[co-author: Sophie Warren]
In a recent decision, the English Court of Appeal considered the construction and effect of a hierarchy clause in reinsurance agreements. The issue arose because the Appellant, GIC Re, India, Corporate Member Ltd (GIC) had entered into two different reinsurance agreements with the Respondent, Tyson International Company Ltd (TICL), covering the same risks. One provided for English governing law and for disputes to be resolved in the English Courts, the other specified New York governing law and contained a New York arbitration clause. The question for the Court of Appeal was whether the substantive dispute between GIC and TICL should be decided by the English Courts or by an arbitral tribunal in New York. In deciding the case, the Court of Appeal has given valuable guidance on how hierarchy clauses should be interpreted in the reinsurance context and more broadly. The judgment also addresses the English court's nuanced approach to reconciling conflicting dispute resolution clauses.
Background
GIC reinsured TICL in respect of an underlying insurance policy issued by TICL (a captive insurer within the Tyson Foods group) to Tyson Foods, Inc (TFI), an Arkansas company involved in the processing, sale and marketing of various meat products. The insurance cover provided was for "all risks of direct physical loss of or damage to property situated in the United States and Puerto Rico for the period from 1 July 2021 to 1 July 2022" (the Captive Policy). TICL reinsured the property risks assumed in the Captive Policy to various reinsurers on a facultative basis.
GIC was a subscribing reinsurer to two layers of TICL's property reinsurance programme. For each layer of the reinsurance programme, GIC signed a reinsurance agreement on the Market Reform Contract standard form (the standard London market reinsurance form) reinsuring TICL against all risks of direct physical loss and damage as defined in the Captive Policy (collectively the MRCs). The MRCs contained identical choice of law and exclusive jurisdiction provisions, which said the following:
“This Reinsurance shall be governed by and construed according to the Laws of England and Wales. The Courts of England and Wales shall have exclusive jurisdiction of the parties hereto on all matters relating to this insurance.”
On 9 July 2021, GIC agreed two reinsurance agreements on the Market Uniform Reinsurance Agreement (MURA) form (the standard US property reinsurance form) covering the same two layers of the TICL reinsurance programme. These agreements, referred to as facultative certificates (the Certificates), contained a New York arbitration clause and a clause providing for New York governing law.
The Certificates also contained a hierarchy provision that stated that the MRCs were to take precedence over the Certificates "in case of confusion".
Due to the unusual terminology, as hierarchy clauses usually refer to ‘contradiction’ or ‘confliction’ rather than ‘confusion’, the clause was termed by the parties and by the court as the “Confusion Clause”.
In July 2021, there was a fire at a poultry rendering plant owned by TFI. TICL accepted cover under the Captive Policy for the losses suffered and provided a notice of loss to GIC under the reinsurance programme. GIC denied indemnity and sent notice to rescind the reinsurance, leading to a coverage dispute. The question before the Court of Appeal was whether the substantive coverage dispute between TICL and GIC is to be referred to New York arbitration in accordance with the arbitration clause in the Certificates, or to the English Court in accordance with the English jurisdiction clause in the MRCs.
Procedural history
TICL issued a claim in the Commercial Court on 20 October 2023 seeking a declaration that GIC is obliged to indemnify TICL and/or seeking payment of an indemnity from GIC and/or damages for breach of contract. Shortly thereafter, TICL applied for and was granted an interim anti-suit injunction to restrain GIC from commencing arbitration proceedings in New York.
GIC applied to set aside the interim anti-suit injunction and filed an acknowledgement of service indicating its intention to contest the jurisdiction of the English Courts. Meanwhile, TICL applied to make the anti-suit injunction permanent or to continue it pending any jurisdiction challenge by GIC. The Commercial Court concluded that the appropriate course was to continue the anti-suit injunction until the determination of any challenge by GIC to the jurisdiction of the English Courts.
GIC then applied for an order that the English Court did not have, or should not exercise, jurisdiction to try the claim, and for a stay under s. 9 of the Arbitration Act 1996, which provides that the court must grant a stay of legal proceedings in favour of arbitration when certain statutory conditions are satisfied. TICL applied for permanent or continued anti-suit relief.
First instance decision
On 21 January 2025, the Judge held that the effect of the Confusion Clause was to function as a standard hierarchy clause and give precedence to the terms of the MRCs if there was any inconsistency between the terms of the MRCs and the terms of the Certificates. He also held that such inconsistency existed here because the two sets of provisions were irreconcilable and so the jurisdiction clause in the MRCs prevailed over the arbitration agreement in the Certificates. Therefore, GIC’s application failed and TICL was granted a permanent anti-suit injunction.
GIC appealed the Judge’s decision on two grounds, namely that:
- He erred in his construction of the Confusion Clause. He should have found that it only applied if the relevant provision in the Certificates was uncertain in its meaning, which the New York arbitration agreement was not; and
- He erred in failing to conclude that the two clauses could be reconciled by giving priority to the later arbitration agreement and reading the English jurisdiction clause as giving the English Courts supervisory jurisdiction over the New York arbitration.
Court of Appeal judgment
Applying settled English law principles of contractual construction, the Court of Appeal upheld the Judge’s construction of the Confusion Clause as a hierarchy clause applicable in the case of inconsistency between the MRCs and the Certificates.
