Technip Saudi Arabia Limited v The Mediterranean & Gulf Insurance and Reinsurance Co [2024] EWCA Civ 481

9 May 2024

Ø   WELCAR 2001 Offshore Construction Project Policy

Ø   Damage to offshore oil production platform caused by the negligence of owners of vessel chartered by one of the insureds

Ø   Claim under Section II of the WELCAR policy in respect of liabilities of one insured to another

Ø   Effect of the “Existing Property Endorsement” commonly incorporated in a WELCAR policy

Sir Geoffrey Vos held:

·             “… the second meaning does far more violence to the natural meaning of the words used in endorsement 2. It involves reading endorsement 2 as if it included the highlighted words as follows: “any claim for damage to…any property [for] which the Principal Assured [which is making the particular claim concerned]: 1) owns that is not otherwise provided for in this policy”. Those words are entirely absent from endorsement 2.”

·             “… the second meaning does not work if a liability claim is made under the policy by one of the “Other Insureds”, which is not a “Principal Insured”. In that event, the exclusion does not bite at all. In such a case, the words “the Principal Assured” cannot mean the “the Principal Assured which is making the particular claim concerned”, because no Principal Insured is making the claim at all. The suggestion in rebuttal that endorsement 2 does not need to work for claims by “Other Insureds” is, in my view, untenable.”

·             “… I did not find any consistent usage that pointed one way or another in this debate as to the proper meaning of the language of endorsement 2. Nor do I think that the fact that the third limb of endorsement 2 exemplifies its unduly compressed drafting assists either party. Endorsement 2 is excluding coverage (if not bought back) for claims for damage to property, either owned by or in the custody of the Principal Insureds, or for which the Principal Insureds are liable by operation of an indemnification or hold harmless contractual provision. The fact that the Principal Assured is principally referring to the party making the claim in relation to the third limb, does not mean that the words “the Principal Assured” cannot still mean “Technip and/or KJO and/or associated companies”.”

·             “… I did not find it helpful to consider the application of an approach that was adverse to the interests of those that endorsement 2 favoured (i.e. to interpret it avowedly contra proferentem). As the judge said, the first meaning gives the proper structure to an “existing property” endorsement. It is intended to exclude claims for damage to property, either owned by or in the custody of the Principal Insureds, or for which the Principal Insureds are liable by operation of an indemnification or hold harmless contractual provision, unless that coverage is specifically bought back for specific scheduled property. In other words, the existing property endorsement 2 is doing what is said in its first line. That line tells the objective reader that “Cover for damage to [the Principal Insureds’] existing property is subject to … Existing Property Contractual Exclusion and Buyback”.”

·             “… undertaking the exercise directed by Arch, I conclude that a reasonable person, with all the background knowledge which would reasonably have been available to Technip and the insurer when they entered into the policy, would have understood endorsement 2 to bear the first meaning. Technip was wrong to submit that the judge paid excessive regard to its supposed commercial rationale. He interpreted it correctly, having appropriate regard to the language and to admissible factual matrix including the commercial rationale of endorsement 2.”

 

Royal & Sun Alliance Insurance Plc and ors v Textainer Group Holdings Limited and ors [2024] EWCA Civ 547

22 May 2024

Ø   Rights of subrogation

Ø   Allocation of recoveries

Ø   Principle of averaging

Ø   Insurance arranged in layers

Ø   Loss exceeding amount of insurance

Ø   Whether recoveries from third party went to reducing uninsured loss or were to be shared proportionately between insurer and assured

Ø   Application of the top-down principle

Ø   Section 81 of the Marine Insurance Act 1906

Lord Justice Phillips (delivering the unanimous judgment of the court) held:

·             “In my judgment, however, the Judge was right to identify that the true nature of the cover being provided by the Policies was against particular layers of loss, and that the manner in which losses were determined and aggregated in that context was not an important factor. The nature of the cover required that the Policies “pay up and recover down”…Otherwise, if recoveries were not applied “top down” but proportionately to the insured layers as well as to the uninsured losses above the limit of cover: i) Textainer would not be fully indemnified in the amounts for which it was covered under the Policies, contrary to the fundamental principle referred to by the Judge; and Textainer would be in a worse position than if the recoveries had been made before the Policies had paid up…”

·             “In my judgment, rather than the rigid (and largely theoretical) analysis suggested by the Insurers, a broader approach is required to conform most closely with the underlying rationale of subrogation, as recognised by Rix J in a preliminary decision in Kuwait Airways, reported at [1996] 1 Lloyd’s Rep 664, 695. That approach, as recognised in the authorities and the leading textbook, is that in the case of excess of loss policies, recoveries should be applied top down.”

