Award) and found by the Arbitrators to be“reasonable and businesslike” compromises. The issue before the Arbitrators, and now before this Court on appeal, is and was whether in each of those six cases the sums paid under the compromise agreement and claimed and paid out by the insurers including the Respondent are properly recoverable by the Respondent against the Claimant, as reinsurer. As I have stated there are two cases, and one particular issue in relation to the Baxter and Revlon cases, where there is no appeal, so that only paragraphs 1-57, 61-62 and 74-85 of the Award are material on this appeal.

The four grounds for which I gave permission to appeal are as follows: in fact the first and second plainly run together and were argued together before me:

“(a)

To what standard of proof is it necessary for a reinsured to prove his case under a “double proviso” follow settlements clause of the type described in Hill v Mercantile [1996] 1 AC 1239 and Equitas v R & Q [2009] EWHC 2787: “balance of probability” or “arguability”?

(b)

In considering the question of proof of loss under such a follow settlements clause what is the correct approach to the facts as a matter of law: is it appropriate to look to the underlying facts of the original claim, or to the basis of the claim as compromised?”

These issues arise in respect of AHS, 3M, Baxter and Revlon.

“(c)

As a matter of law what requires to be proved in relation to a “losses occurring during” clause in a reinsurance contract containing such a follow settlements clause: is evidence that a loss occurred within the period necessary?”

This arises in respect of AHS, 3M, Corning and Stauffer.

“(d)

What is the test for whether a loss was a loss “arising out of an event”? Does it suffice that the loss in each year stemmed from a single cause?”

This arises only in respect of Corning.

With regard to the first two grounds of appeal, they revolve around the “NOTICE OF LOSS CLAUSE”, which is effectively a standard ‘double-proviso’ ‘follow settlements’ clause:

“All loss settlements made by the Reinsured, including compromise settlements, shall be unconditionally binding upon Reinsurers provided such settlements are within the conditions of the original policies and/or contracts and within the terms of this reinsurance, and amounts falling to the share of the Reinsurers shall be payable by them upon reasonable evidence of the amount paid being given by the Reinsured.”

With regard to the third ground of appeal, a Period clause was included, which of course in each case would be varied according to the precise period of cover. Miss Cockerill complains that this clause is not expressly cited in the Award, but, as can be seen, its wording is hardly distinctive, and it is plain that the ‘allocation’ argument, as it was characterised, was very much in the forefront of both argument and decision:

“PERIOD

This reinsurance covers all losses as herein defined occurring during the period commencing with … and ending with …, both days inclusive, local standard time at the place where the loss occurs.”

In the case of the fourth ground of appeal, the relevant clause was the “EACH AND EVERY LOSS” clause:

“For the purpose of this reinsurance, the term “each and every loss” shall be understood to mean each and every loss and/or occurrence and/or catastrophe and/or disaster and/or calamity and/or series of losses and/or occurrences and/or catastrophes and/or disasters and/or calamities arising out of one event.”

Effectively by way of a Respondent’s Notice (because the contention was raised in response to the appeal and I gave leave for it to be argued), the Respondent relied upon an argument by which the Arbitrators were “not convinced” (see paragraph 31 of their Award) namely that if there were, contrary to its primary contention, any doubt that the Arbitrators were entitled to find the necessary standard of proof established in relation to each of the six compromises, that it could rely on the approval by the relevant United States court of the settlements of the blood and breast implant class actions.

The noteworthy aspect of the dispute between the parties on this appeal is that there seems to be common ground as between them with regard to the correct legal approach, and also, on the face of it, as between them and the Arbitrators, insofar as there are citations of law at the outset of the Award (paragraphs 13-17). The issue is whether the Arbitrators in the event applied that approach in reaching their decisions. The common ground is as follows:

The issue in those circumstances is therefore whether the Arbitrators correctly applied the law to the six appealed cases. Did they, in relation to AHS, 3M, Baxter and Revlon, apply the correct standard of proof, and to the correct facts, in concluding that the provisos were satisfied (first and second grounds of the appeal)? Did they (in relation to AHS, 3M, Corning and Stauffer) correctly conclude that the losses sought to be recovered under the reinsurance contract fell within the cover for the relevant period (third ground of appeal)? Did they properly decide (in relation to Corning) that the losses for each of the two years of cover arose out of one event for the purpose of the Each and Every Loss Clause (fourth ground of appeal)?

