Actual or Alleged Liability? The 'Bermuda Form' under English Law In a Judgment handed down on 28 February 2013, legal precedent has for the first been been set by the English Commercial Court on points of construction concerning the 'Bermuda Form' insurance policy wording. Specifically, when considering two preliminary issues of construction, the Commercial Court held that as a matter of English law, absent specific language to the contrary in the policy, in order to obtain indemnity under a liability policy, an insured must demonstrate an actual legal liability. This ramifications of the Judgment will undoubtedly cause insureds concern. The 'Bermuda Form' The Bermuda Form liability insurance policy was introduced in the 1980s by the then newly-formed Bermudian insurance companies, SL and ACE. The form was originally created to ensure the availability of high level liability cover for multinational corporations which faced exposure to large product liability claims. The corporations that required the cover themselves contributed capital to fund the original Bermuda Form insurers. The Bermuda Form wording is unique. One of its distinctive features is that whilst the insurance policy is governed by New York law, it provides for the resolution of disputes through arbitration seated in London. For this reason, until now, the English Commercial Court has never been called upon to address issues of construction relating to the Bermuda Form. In this case, the parties amended the standard Bermuda Form wording by endorsement, such that policy was governed by English, and not New York, law. The Seroquel Litigation Since 2003, when the first putative class action was filed in the US, it is believed that AstraZeneca (or rather, certain of its group companies) has paid out in the region of US$786m in legal costs compared with US$63.7m in settlements in relation to third party claims for personal injury, defective product, and failure to warn in the US and elsewhere relating to its anti-psychotic drug Seroquel. In this period, only one Seroquel claim has been litigated through to a full trial, where AstraZeneca was successful in its defence. Other claims have been dismissed summarily. The Dispute AstraZeneca Insurance Company Limited (the pharmaceutical company's captive insurer) indemnified the group companies for the totality of legal costs incurred as well as for roughly half of the third-party claims presented to it under its liability insurance policy - the XL004 Bermuda Form wording (the Policy). Critical to the decision in this case (and in addition to other amendments) the parties agreed that the Policy would be governed by English law instead of New York law. Having settled its insured's claim under the Policy, the captive turned to its reinsurers, XL Insurance (Bermuda) Ltd and Ace Bermuda Insurance Ltd, for reimbursement. Both reinsurers refused to indemnify the captive on grounds that an actual legal liability has not been proven. By contrast, AstraZeneca's captive maintained that: 1. The Policy provided indemnity not only for an actual legal liability, but also in circumstances where there had been a settlement on an arguable liability; and 2. The indemnity for Defence Costs (as defined in the Policy) constituted a free standing entitlement irrespective of whether any actual legal liability could be shown. The captive and both reinsurers agreed to waive the arbitration clause in their policies and instead
agreed that their dispute should be subject to the jurisdiction of, and determined by, the English Court, by way of a preliminary issues trial of the two points set out above. Judgement on the Preliminary Issues In respect of the first preliminary issues, Flaux J. held that the insured is only entitled to an indemnity where it demonstrates an actual legal liability on its part. This means that, where the insured has entered into a settlement, it must show shat on the balance of probabilities it would have been legally liable. Similarly, as regards the second preliminary issue, Flaux J. held that the insured is only entitled to an indemnity for defence costs where it establishes that it was, or would have been, legally liable for the third-party claims in issue. Whilst this Judgment has disposed of the preliminary issues - an appeal cannot be ruled out - the case remains ongoing. Ramifications Given that this is the first time that construction issues relating to the Bermuda Form have been considered by the English Commercial Court, the case has, unsurprisingly, prompted much interest in the insurance market. However, beyond that, it is worth considering the potential ramifications for insureds, who spend millions of dollars in premium purchasing this cover. The balance of probabilities: The Judgment places a higher burden on the insured to show that, absent wording to the contrary in the policy, it owes an actual legal liability to a third party rather than an alleged legal liability. It is important to note that Flaux J. describes actual legal liability as something to be demonstrated "on the balance of probabilities" (i.e. 51% : 49%) and therefore, whilst this may still present difficulties for policyholders who are, for example, preparing strategies to deal with mass tort litigation in the US, the situation may perhaps not be quite as bleak for all insureds seeking to settle claims (as some headlines would suggest). Unintended Consequences: Whilst this Judgment will be disappointment to insureds, it once again demonstrates that parties must be wary and carefully think through the unintended potential consequences of amendments or endorsements to their policies. In this context, New York law is generally regarded s more "policyholder friendly" and it is worth noting the apparent consensus that, had the governing law clause remained unamended, under New York law is would have been sufficient in this case to establish liability by means of a reasonable settlement. Defence Costs: Perhaps surprisingly, given that insureds may believe they are buying straightforward cover for "defence costs", the Judgment suggests that under English law an insured can only be certain that it will recover defence costs if an actual liability can be shown. If it remains the case that insurers' liability for defence costs follows their overalll liability, a nonsensical result ensues: an insured may incur costs in successfully defending underlying third-party claim(s) against it, thus saving insurers from substantial indemnity payments, yet that same policyholder risks being left out of pocket for its trouble, despute having purchased cover for so-called defence costs. This may be particularly acute in the context of underlying claims in the US, where the problem is exacerbated by the absence of a "loser pays" rule. Extrinsic Evidence: It is also worth noting that the claimant, in presenting its position on the preliminary issues (and with a view to demonstrating the reasonableness of its underlying settlements) sought to introduce expert evidence on the difficulties for companies facing US mass tort litigation, jury trials and the spectre of punitive damages. However, as a matter of English law, Flaux J. held that expert evidence on the reasonableness of an insured's settlements with third parties constitutes extrinsic evidence pursuant to Article VI O of the XL004 Bermuda Form wording, and such evidence was therefore inadmissible and wouild not be considered as an aid to construction of the Policy.
02-Finch-ch2-pp 20/5/2002 12:50 pm Page 11 D. Greenwood and R. Whitley At the basis of all antimicrobial chemotherapy lies the concept of selec-2.1 Sites of action of antibacterial agentstive toxicity. The necessary selectivity can be achieved in several ways: Principal target vulnerable targets within the microbe may be absent from the cellsof the host or, alternatively, the analogous tar
Advice for high altitude expeditions Dr Daniel Martin MBChB, BSc Anaesthetics and intensive care medicine specialist registrar University College London Hospital 10/2005 • Introduction • Acclimatisation • Acute Mountain Sickness (AMS) • How to avoid AMS • Treatment of established AMS • High altitude pulmonary oedema (HAPE) • Prevention of H