·             “… where a party with the burden of proof on an issue elects not to adduce available evidence to support its case, the court is entitled to decline to draw inferences which might otherwise have been drawn from the limited material which is adduced in evidence. That may be analysed, as the Judge did in this case, as a failure of the party to establish the factual premise of its case, or it might be viewed as a strong countervailing factor which makes it inappropriate to draw the inference in question. In any event, allowing a party to prove a case by inference, when it has not adduced available evidence on the issue, would encourage parties to mount inferential cases that they know or suspect the evidence, if adduced, would not support, and would risk injustice. I do not say that a Judge could never be persuaded to draw an inference in the absence of evidence that could have been adduced, but I do not consider that the Judge in this case can be criticised for refusing to do so.”

·             “… the concept of undervaluation is simply not engaged in relation to layers of insurance. In the case of the insurance of a ship, for example, where the whole vessel is insured and the insurer is liable for any damage it suffers, insurance at less than the value of the ship can readily be seen to be under-insurance by value, exposing the insurer to the same risk (up to the limit of cover) as if the insurer had insured the full value of the vessel. On the other hand, where cover is in relation to a defined portion of loss, the insurance cover by definition matches precisely the value of that which is insured and the insurer is not exposed to a risk greater than the cover provided.”

Rhine Shipping DMCC v Vitol SA [2024] EWCA Civ 580

23 May 2025

Ø   Charterparty

Ø   Warranty that vessel was free of encumbrances

Ø   Right of charterer to indemnity in event of detention

Ø   Effect of internal hedging by charterer

Ø   Remoteness of loss

Ø   Oppositional risk

Ø   Quantification of the avoided loss

Lord Justice Popplewell held:

·             As to a new argument advanced on appeal:

o     “It is, however, entirely new in three respects, namely conceptually; in relation to the factual and expert issues it raises; and in relation to the legal issues it raises. It is conceptually new because it addresses the counterfactual scenario of what would have happened in and as a result of the Vista system, and in Vitol’s book hedging decisions, had there been no breach by Rhine; whereas the case at trial depended wholly upon what had in fact happened in the breach scenario, which was what gave rise to the paper entry in portfolio 645 of the internal rolling of the swaps and their notional monetary consequences had they been external. The benefit is now said to arise from an avoided loss on a transaction which would have occurred absent breach, rather than, as at trial, a benefit from a transaction or transactions which ‘occurred’ as a result of the breach. It raises new factual issues, as to how the Vista system works in netting off pricing risk between different transactions of different kinds or linked to different indices or linked to indices on different dates; whether Vitol always hedged all its pricing risk on a whole book basis so as to run no speculative risk whatever on any pricing risk; what the terms of the avoided hedge would have been; when it would have been taken out; and what loss it would have produced. It raises new legal issues as to whether the avoided book hedge can be characterised as a step taken in mitigation of loss caused by Rhine’s breach (being the absence of a decision to take out a hedge by someone in all probability ignorant of such breach) or as avoided loss, which in either case is not res inter alios acta.”

·             In relation to identifying the ‘oppositional pricing risk’:

o     “It will be immediately apparent that it is a matter of speculation whether there would have been such an exact oppositional risk in Vitol’s physical trading book; and given the spread of dates and amounts involved, being fractions of a 920,000 bbl cargo at different dates, it seems improbable. Indeed it was put to Mr Smith by Mr Young on behalf of Rhine in cross examination that such a perfect match was unlikely.”

·             In relation to mitigation/res inter alios acta analysis:

o    “There remains to be considered Vitol’s argument that the new point would be bound to fail for the additional reason that an avoided book hedge loss would be res inter alios acta. I do not see how it could be characterised as a step taken in mitigation of loss since what is posited is (a) the absence of any decision to make a book hedge (b) in the counterfactual no breach situation in which there would be no knowledge of the breach. An analysis treating it as an avoided loss engages consideration of whether it is a collateral benefit in accordance with the principles in Swynson Ltd v Lowick Rose.”

o    “… questions of causation in this area raise difficult issues involving taking into account a wide variety of circumstances, being matters of fact and degree which are highly sensitive to the particular circumstances of individual cases. For that reason, and although I consider that the collateral benefit principles would place formidable difficulties in the way of Rhine’s new argument succeeding even if the avoided loss were made out on the facts, I would prefer not to express a final concluded view on the question in circumstances where the relevant process of causation through the Vista system has not been the subject matter of the necessary evidence and findings of fact. It is unnecessary to decide the issue because Rhine should not be allowed to raise the new point.”