I deal first with the issue in relation to the first and second grounds, which relate to the first proviso. As set out above, although the Claimant’s case is that the Arbitrators’ approach in law was flawed, thus infecting its conclusions (at any rate in relation to all cases which have been appealed), Miss Cockerill submits that such flawed approach is exemplified and demonstrated by reference to their decision in AHS and 3M (the breast implant cases) and Baxter and Revlon (the blood cases). Put another way, the proof of the pudding must be, and is said to be, in the Arbitrators’ disposal of these four cases. All four arose as a result of a cross-market settlement of class actions against the relevant producers. As to the implants, the Arbitrators described this in paragraph 25:

“25.

As is well known, many women had problems with the implants: some ruptured, some provoked allergic reactions and some caused (or were alleged to cause) various other disorders. Consequently, many claims were filed against Baxter and other implant manufacturers in the US, Canada, and elsewhere: most of the US cases were consolidated in a class action (“Dow Corning v Lindsey”) which was settled in September 1994. The settlement terms were revised and approved by the presiding court on the 22 December 1995 (the Revised Settlement Program – “RSP”), The RSP involved the setting up of a fund by the manufacturers, each contributing according to their market share: Baxter’s share being some 20%. Individual claimants were paid on an agreed scale of compensation (as approved by the court) from the RSP fund. In addition to the class action, some claimants pursued individual actions against specific manufactures, including Baxter. We understand that most of these “opt-out” claims have been settled.”

As to the blood cases, there is the equivalent description in paragraph 50 of the Award:

“50.

Most of the US cases were consolidated in a class action, with the four producers as joint defendants. A settlement was agreed and approved on the 8^th May 1997 by Judge Grady: the four producers (known as the “Fractionators”) would be responsible for payments under the global settlement in proportion to their market share. Claimants would receive compensation according to an agreed schedule. [Baxter’s] share of the “pool” was 20%. The dispute in this arbitration was in respect of this class action settlement.”

The underwriters were, as the Arbitrators found, well aware of Hiscox, which, as the Arbitrators set out in their footnote 1 to paragraph 27 of their Award “was a case relating to the Wellington Agreement, whereby all asbestos manufacturers agreed (with their insurers) to pay claims on the basis of their market share, even if a manufacturer had not supplied asbestos in an individual instance: it was held that reinsurers were not liable for losses assumed where there was no causal link.”

The Arbitrators explained what steps were taken in the cases before them to ensure that what occurred led to satisfaction only of claims made against the relevant insurer, even though each producer had contributed its market share to the compensation fund from which victims were paid out:

In the following paragraphs the Arbitrators set out the rival contentions:

“55.

IRB argued as follows:

“Because of the terms of the CAS, CX Re in settling with Baxter accepted certain elements of claim which were not covered by the insurance. These are those elements consequent upon the Settlement sharing formula:

…

(b)

CX Re’s evidence (see the detailed evidence of Miss Comiter …) is that each fractionator contributed its percentage to each individual claim, and that the sums paid were then “reallocated” (to use a neutral term) to lend verisimilitude to the reinsurance presentation, which would require losses to be in relation to insured risks.

(c)

It follows that each fractionator can recover only their insured percentage (20%) of each of the claims in which they were names. As with the breast implant claims, this is equivalent to the position in [Hiscox]. The claims of other fractionators are not insuredby CXRe and cannot be recovered. The elements of the claims for which BT/Revlon has not paid are not losses for which an indemnity can be claimed.”

56.

CX Re replied:

(1)

Payment was made by the fractionators into a settlement fund, from which fixed sums of US$100,000 were paid to each claimant who satisfied the eligibility criteria (proof of use of product, medical records, etc).

(2)

Each claim was carefully vetted for eligibility.

(3)

For the purpose of presenting claims to reinsurers, the product liability claims were then allocated only to those fractionators who had been confirmed as one of the suppliers of product which the HIV/AIDS-positive haemophiliac had used over the years.

This painstaking procedure was commissioned and put into operation in order to avoid problems of [Hiscox] and thus allow the spread of the burden of claims through reinsurance market for the benefit of all.”

In relation to the breast implant claims there were similar recitals of the rival contentions in paragraphs 29 and 30 of the Award.

As set out in its submissions, recorded in paragraph 55 of the Award as above, the Claimant asserts that the Respondent did not establish, on the balance of probabilities, that the claims it was paying fell within the cover provided by it and that such settlements fell within the terms of the reinsurance, because of the existence of the market share agreement. The Claimant also made some specific points, as follows:

“34.

