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An insured's
claim against brokers for failing to obtain adequate cover was not barred
by issue estoppel or as an abuse on the basis that the court had made
previous findings on issues between the insured and reinsurers.
Kennecott
owned and operated a copper mine and smelting and refining plant in
Utah, USA. A captive insurance company, TCI, provided contractor all-risks
('CAR') insurance cover followed by operational cover. TCI used Minet
to reinsure the risks. Equipment was seriously damaged which had not
been fully tested and commissioned. In a previous action Kennecott had
claimed against TCI and TCI had claimed against the reinsurers. Langley
J dismissed the claim against the operational reinsurers on the basis
that equipment that had not been completely tested was not covered under
the operational policy and reinsurance contract at the date of the incidents
giving rise to the claims. He also did not accept that the equipment
had attached to the reinsurance, notwithstanding the policy wording,
because of an alleged agreement between Minet and the lead reinsurer
to the contrary. Kennecott appealed but the appeal was settled with
the reinsurers.
Kennecott
then issued proceedings against Minet and its US brokers, Jardine, for
breach of contract and/or breach of duty in failing to obtain adequate
cover for the smelter modernisation project on the basis that the brokers
knew that seamless cover was required. Minet applied to strike out the
proceedings on the ground of issue estoppel arising from the findings
of Langley J that there was no cover not because of the brokers' conduct,
but because Kennecott failed to test and commission the plant even though
it knew of the necessity to do so before cover would attach. David Steel
J accepted Minet's argument that the claim was barred by issue estoppel
and was an abuse of process and struck it out against Minet and Jardine.
Kennecott
appealed in these proceedings arguing that Jardine could not rely on
issue estoppel since they were not party to the first proceedings, that
the claim against Minet was based on attachment not having occurred
and also that Minet should have explained what the attachment provisions
of the operational insurance and reinsurance policies required (so that
Kennecott could, if necessary, have obtained alternative insurance when
it became clear that the plant was not in a fit state to attach under
those policies).
It was
held that there were no findings in the judgment of Langley J which
raised issue estoppels preventing Kennecott from succeeding in the present
proceedings. In particular, the judge did not consider the alleged basis
of liability in these proceedings, namely that Minet should have informed
Kennecott that the reinsurers would not agree or had not agreed to the
attachment of the plant in the condition and state of operation those
items were in or should have warned that, given the condition and state
of operation of those items, there was likely to be a gap in cover.
The present claim against Minet could have been brought in the first
proceedings and Kennecott considered doing so. Adopting the broad merits
based approach required by Johnson v Gore Wood & Co (2002), however,
the court would not deny Kennecott the opportunity to bring the claims
in the present proceedings as that would be a disproportionate response.
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