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Under
a standard form of claims control clause the reinsured had to have actual
knowledge of an actual loss before being obliged to give notice to reinsurers.
RSA sought
declarations that Dornoch was obliged to indemnify it under two reinsurance
contracts. Dornoch claimed a breach of the standard claims control clause
(CCC) in the reinsurance as a result of the failure to give notice of
loss within the required time. Two issues of construction arose:
1. Whose
loss was referred to in the CCC?
2. What constituted knowledge of a loss which may give rise to a claim
under the policy?
RSA insured
the Coca Cola group on a claims made basis. The policy required circumstances
to be notified and stipulated as a condition precedent to the right
of indemnity that RSA was notified of a claim as soon as practicable.
RSA reinsured the liability concerned by way of two Lloyd's slip policies
which incorporated a CCC in terms:
"….the
Reassured shall upon knowledge of any loss or losses which may give
rise to a claim under this policy, advise the Underwriters thereof by
cable within 72 hours…"
Coca Cola
were defendants in two class actions in the USA. The complaints alleged
that investors suffered large losses as a result of certain acts and
defaults on the part of Coca Cola.
Dornoch
accepted that "loss" meant "actual loss" as opposed
to "alleged loss" but argued before Aikens J that the investors
had suffered actual loss by buying shares at an inflated price and then
seeing them fall in value. Dornoch further submitted that the "loss"
in the CCC of the reinsurance policies referred to the loss of the investors.
Accordingly, when RSA was notified by Coca Cola of the class actions
it then had knowledge of the actual losses suffered by the investors
and knowledge of losses that "may give rise to a claim" under
the reinsurance policies as provided by the CCC.
RSA submitted
that "loss" in the CCC meant Coca Cola's loss. Only such losses
could give rise to a claim on the original insurance and so only those
claims "may give rise to a claim" on the reinsurances. RSA
argued that in terms of liability insurance, RSA's insured, Coca Cola,
only suffered a "loss" when their liability was ascertained
by either settlement or adjudication of the investors' action against
them. Until that time there was no "loss" which "may
give rise to a claim" under the reinsurances and therefore no obligation
on RSA to inform reinsurers. In the alternative, RSA argued that even
if "loss" in the CCC meant the investors' loss, RSA had no
obligation under the CCC to advise reinsurers of what were only claims
or alleged losses, not actual losses.
In relation
to the first issue Aikens J said he did not find any of the arguments
adduced by either side particularly persuasive. Instead he used the
basic rules of construction or interpretation of contractual documents
stated in ICS Ltd v West Bromwich Building Society ([1998] 1 WLR 896).
The Judge concluded that the words "loss or losses" in the
CCC referred to actual loss or losses of the investors. The subject
matter of the reinsurance contracts was the same as that of the original
insurance, namely the legal liability of Coca Cola for financial loss
suffered by investors. There could be no claim under the original insurance
until the loss of the original insured had been ascertained, and there
could be no claim under the reinsurances until the loss of the reinsured
had been ascertained. However, both rights arose out of the same underlying
event, namely the actual loss of the investors. Once RSA had actual
knowledge that the investors had suffered an actual loss, RSA would
have actual knowledge of a loss which "may give rise to a claim"
under the reinsurances. This was on the basis that such losses may give
rise to a claim against Coca Cola, which may give rise to a claim against
RSA, which may give rise to a claim under the reinsurances.
However,
on the second issue the Judge agreed with RSA's case, namely that the
truth of the investors' claims was still in issue and it was not possible
to say that RSA had actual knowledge of an actual loss by the investors.
Further, if RSA did not have knowledge of an actual loss by the investors,
it could not have knowledge that such a loss "may give rise to
a claim" under the reinsurances.
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