… Miss Cockerill in her closing summary pointed out that the Claimants accepted certain elements of claim which were not covered by the original insurance as follows:

“Claims which would not have arisen but for the broad approach to compensation adopted by the RSP:

(i)

The underlying RSP settlement allowed for:

(1)

payment which bore no relation to any evidence of any complaint – such as the advance payment – which was not refundable if a claimant did not evidence anything else. These were payments made without any liability;

(2)

complaints (eg lupus) which were never causally linked to the produce or in relation to which liability was never established;

(3)

the settlement allowed for payment of, and payments were made in relation to, explants where there was no established bodily injury.””

The Arbitrators conclusions were as follows:

The allocation issue arises in respect of AHS, 3M, Corning and Stauffer, and it relates to the second proviso. The Claimant’s complaint is that the Arbitrators failed to consider the issue (described above, as to whether the losses occurred within the period covered by the reinsurance) – in that, for example, they stated, in paragraph 22 of their Award, that “most of the disputed material before [them]focussed on the first proviso and not the second proviso” – and/or reversed the burden of proof.

AHS. The allocation point is identified in paragraph 26 of the Award:

“26.

London underwriters participated in many of Baxter’s (and AHS’s) insurance policies covering products liabilities over a period of many years. If Baxter were held liable for bodily injury caused by its products, the question would arise as to which of Baxter’s policies would pay the claims, bearing in mind previous decisions of US courts (notably Keene, an asbestos case where it was held that all policies, from the time of first exposure through incubation to manifestation, were liable, known as the “triple trigger” theory). Underwriters were represented and advised in this matter by Mendes and Mount, a well-known firm of New York lawyers. In September 1995 an agreement was reached between London Market underwriters and Baxter on a “coverage in place” (“CIP”) basis: this proportioned losses (those which are the subject of this action) over the years 1974 to 1986, being the years when policies had been issued to AHS. We should point out that Baxter used the years 1974 to 1991: on the basis of CIP 1974 to 1986 covered 63.5% of the losses; and 1987 to 1991, 36.5%. However, the 1987 to 1991 policies were on a “claims made” basis and there was some argument as to whether they were liable to pay any of the losses. Suffice it to say the two sets of underwriters agreed to pay 70% and 30% of the losses respectively: this was raised as a separate issue by IRB (the “allocation” point) which we deal with below.”

The Arbitrators resolve it as follows:

“39.

What was referred to as the “allocation” point was raised by IRB as demonstrating that CX Re was paying claims for which it was not liable and therefore should not be paid by their reinsurers. This argument was misconceived: if it could be shown that, whilst it was reasonable for the insurers to pay 63.5% of the overall loss it was unreasonable for them to pay 70%, there could be some tangential grounds for questioning the settlement. IRB was unable to show any evidence to that end: indeed, such evidence as was available (though largely circumstantial) was that the settlement of 70% of Baxter’s proven liabilities was reasonable and businesslike.”

3M. This allocation point is different. It relates to whether the settlement included claims “for the future”, which were not shown on a balance of probabilities to have fallen within the period of reinsurance. I must set out the whole relevant passage:

“41.

3m acquired McGhan Medical Corporation in 1977. McGhan manufactured breast implants through a wholly owned subsidiary and under 3M this continued until 1984, that business then being sold. Thereby, 3M became liable for bodily injury claims from implants manufactured between 1977 to 1984 and London market underwriters ostensible liable for claims on policies issued during that period. 3M was, like Baxter, a party to the Dow Corning v Lindsey class action, the settlement and the RSP approved by the court in December 1995. In March 1999 Mendes and Mount negotiated a settlement of London underwriters’ liabilities on policies issued between 1977 and 1984. This settlement was on a different basis from that agreed on the Baxter policies: the underwriters agreed to “buy back” all liability claims against 3M (except for potential future environmental claims at four specific locations)(the “PBB”), the agreement including the breast implant claims. This meant that the underwriters paid a total sum of $328 million, extinguishing all their liabilities, present and future (except as specifically excluded), the amount being allocated over the relevant policy years.

42.

To put this in context, 3M had paid over US$1 billion for breast implant claims by August 1999 and in their reported dated 15 March 1999 Mendes and Mount said:

“The (PBB) Agreement incorporates many favourable rulings which Underwriters and Companies have been able to obtain in the ongoing declaratory judgment action in Minnesota. This includes the treatment of all policies on a “costs-inclusive” basis, whereby all settlement amounts, including the associated defence expenses, are within policy limits. The Agreement also incorporates the Court’s current pro-rata time on risk methodology which is at this very moment under reconsideration by the Court. Any change or modification of the Court’s current rulings would have a dramatic effect on the amounts attributable to particular policies and coverage.”

