Background

Catlin (“C”) insured Weyerhaeuser (“W”) who are a timber business on the fourth layer of an excess-of-loss insurance policy.

W issued Court proceedings in Washington State seeking a declaration that the Washington District Court was the proper venue for litigation relating to cover under the Policy.  In response, C issued anti suit injunction proceedings in England seeking to restrain the US proceedings on the basis that the parties had agreed for disputes on cover to be heard in London by an Arbitration panel.

The Policy

The Excess of Loss policy included a service of suit clause in standard form:

“….in the event of the failure of the Underwriters hereon to pay any amount claimed to be due hereunder, the Underwriters hereon, at the request of the Insured (or Reinsured), will submit to the jurisdiction of a Court of competent jurisdiction in the United States…….”

The Policy also included provisions to the effect that it will follow the same terms as the lead underlying policy.  The lead underlying policy included the following endorsements:

(a) “any dispute, controversy or claim arising out of or relating to" the Policy to be determined in London under the Arbitration Act 1996;

(b) Construction and interpretation of the Policy to be governed by the laws of the State of Washington; and

(c)  “Solely for the purpose of effectuating arbitration, in the event of the failure of the Company to pay any amount claimed to be due hereunder, the Company, at the request of the Insured, will submit to the jurisdiction of any court of competent jurisdiction within the United States.”

The Decision

English Law

The Court held that there was no conflict in the drafting.

It held (in C’s favour) that the service of suit clause did not take precedence.  The choice of forum was Arbitration and the US Court’s jurisdiction was restricted to enforcing an Arbitration Award or to having jurisdiction if the parties agreed to dispense with Arbitration.  Therefore, the coverage dispute should be heard by way of London Arbitration, and not by the US Courts.

The Court considered that their preferred interpretation made commercial sense, unlike the alternative pleaded by W.  They also commented that making a finding that there are conflicting provisions in a contract should not be lightly attributed to commercial parties.

US Law

The parties were in disagreement as to whether English or Washington law applied but agreed that the answer would be the same whichever law was to apply.  The Court considered whether the decision would be different under Washington law and held that it would not. 

Washington state law voids non-Washington state choice of law and forum clauses in insurances contracts issued for delivery in Washington State.  However, crucially, W conceded that these provisions did not make an Arbitration Agreement unenforceable and accepted that even under Washington State law, some matters would be arbitrated under the Policy.    The Court was therefore left to conclude that the Washington state laws on construction of insurance contracts would not lead to any different conclusion to English law.  This is in line with settled US law generally which favours Arbitration on these apparently competing clauses in Insurance and Reinsurance contracts.

BCLP comment

Whilst the English Court made its decision based on the specific facts in this case, it is in line with English Court decisions given in previous decisions such as Ace Capital Ltd v CMS Energy Corp  in seeking to give effect to seemingly conflicting clauses by reducing the applicability of the Service of Suit clause to enforcement of an arbitral award only.  

This case is interesting because the Court has applied this approach to apparently conflicting provisions found in two separate policies (the excess and the lead underlying policy) as opposed to previous cases which have considered provisions found in the same policy.  This case is also interesting as it involves a US state whose policy is anti-Arbitration yet this did not alter the Court’s decision under either English or US law.

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