UK: Court of Appeal Rules 'Follow the Settlements' Clause Not Sufficient to Permit a Stay of Proceedings
In Amlin Corporate Member Ltd v Oriental Assurance Corporation  EWCA Civ 1341, the Court of Appeal upheld the decision of the court of first instance in refusing a stay of English proceedings brought by reinsurers to seek to establish that they were not liable under a contract of reinsurance.
The proceedings related to the loss of the vessel 'Princess of the Stars' off the coast of the Philippine Islands in 2008. The casualty occurred as the vessel sailed into the path of typhoon 'Frank' and resulted in the loss of over 500 lives. More than 40 separate proceedings were subsequently brought against the vessel's owner in the Philippine courts by the owners of the cargoes carried onboard the vessel. The Defendant/Appellant (Oriental) was the insurer of the vessel.
The Claimant/Respondent (Amlin) had agreed to reinsure Oriental under a reinsurance contract. Both the original policy and the reinsurance contract contained a typhoon warranty, which stipulated that the vessel would not sail out of port when there was a typhoon warning or when her destination or intended route might cross the typhoon's path. The reinsurance contract also included a clause to follow all terms, conditions and settlements of the original insurance policy, and an express English law and jurisdiction clause.
In November 2010, Amlin issued a claim in the English courts seeking declarations that it was not liable to indemnify Oriental under the reinsurance contract as a result of a breach of the typhoon warranty. Amlin similarly argued that Oriental was not liable under the original policy for the same reason. Oriental sought an order for a stay of action, as a matter of case management, pending the outcome of the Philippine claims. Mr Justice Smith, hearing the matter initially, dismissed the application on the grounds that a stay of the kind applied for should be granted only in rare and compelling circumstances, which were not present in this case. Oriental appealed the decision.
The Court of Appeal noted that should the stay of English proceedings not be granted then Oriental could run the risk of undermining the credibility of its own defence in the Philippines, or else could concede that the typhoon warranty was indeed breached and that it had no reinsurance cover. However, despite the seemingly unfair position that Oriental found itself in as a result of Smith J's decision, the Court of Appeal was unpersuaded that the judge's discretion had been exercised on an incorrect basis or that he had taken irrelevant considerations into account. As such, the appeal was dismissed and a stay of the English proceedings refused.
The judgment in this case supports the principle that a situation where the reinsurer is bound to follow the settlements of the reinsured is not a general exception to the normal rule that a stay of proceedings can only be granted in rare and compelling circumstances. We will be examining this decision further in the next edition of Edwards Wildman's Insurance and Reinsurance Review.
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