43.

The “pro-rata time on risk methodology” was further explained by Mendes and Mount in their 25 August 1999 report:

“Judge Shumaker relied on the Minnesota Supreme Court’s holding in Northern States Power, an environmental case, to allocate 3M’s liability on a pro-rata, time on risk methodology. Applying Minnesota’s methodology, he held that 3M’s breast implant claims should be allocated from date of first implant to the earlier of the date of each claimant’s death (a factual end date) or date of suit (a legal end date).”

44.

IRB raised the same issues as in the Baxter claim … and for the reasons explained above we would find in favour of the Claimants. In addition, IRB raised a further point:

“There is also the issue of the Policy Buy Back (PBB) (a commutation by any other name). As to this:

(a)

This is an issue as to whether … the PBB … falls within the terms of the reinsurance. The particular issue engaged is the same allocation issue as is referred to above – there must be evidence to establish a loss occurring during the period of the reinsurance.

(b)

It is common ground that this was a settlement not only in relation to known claims, but also in relation to future and therefore unknown and unknowable claims.

(c)

As to this these liabilities would plainly fall outside the terms of the reinsurance contract.

45.

Starting with 3M’s liability to the original claimants, had these cases progressed to a judgment in court and 3M been found liable to pay damages, they would have produced valid claims against 3M’s products liability insurers. As to which policy or policies would pay this (if it went that far), that would also be an issue to be decided by a US court and the advice to the underwriters was to the effect that – in such circumstances – many years’ policies would be vulnerable. The compromise settlement was, in these circumstances, reasonable and businesslike; it settled the insurers’ potential liabilities and over periods where, if the claims had gone to court, the insurers would have been held to be liable to indemnify 3M. On the basis [upon] which it was settled it was therefore arguable that the loss fell under the insurance and the reinsurance.

46.

As to “future and therefore unknown and unknowable claims” no evidence was produced to show whether any such claims were significant or not. In view of the fact that 3M ceased the manufacture of implants in 1984 and the compromise settlement was agreed in 1999, we think it unlikely. However, we disagree with the proposition that, if some allowance in the settlement had been made for such future claims, reinsurers were not liable for that part of the compromise settlement.

47.

Most compromise settlements agreed by insurers (and they would prefer it to be all) involve a final determination of their liabilities, for obvious commercial reasons. Where insurers agree a compromise settlement between an insured and third party claimants, they are settling their potential liability. It is potential rather than actual because although a claim has been made it has not been, nor will it be, determined by a court judgment. There may also be potential claims (particularly where injury or damage becomes apparent over a long period of time) not yet advised, but where there is inevitable future liability. In either case, if the claims proceeded through court to a judgment against the insured the liability of the insurers (and their reinsurers) would be established both in respect of existing claims and declaratory relief in respect of future claims.”

Corning. Again I must set out most of the relevant passage in the Award, which includes the Arbitrators’ conclusion at paragraph 79:

“74.

[Corning] manufactured and installed many products containing asbestos, including an insulation material called Kaylo, for many years, back as far as the 1950s. They faced a substantial number of claims as a result of their operations (318,000 by 1998, many unresolved). Two US insurers, … North River and … ISLIC, provided excess liability cover to Owens on policies effective from 1978 to 1983. They in turn were reinsured, partly by London Underwriters, including CX Re.

75.

Up to 1998 these claims against [Corning] were considered as products liability claims: in that year [Corning] began to advise asbestos-related claims as premises or operations liabilities, i.e. not as products liabilities. Accordingly, the claims would not be subject to an aggregate, but an “any one event” limit and [Corning] maintained that there was a single event being “the determination of the company to engage in the insulation business and to install Kaylo insulation products over a twenty year period”. North River and ISLIC disputed their liability: in May 2000 (subsequent to a mediation) the non-products claims were settled for $335 million. Their London reinsurers agreed a compromise settlement of the resultant claims on their reinsurance policies by way of a commutation agreement in 2001, CX Re paying $5.1 million. Claims were presented to their reinsurers, CX Re’s total claim against IRB being $56,546 over two policy years, 1978 and 1979.

76.

IRB [raises the issue of]:

(a)

Allocation

(i)

Was the allocation of the claims to underlying policies (and hence to the reinsurances) arbitrary or supported by evidence?

(ii)

IRB say that (as with the cases above) if there was no evidence to support the allocation across the years, CX Re cannot establish that the losses fell within the terms of the reinsurances.

…

77.

