(Re)insurance Weekly Update 03- 2016

This Week's Caselaw

Teal Assurance v WR Berkley: Court of Appeal holds payment into an escrow account did not mean that liability had been ascertained


The first instance decision in this case was reported in Weekly Update 15/15.

Black & Veatch Group Ltd (BVGL), a global engineering group, had the benefit of a five layer programme of professional liability insurance cover. Teal was BVGL's captive insurer. The Appellants (Reinsurers) reinsured the fifth layer in the tower (referred to as the "top and drop" layer).

In the relevant policy year BVGL faced a number of claims. One of those claims concerned the design and construction of a sewage works in Ajman. In December 2010 BVGL entered into entered into a Payment Deed and Escrow Agreement with the Ajman Claimant. The arrangements effectively formed part of a compromise agreement, under which BVGL was required to deposit $13.5 million in cleared funds into an escrow account. The terms of the Escrow Agreement then permitted the Ajman Claimant to draw down monies towards the construction of an additional piece of plant intended to improve the operation of the sewage works.

It was common ground that the right to indemnity in respect of a particular claim is triggered when the insured's liability to a third party is established and ascertained by judgment, arbitration award or settlement (and in this context that "ascertained" is synonymous with "quantified").

The particular question on appeal was whether:

As had been held at first instance, and as Teal contended, BVGL's liability was not established and ascertained unless and until monies were drawn down from the Escrow Account by the Ajman Claimant; or As the Reinsurers contended, BVGL's liability was established and ascertained when the monies were paid into the Escrow Account by BVGL. The answer to the question would determine when there arose an immediate enforceable obligation on BVGL's professional liability insurers to indemnify BVGL, on the basis that the money was a sum BVGL had "become legally obligated to pay as Damages" (which was the language of the insuring clause). Given the different terms on which the different layers were written, this would determine whether BVGL got cover.

Reinsurers' argument was that the payment into the Escrow Account amounted to an established liability on the part of BVGL which required it to physically part with a sum of money. This was notwithstanding that it was conceivable that some or all of the monies might be returned to BVGL. Reinsurers argued that this was consistent with Cox v Bankside, in which the Court of Appeal had recognised that an interim payment on account of damages did...

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