In reaching its conclusion on the construction of the Confusion Clause, the Court of Appeal:
- Considered the natural meaning of the language used, specifically “[MRCs] to take precedence over [Certificates] in case of confusion”. It held that “by far the more natural interpretation” was that the Confusion Clause referred to the case where the provisions of the Certificates differ from those of the MRCs, rather than where there are two different provisions within the Certificates.
- Noted that while the Confusion Clause could have been more clearly drafted and "confusion" was an unusual word to find in the context, it was clear how the reasonable reader would understand it.
- Considered the potential commercial consequences of the parties’ competing constructions of the Confusion Clause, holding that GIC’s argument that the clause only applied to internal ambiguities within the Certificates, was a commercially implausible interpretation. The Court of Appeal noted that in circumstances where there were two forms of standard reinsurance contract in play – the Market Reform Contract standard form developed for use in the London market and the Market Uniform Reinsurance Agreement form commonly used for property insurance in the USA – it is not difficult to see why the parties might have sought to specify which was to prevail, not least because they had done this in the previous policy year.
The Court of Appeal also rejected GIC’s argument that the English jurisdiction and New York arbitration clauses could be reconciled by reading down the English jurisdiction clause as giving the English Courts supervisory jurisdiction over the New York arbitration. On the contrary, the Court of Appeal held that the two clauses were “flatly inconsistent”: the MRCs provided for exclusive English Court jurisdiction; the Certificates for New York arbitration, and the Confusion Clause resolved this by giving precedence to the MRCs. It was highly unlikely that sophisticated insurance professionals would intend for disputes to be arbitrated in New York under New York law, but with the English Courts exercising a supervisory jurisdiction.
The Court of Appeal distinguished the position adopted by the English Courts in cases such as ACE Capital Ltd v CMS Energy Corporation [2008] EWHC 1843 (Comm) and Sul America Cia Nacional de Seguros SA v Enesa Engenharia SA [2012] EWHC 42 (Comm), where an arbitration clause and an exclusive jurisdiction clause are found in a single document containing no hierarchy clause. In such cases, the Court will make every effort to give effect to all the clauses of the contract, which may involve reading down the exclusive jurisdiction clause so that little is left of it. By contrast, cases such as the one the Court of Appeal had to decide, where the conflicting jurisdiction and arbitration clauses are found in different documents agreed at different times and the parties have included a hierarchy clause, the Court should “approach the documents in a cool and objective spirit to see whether there is inconsistency or not”. If the Court concludes that there is inconsistency, “it should say so and apply the [hierarchy] clause, as this is what the parties have agreed.”
The Court of Appeal also referred to Tyson International Co Ltd v Partner Reinsurance Europe SE [2024] EWCA Civ 363, a separate set of proceedings concerning one of the other excess reinsurers of TICL. In that case, where (crucially) no hierarchy clause existed in the 2021/22 policy year, the later certificate (which provided for New York arbitration) was held to supersede the earlier MRC (which contained an English jurisdiction clause). The decisive difference in the case under consideration by the Court of Appeal was the existence of the Confusion Clause.
Conclusion and significance
This decision provides important guidance for brokers, cedants and reinsurers drafting and interpreting reinsurance contracts, particularly in cross-border matters where different standard forms containing conflicting dispute resolution provisions may be used. It also highlights the English Courts’ objective and predictable approach to contractual construction, focusing on the language used, ascertaining what the reasonable person with all of the relevant background knowledge would have understood the language to mean, and considering the commercial context. Finally, it provides a salutary reminder of the risk of satellite proceedings that may occur if the parties’ agreement on jurisdiction is unclear: one of the parties may end up arbitrating or litigating in a forum that they did not expect after significant time and expense has been spent wrangling over the agreed forum.
Key takeaways
- Where two dispute resolution clauses, in two different documents are irreconcilable and a hierarchy clause exists, the dispute resolution clause in the agreement given precedence in the hierarchy clause should prevail.
- Absent a hierarchy clause, a later contract may supersede an earlier one, subject to the facts.
For cedants and reinsurers:
- The case demonstrates that inconsistent clauses can lead to delays in confirming coverage. Cedants should review the relevant documents and consider:
- If a loss arises, where would the dispute take place, and what substantive law applies.
- Whether all subrogation, claims control or cooperation and ‘follow the settlement’ clauses (or any other clauses that may affect claims handling) are consistent.
- In the first instance, where reinsurance treaties and certificates are entered into separately, cedants should ensure that terms align before binding, as the case highlights that later certificates could unintentionally modify earlier terms. This is particularly important where reinsurance programmes involve a combination of markets and MRC, MURA and bespoke forms, and for large property or other losses (as in the case of TICL) that might trigger multiple facultative policies.
- It is advisable to include a clear hierarchy or inconsistency clause specifying which agreement prevails in the event of inconsistency. The English Courts will give effect to such a clause, even for facultative certificates. Precise or market standard hierarchy wording should be used so that there is certainty as to the effect of the clause.
For brokers:
- Brokers equally should assist in ensuring consistency between the relevant reinsurance documents (slips, certificates, endorsements) before binding, including the seemingly boilerplate terms such as the governing law and jurisdiction clauses, as well as the key negotiated terms.
- Where there are multiple market forms, brokers should also help to ensure that parties are aware of which document is intended to take precedence and encourage adoption of standard hierarchy wording.
Please see the judgment here: Tyson International Company Ltd v GIC Re, India, Corporate Member Ltd [2026] EWCA Civ 40
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