There was considerable discussion (but not much agreement) about the correct law to be applied. The position as we see it is as follows: the [Corning] policies written by North River and ISLIC were subject to US law. The insurance claim, which was in respect of many individual original claims over a long period of time, was settled by the payment of $335m. Although we have no direct evidence, we assume (and are entitled to assume in respect of such a huge payment) that this was a reasonable and businesslike compromise with suitable legal advice in settlement of what were (on the balance of probabilities) valid claims under the policies. We certainly have no evidence to the contrary.

78.

The reinsurance contracts written, inter alia, by CX Re were also subject to US law. [They] were not in evidence, but [it] is reasonable to assume that such contracts included a Service of Suit Clause and had a US jurisdiction clause. North River and ISLIC presented claims under these reinsurances: the London underwriters agreed a compromise settlement involving paying claim on several years’ policies. Again, we do not have all the details, but we know that CX Re paid a claim on the 1978 and 1979 years’ reinsurance policies. We assume, and are entitled to assume, that the settlement was reasonable and businesslike in respect of potential liabilities on the reinsurance contracts. We certainly have no evidence to the contrary.

79.

It follows that we disagree with IRB’s view on the allocation issue. If IRB had evidence to show that the allocation of the original loss by North River and ISLIC was wrong or unfair then it could have presented it but no such evidence was forthcoming.”

The Stauffer point was similar:

“82.

Stauffer was a manufacturer of chemical and agricultural products: they faced environmental pollution claims from about 100 sites which they owned, or had owned in the past. One site in particular, a 400-acre mine at Iron Mountain in Shasta County, California, carried by far the greatest exposure. Stauffer owned this site between 1967 and 1976: Copper, Zinc and Cadmium leachates were contaminating the water system and the surrounding land. Clean-up costs were likely to be huge.

83.

The leading London Underwriters and their US Attorney (Lord Bissell & Brook) negotiated a settlement of all outstanding claims: an agreement was reached in September 2000 in the sum of $46.5 million (this included $1.85m defence costs). This amount was allocated over several years’ policies, as explained by Lord Bissell & Brook in their letter dated 26 January 2001:

“The $1.85 million for costs was allocated equally to each policy named in the California declaratory judgment actions. The indemnity figure was allocated pro rata to those policies previously allocated a portion of our suggested reserve potentials. The indemnity reserve potentials treated each site as a separate occurrence, and after application of underlying limits, spread the loss from the beginning of Stauffer’s operations through the date when Stauffer received a PRP notice or similar correspondence indicating it had an obligation to perform investigation or remedial actions. We assumed that the law of the site would apply to each claim and applied coverage discounts to each claim based on the known facts and that state’s particular law on the various coverage issues. The per policy allocation detail previously was provided by LMCS.”

84.

Claims were presented to IRB on contracts protecting the 1976 to 1978 policy years. IRB disputes their liability on the grounds that the allocation over the policy years was artificial. As Ms Cockerill put it:

“The sole issue on this loss is allocation. It appears that allocation was done by a simple split of the settlement over all policy years referred to in the US litigation, and the presentation to IRB consists of CX Re passing this amount on under the 1976 policies. IRB say that what was done does not comprise evidence of any loss occurring during the policy period at all, still less evidence justifying the amount of the claim put forward. As such the claim fails as not being, as a matter of law, a claim on a loss occurring during the policy period and hence being outwith the terms of the reinsurance.”

85.

There was no dispute that Stauffer were liable to pay clean-up costs or that these were covered under their insurance policies, but simply a question as to which policies should pay. It seems to us that there is little doubt that, if disputed, insurers would be liable for the whole period from start to discovery, as Lord Bissell & Brook assumed, so the problem, in coming to a compromise settle with Stauffer, was how it should be allocated over the policy years. No doubt spreading it equally over all the relevant years is in a sense artificial. It seems to us, however, that it would have been even more artificial to ascribe a larger portion of the loss to one year rather than another. On the terms by which it was settled, the claim fell within the terms of the insurance and the reinsurance. Was the settlement reasonable and businesslike? In our opinion it was, therefore IRB are liable to pay the claims as presented.”

One or more events? As set out above, this applies only in respect of Corning, and arises out of the facts which I have set out above by citation of the Arbitrators’ Award. The issue is summarised and resolved by the Arbitrators as follows:

“80.

On the occurrence issue, several English cases were cited. In all of those cases, the circumstances involved a number of different and distinct losses on different policies, the question being was there sufficient connection between them to establish that they were arising out of one occurrence or one event. In the present case we have insurers making a single payment to their insured (although in respect of a large number of potential claims). The insurers make a series of annual (but single) claims on their reinsurance policies which are settled on that basis. We do not think that the cited cases are helpful, but we bear in mind Rix, J in [Kuwait].

