Court of Appeal

Published April 3, 2008

Wasa International Insurance Co Ltd v Lexington Insurance Co
AGF Insurance Ltd v Same

Before Lord Justice Pill, Lord Justice Sedley and Lord Justice Langmore

Judgment February 29, 2008

The English court would construe contracts of insurance and reinsurance to give effect to the intention of the parties to cover environmental damage, unless there were clear indications to the contrary.

The Court of Appeal so held in a reserved judgment, allowing an appeal by the defendant, Lexington Insurance Co, from Mr Justice Simon ([2008] All ER (Comm) 286) who had upheld the contention of the claimants, Wasa International Insurance Co Ltd and AGF Insurance Ltd, that as a matter of English law they were not liable as reinsurers for the cost of remedying environmental damage to property for which Lexington, as insurer under a contract governed by the law of Penn-sylvania, had been found liable by the Supreme Court of Washington.

Mr Christopher Butcher, QC, for Lexington; Mr Alistair Schaff, QC and Miss Sioban Healy for Wasa; Mr Neil Calver, QC and Mr Stephen Midwinter for AGF.

LORD JUSTICE LONGMORE said that the question was whether any damage suffered was covered by either the insurer or the reinsurer depended on whether the parties intended to afford cover only for damage occurring during the policy period or for all damage provided that some of it occurred during the policy period.

Whatever the answer was, it should be the same and it could not differ according to whether the reinsurance was reinsurance of the original subject-matter insured or of the reinsured's liability in respect of it.

The Supreme Court of Washington had not focused on the period of cover and the original insurance in quite the way an English court would. That court had asked whether the policy contemplated that the damage, and costs of remediation of that damage, would be prorated, but such a prorating would only make sense by reference to the existence of different periods of cover or different years of cover.

The policy period was thus an important part of the policy being construed by the court and should bear the same construction in both policies. The same period of cover was in issue in the original insurance and in the reinsurance. The period of cover should receive the same interpretation in both contracts in the absence of clear indications to the contrary.

Lord Justice Sedley and Lord Justice Pill gave concurring judgments.

Solicitors: Chadbourne & Parke; Addleshaw Goddard; Charles Russell.

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