Royal & Sun Alliance Insurance Plc v Dornoch Ltd & Ors, Court of Appeal - Commercial Court, April 22, 2004, [2004] EWHC 803 (Comm)

Reporting Judge: [2004] EWHC 803 (Comm)

President: Royal & Sun Alliance Insurance Plc v Dornoch Ltd & Ors

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Extract

Royal & Sun Alliance Insurance Plc v Dornoch Ltd & Ors, Court of Appeal - Commercial Court, April 22, 2004, [2004] EWHC 803 (Comm)

Case No: 2002 Folio 416

Neutral Citation No: [2004] EWHC 803 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 22nd April 2004

Before :

THE HONOURABLE MR JUSTICE AIKENS

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Between :

| |Royal and Sun Alliance Insurance Plc |Claimant |

| |- and - | |

| |Dornoch Limited and others |Defendants |

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Jonathan Sumption QC and Guy Morpuss (instructed by Herbert Smith) for the Claimant

Michael Harvey QC and David Lord (instructed by Mills & Reeve) for the Defendants

Hearing dates : 5 February 2004

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Judgment

Mr Justice Aikens:

A. Synopsis of the case

1. In this trial the Claimant reinsured (“RSA”) claims a declaration that the Defendant Reinsurers, who are syndicates at Lloyd’s (“the Reinsurers”), are obliged to indemnify RSA under two contracts of reinsurance in respect of any losses that RSA may suffer as a result of having insured Coca Cola Company and its directors and officers for liabilities to third parties. There is only one defence to the claim. This is that RSA did not give notice of “the loss” within the time required in a standard form of Claims Control Clause (“CCC”) in the re-insurance contracts between RSA and the Reinsurers. The key words in the clause are:

“Notwithstanding anything herein contained to the contrary, it is a condition precedent to any liability under this policy that:

a) the Reassured shall upon knowledge of any loss or losses which may give rise to claim under this policy, advise the Underwriters thereof by cable within 72 hours.”

Two interesting questions of construction of this clause arise. They are: whose “loss” is being referred to in the CCC; and what constitutes “knowledge of a loss which may give rise to a claim under the policy”?

The original insurance, to which RSA subscribed to the extent of 21.5%, is a “Master Subscription Policy” (“MSP”), in favour of the Coca Cola group of companies for the period April 1997 to April 2002. The policy has ten coverage sections which insure a wide range of risks. These include, under Section V, Director and Officers’ Liability. That Section insures losses to Coca Cola that arise from claims against the company itself or arise from claims against directors and officers whom the company has indemnified. It also insures against losses when Coca Cola has not indemnified the directors and officers in respect of claims made against them. This original insurance is on a “claims made” basis. It has provisions stipulating that Coca Cola and its directors and officers must give the insurers written notice of any circumstances which might subsequently give rise to a Claim. The policy also provides that it is a condition precedent to the right of indemnity that the insurers have been notified of a claim “as soon as practicable”.

RSA reinsured 100% of its participation on Section V of the MSP. The reinsurance was by way of two Lloyd’s slip policies which represented two layers of reinsurance. Originally the period of this reinsurance cover was from 1997 to 2000. However the two slips were submitted for re-signing to extend the cover from 2000 to 2002. All the reinsurance slip policies are in the same terms and all incorporate the CCC quoted above.

The Coca Cola Company and three of its directors and officers were defendants in two “Class actions” brought in the US District Court in Georgia. The two actions have been brought on behalf of persons who had bought shares in Coca Cola between 21 October 1999 and 6 March 2000. The Complaints filed in each action allege that the officers and directors of Coca Cola had dressed up the financial statements of Coca Cola to overstate the company’s earnings. The Complaints assert that this exercise artificially enhanced the level of the company’s stock, so that the plaintiff investors bought the stock at inflated prices. Subsequently the stock prices fell dramatically. The complainants allege that investors have suffered large losses as a result of the acts and defaults of the officers and directors of Coca Cola.

The first action (known in thi...

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