They then cite the passage at 684 Col 2 (set out in paragraph 13(vi) above) as to event or occurrence taking colour from the context.

81.

We respectfully agree: in the present context, being excess of loss reinsurances, the “perils insured against” are the reinsured suffering a claim (from the portfolio of business protected) in excess of the priority. As to being causally relevant to the loss or losses in question, the loss each year stemmed from a single cause, being [Corning’s] liability arising from their installation activities. In the context of the excess of loss reinsurance contract written by IRB the claim was settled by CX Re as a single loss: the question of whether it was in fact a series of losses arising out of one event (or not) does not arise.”

With regard to the ‘proof on the balance of probabilities’ issues, have the Arbitrators erred? At the nub of their decisions on the four cases are conclusions that, as to the AHS implants, “the claims under their insurance policies were in respect of specific payments made to those original claimants who had AHS/Heyer-Schulte implants” (paragraph 33), that as to the specific points raised by Miss Cockerill with regard to AHS “on the basis of the settlement, these were valid claims” (paragraph 36), and that Baxter’s “liability to claimants who had used their product remains: the fact that, when established, the payment in practice comes from a central “pot” is of no consequence” (paragraph 57). These are, on the face of them, factual findings by the Arbitrators, after hearing evidence over four days, involving testimony from three witnesses for the Respondent (including a specialist in reinsurance (Ms Comiter) who gave (paragraph 10(3)(b) of the Award) “impressive testimony”) - none being called by the Claimant; those witnesses gave detailed evidence regarding the nature and history of the losses, the basis on which the original insured settled the claims with the US third party claimants, the basis on which the corresponding liability insurance claims were settled by the London Market, the Respondent’s own consideration and settlement of inwards claims, and its presentation of outwards reinsurance claims to the Claimant. As a result the Arbitrators concluded (paragraph 19 of their Award) that they “saw no basis whatsoever to question the factual basis of the compromise settlements”.

In order to see whether such conclusions were flawed, it is necessary to consider the various passages in the Award which are impugned by Miss Cockerill, who accepts that they were preceded by the correct citation of the relevant law (in the Legal Analysis in paragraphs 11 to 17 of the Award); with the proviso that she complains that the part of Gross J’s judgment in Equitas which is specifically highlighted by the Arbitrator in their citation in paragraph 17 is not the recitation of the standard of balance of probabilities but the passage that follows, relating to the method of proof by “matters of fact or evidence, matters which are necessarily fact sensitive”. I see nothing strange in that. In the passage which follows on in the Award from such citation the reasons for that highlighting are explained in the context of the Arbitrators’ clear recitation of the burden of proof:

“In other words, the question as to whether a particular reinsured can discharge the burden on it to prove its claims under a particular Notice of Loss provision is a question of law but the evidence necessary to discharge that burden will depend on the actual facts of the case. Where there has been a settlement, the relevant facts are the facts on which the loss was compromised as opposed to the facts of the loss as it happened (if different).”

“Arguably”, plainly drawn by the Arbitrators from its use by Tuckey LJ in the passage from his judgment in Generali cited in paragraph 13 of the Award (and in paragraph 13(ii) above), makes its first substantive appearance in the following passage in the Award, which follows on after the Arbitrators’ consideration of Equitas:

“17.

As Lord Mustill emphasised, we are not required to make any findings in respect of the facts embodied in the settlement but should only appraise the legal implications of those facts and whether the claim or claims (as compromised) fall arguably within the underlying and reinsurance cover granted. It simply cannot have been intended by the parties to a reinsurance contract (containing the double provisos) that the “provided such settlements are within the conditions of the original policies and/or contracts” language meant that the Reinsured had to prove to an absolute standard that the underlying policy would respond to the claim or claims at issue. Such an interpretation would undermine a reasonable interpretation of the follow the settlements clause when read as a whole in the context of the reinsurance agreement per se.”

In addressing this, and indeed other passages, I do so on the basis that the Court will not construe the words of the Arbitrators as if they were a statute, will adopt the approach recommended by Bingham J, set out in paragraph 5 above, and will not ‘nitpick’. It seems clear to me on analysis that the Arbitrators are putting in their own words the result of their consideration of Hill and Equitas in the one hand and Generali on the other. The reference to the claims falling arguably within the underlying cover and the absence of any requirement to “prove to an absolute standard” that the underlying policy would respond is not failing to apply the Equitas test. Infelicitously, the Arbitrators use the word arguably in relation, not only to the underlying cover, but also to the reinsurance cover. Given what they are addressing, by reference to the recitation of Lord Mustill’s emphasis, I do not however believe they were seeking to detract from his guidance.

