In Astrazeneca Insurance Company v. XL Insurance (Bermuda) Ltd and ACE Bermuda Insurance Ltd, the English Commercial Court for the first time had to decide issues of construction concerning the Bermuda Form, applying English law.
The claimant, Astrazeneca's captive insurer, provided insurance to Astrazeneca under a Bermuda Form Policy (XL 004 Form), under which the claimant agreed, among other things, to indemnify Astrazeneca for certain liabilities arising out of its supply of pharmaceutical products. That policy was reinsured with the defendants in respect of those liabilities. Astrazeneca faced liabilities in relation to its Seroquel drug and after the claimant indemnified it for those liabilities, the claimant sought recovery from the defendants.
The Bermuda Form is ordinarily subject to a modified form of New York law and to English arbitration. However, the parties to the insurance agreed, by endorsement to the Policy, that the Policy be subject to a modified form of English law. Later, the parties to the reinsurance agreed that the requirement to arbitrate any disputes arising out of the reinsurance be waived and conferred jurisdiction on the Commercial Court in England. It was common ground that although the parties to the Commercial Court proceedings were insurers and reinsurers the issue before the court was the insurance policy, and not the reinsurance policy.
The court had to decide two issues: (1) whether, as the claimant contended, it was only necessary to demonstrate that its insured, Astrazeneca, settled an arguable liability or, as the defendants contended, it was necessary to demonstrate that the insured was under an actual liability; (2) whether Astrazeneca's entitlement to indemnity for defence costs depended on whether it was liable for the claims to which the costs related.
The court found that:
- The insured, Astrazeneca, was only entitled to an indemnity under the insurance Policy where it demonstrated that it was under an actual legal liability. Where it had entered into a settlement, this meant that the insured had to show, on a balance of probabilities, that it would have been liable for the claim in question under the relevant governing law; and
- The insured was only entitled to an indemnity for defence costs under the insurance policy where it established that it was or would have been actually liable for the claim in question, as required under 1. above.
This case is a reminder of the difficulties insureds face under English law in relation to proving liability for claims which have been settled. It may have been that a different result would have been reached if the insurance policy was, as it normally is, subject to New York law. If so, this case is a useful illustration of the effect of subjecting policies on the same terms to different governing laws.