SUN LIFE ASSURANCE CO OF CANADA (1), AMERICAN PHOENIX LIFE AND REASSURANCE COMPANY (2), PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY (3) V THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

Court of Appeal
[2004] EWCA Civ 1660
Mance LJ, Longmore LJ and Jacob LJ
November 2004

An arbitrator's decision will not create an issue estoppel in any subsequent litigation in relation to an issue which was collateral to the main award. Even in the event that an issue estoppel does arise, the arbitrator's decision will not bind further arbitrations involving different parties.

The appellants were involved in arbitration proceedings with a third party (Cigna Reinsurance Company of Europe SANV, "Cigna") to resolve a dispute relating to their reinsurance cover. The appellants claimed that Cigna had reinsured them in relation to certain occupational accident reinsurances which were underwritten on the appellant's behalf by Centaur. The appellants contended that the reinsurance provided by Cigna included coverage of a certain personal accident pool (the "Unicover" book of insurances). The arbitrator's decision was that the whole of the Cigna reinsurance was avoided for misrepresentation and non-disclosure by the brokers who had placed it.

In addition to Cigna, the appellants had reinsurance cover with the defendants. In a subsequent dispute with the defendant, the appellants argued that the occupational accident reinsurance referred to in the earlier arbitration had never covered their exposure on the Unicover book of insurances. If the reinsurance did include the Unicover insurances then it was acknowledged by the parties that the appellants would be able to recover their exposure from the defendant reinsurer due to the nature of the terms of the contract between them. The contract had included a Net Retained Lines clause, the effect of which was that if the exposure on the Unicover book was covered by another reinsurer, then the defendant would not have liability for that risk.

This dispute went to arbitration, where it was argued by the defendants that (apart from the fact that the first arbitration had held the reinsurance to have been avoided for misrepresentation) the first arbitration had found that the Cigna reinsurance did include the Unicover exposure. Therefore they argued that as it was covered by Cigna, they could not be held liable on that exposure. This second arbitration decided that whilst they were bound by the previous tribunal, they had to reach their own conclusions on the issues of whether the Unicover exposure was covered or not, by analysing the facts in the context of this dispute. The previous tribunal which had focused on a slightly different issue. In the event, they held that the Cigna reinsurance did not cover the exposure and so the defendant could be held responsible for it.

At first instance, Toulson J held that the first arbitration had reached a conclusion on the issue of what the Cigna reinsurance covered and that it did include the Unicover exposure, and therefore that the defendant was not responsible. He said that the first tribunal's award determined the position between the appellant and Cigna, and that this award could be relied on by the defendant to determine his position as against the appellant.

The Court of Appeal overturned this decision and it was held that the first arbitrator's conclusions relating to the scope of the Cigna reinsurance (that the Unicover book was covered by Cigna) was only collateral to their main decision. Their main award focused on the avoidance of the reinsurance contract for misrepresentation and as such there could not be an issue estoppel on the collateral point - "scope" - in any subsequent litigation. It was also held that if there had been an issue estoppel, the defendant could not rely on it in order to establish its position against the appellant: an estoppel is only effective between the parties concerned.