But this is to my mind entirely put beyond doubt by what the Arbitrators then proceed to say in paragraph 18 (after reciting the follow settlements clause):

“18.

The fundamental question for this Tribunal is whether the 8 losses (all involving compromise settlements) claimed by CX Re satisfy the requirements of the follow the settlements language and, as such, are payable by IRB. The Tribunal has no hesitation in determining that all 8 “loss settlements … including compromise settlements” have been proven on the balance of probabilities[my underlining] to fall within the follow the settlements clause including the two provisos. The Tribunal rejects IRB’s arguments as speculative, highly technical, and consistent only with a flawed interpretation of the follow the settlements clause that neither party could possible have intended at the time of contracting. IRB’s position on the provisos essentially ignores the primary provision in this clause which provides that all loss settlements made by CX Re, including compromise settlements, are to be unconditionally binding on IRB.”

Similar considerations apply to paragraphs 19 and 20 of the Award:

“19.

As to whether the compromises made by CX Re fall within the conditions of the original policies and the conditions of the reinsurance, CX Re is entitled to discharge the legal burden of satisfying the provisos by adducing the best factual evidence available to it. The recent [Equitas] Judgment made this clear. In order to determine this issue, it is permissible to consider whether CX Re was arguably liable to the insureds/reinsureds on the basis of the loss as compromised. Any further enquiry into the underlying dispute between producers and product liability claimants is not contemplated or required by the terms of the follow the settlements clause or market practice.”

Again it is plain that the use of “arguably liable” is not intended to detract from the very requirements of satisfying the proviso which the Arbitrators are themselves addressing, and this is clear by any fair reading of what they go on to say in paragraph 20:

“20.

… From the factual evidence presented in this arbitration, the Tribunal saw no reason to doubt that the compromise settlements were predicated on actual or arguable liability in law, based on legal advice, and were settlements that accordingly satisfied the first proviso of the follow settlement clause.”

Once again, to look at the approach of the Arbitrators is enlightening, as revealed in paragraph 21, where they show that they have considered the facts carefully:

“21.

… This is not to say that all compromise settlements are automatically payable by a reinsurer, as this would have the effect of neutralising the proviso. However, on the facts of this matter and on the basis of the evidence present, the Tribunal is satisfied that these losses should be paid.”

Further, in paragraph 22, the Arbitrators conclude “The Tribunal has considered carefully whether the second proviso was satisfied and has no hesitation in concluding that it was, in respect of each of the disputed claims.”

When it comes to the detailed consideration of the breast cases, there is occasional further infelicitous phraseology by the Arbitrators. Paragraph 29 makes it quite clear what it is that the Arbitrators are resolving, when they state: “IRB disputes that the class action settlement was in respect of liabilities which would on the balance of probabilities result in a valid claim under the original insurance policies”. The second sentence of paragraph 36 however is capable of criticism:

“On the basis of the settlement, these were valid claims and we are satisfied that it was arguable that they are within the terms of the insurance and the reinsurance.”

There is no repetition of the need of proof on the balance of probabilities, and the question of arguability is inapt to the terms of the reinsurance. However, only two paragraphs further on, comes the resounding conclusion:

“38.

… We find that the settlement was one that was on its terms in respect of liabilities that were within the terms of the reinsurance and therefore … “unconditionally binding upon Reinsurers.”

There is a similar problematic wording in what the Arbitrators said in dealing with 3M. In paragraph 45 the conclusion is “the compromise settlement … settled the insurers’ potential liabilities and over periods where, if the claims had gone to court, the insurers would have been held liable to indemnity 3M. On the basis [upon] which it was settled it was therefore arguable that the loss fell under the insurance and the reinsurance.” The penultimate sentence appears to be clear and to comply with the ‘common ground’ set out in paragraph 13 above. The last sentence appears to fail to comply with the requirement for proof on the balance of probabilities.

There is a very similar position in relation to the express consideration of the future claims, to which I will return below in the context of consideration of allocation. In paragraph 46 the Arbitrators reject the Claimant’s proposition that the reinsurers were not liable, and in paragraph 47 they “see no reason why” the claims “should not form a valid claim on a reinsurance policy”. The conclusion, in paragraph 48, is then however expressed as being that the compromise settlement was unconditionally binding on reinsurers and was arguably within the terms of the insurance and reinsurance.

