Court limits reinsurance recoveries on ValdezReprints
LONDON--The Court of Appeal in London has upheld a 2004 High Court decision that will limit the amount of reinsurance and retrocessional recoverables on claims that insurers have already paid out for the 1989 Exxon Valdez oil tanker spill.
In the case of D.G. King Syndicate 745 vs. Brandywine Reinsurance Co. (U.K.) Ltd., the appeals court ruled in favor of Brandywine, a runoff vehicle for policies written by CIGNA Reinsurance Co. (U.K.) Ltd., which was a reinsurer and retrocessionaire for the D.G. King Lloyd's of London syndicatethe liabilities of which were later assumed by runoff reinsurer Equitas Ltd.
The appeals court upheld the lower court's ruling that certain reinsurers were not liable to reimburse primary insurers who had paid out Exxon's claims under various sections of its insurance policy.
It ruled that claims made by Houston-based Exxon under the property damage and third-party liability sections of its general corporate excess insurance policy, underwritten by syndicates at Lloyd's, and paid by the insurers, were not covered by the policy and that reinsurers, therefore, were not liable to cover the claims.
Exxon, now Exxon Mobil Corp., paid about $2 billion to clean up the 11 million gallons of crude oil that had fouled Prince William Sound in Alaska and killed wildlife.
After a court action in Texas in 1996, Exxon's primary insurers settled claims under the property damage section of the general corporate excess policy, and in 1997 they settled claims against the liability section of the policy for $480 million. Brandywine argued that the cost of these claims should not be recoverable from reinsurers.
Payments made under the marine section of the policy were not disputed by the reinsurers.
"The case has huge implications for the London Market Excess of Loss spiral, since many insurers have already paid Exxon Valdez reinsurance and retrocession claims as if they were liable for them," law firm Holman Fenwick & Willan, which represented Brandywine, said in a statement.
"The unscrambling and reimbursement of the invalid elements of these claims could prove very complicated," it added.
The so-called LMX spiral occurred in the 1980s as large losses hit London market insurers that had reinsured the risks with each other.
In a statement, Equitas, the runoff reinsurer for the pre-1993 longtail liabilities of Lloyd's syndicates, which was involved on both sides of the dispute, said it was pleased that the long-running case had been brought to an end.
"Following the Court of Appeal decision, we are currently looking at identifying the most expedient and commercially viable way of finally settling these claims trapped in the LMX spiral," the statement said.
Equitas noted that because it was involved on both sides of the dispute it would face no material impact from the court ruling.