In relation to the two blood cases, the Arbitrators do not use the words arguable or arguably, and address and answer the questions in a way which would seem difficult for the Claimant to criticise. The Arbitrators ask themselves a question in paragraph 57 which is expressly framed by reference to the balance of probabilities, to which the Arbitrators respond “we have no hesitation in answering yes. Therefore, we find that [Baxter’s] liability is established and is within the conditions of their insurance policies and their reinsurance.” They then simply adopt those reasons with relation to Revlon, without further elaboration, in paragraph 62 of the Award.

Although there is a certain amount of confused terminology, as discussed above, I am entirely satisfied that the Arbitrators were, and were in effect expressing themselves to be, satisfied on the balance of probabilities that the arguable claims which were settled by the compromise agreement fell within the terms of the insurance agreement and that the claims so compromised fell within the terms of the reinsurance agreement. There was no error of law.

In the circumstances I do not need to deal with the contention by the Respondent, addressed in paragraph 31 of the Award, that any doubt as to the balance of probabilities could and should be resolved by the existence of the Court approved settlements, said conclusively to establish the liability of the manufacturers. Like the Arbitrators, I find it unnecessary to consider the question as to whether they (a) amount to a conclusion by a court and (b) are resolutive as between insurer and reinsurer.

I turn to the question of allocation. I have set out the relevant passages of the Award in that regard in paragraphs 22 to 27 above. I am unimpressed by three general points which Miss Cockerill makes, which I have already mentioned. I do not consider that it was necessary either for the Arbitrators to spell out the Period clause (see paragraph 10 above) or to make express reference to Municipal Mutual (paragraph 13(v)), a case which illustrated a principle which would be well known to such an experienced tribunal, and with which, in any event, it is apparent that they are grappling in their consideration in the course of the passages in their Award, which I have set out above. Equally, it is quite plain that they did indeed consider the issue of allocation, and Miss Cockerill’s submissions on it, notwithstanding the passage in paragraph 22 of their Award (paragraph 22 above). I am also satisfied, as concluded above, that they applied the relevant standard of proof in their consideration of all aspects of the two provisos. Particularly given Miss Cockerill’s abjuration of any reliance on an allegation of perversity (paragraph 4 above), she is left, so far as any point of law is concerned, with her suggestion that the Arbitrators have reversed the standard of proof.

I turn to each of the four cases where it is suggested that the Arbitrators made an erroneous conclusion in relation to the allocation argument.

The Arbitrators made no error of law in arriving at their conclusions as to allocation of loss to periods of cover.

This relates to Corning, and I have set out the relevant passages in the Award in paragraph 28 above. The Arbitrators’ reasoning is clear from paragraph 80, based as it upon the facts and matters to which I have referred above in relation to there being (paragraph 75 of the Award) “a single event being “the determination of the company to engage in the insulation business and to install Kaylo insulation products over a 20-year period.” It is clear that the Arbitrators were satisfied that that was the basis upon which the insurance claims were settled, that this was a settlement within the terms of the insurance, and that, in those circumstances, they did not need to consider the authorities (referred to in paragraph 13(vi) above), save for that passage in Rix J’s judgment in Kuwait which entitled them to “take colour from the contractual context”. It is quite clear that the Arbitrators then proceed to commit what might be termed a ‘howler’ in referring, in paragraph 81, to whether “the loss each year stemmed from a single cause”. It is not surprising that Miss Cockerill in that regard was astute to draw attention to the words of Lord Mustill in Axa, in which he points out that “cause” and “event” are “not at all the same”. I am however clear that what the Arbitrators intended to say in paragraph 81 is that which was derived from their reasoning in paragraphs 75 and 80, namely that “the loss each year stemmed from a single [event], being [Corning’s] liability arising from their installation activities”. I agree with Mr Matovu that the Arbitrators were entitled to conclude that the determination of Corning each year to carry out its installation activities was an annual “aggregating” event in accordance with the decision in Axa, and met the test of unity in the citation from Kuwait (at 686) referred to by Miss Cockerill (see paragraph 13(vi) above), and that, in any event (paragraph 81 of the Award), there was a finding of fact that “in the context of the excess of loss of reinsurance written by IRB the claim was settled by CX Re as a single loss”. There is no basis for challenge in law on the Claimant’s fourth ground.

Notwithstanding therefore what I have described from time to time as occasional infelicities in the wording of the Award, the Arbitrators’ reasoning is clear and in my judgment unchallengeable in law, as are their decisions in respect of each of the six appealed cases. I therefore dismiss this appeal.