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The Insured Rights to recover for
sums paid and costs incurred :
actual or arguable Liability ?
BY
DR ADOLFO PAOLINI
UNIVERSITY OF BUCKINGHAM, UK
AND
DACBEACHCROFT LLP, LONDON
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The Scope of Liability Policies

Liability at Law: is there a loss?

Potential Liability to pay damages could amount to a detriment /
insurable Interest

Old approach: nothing but payment as proof of loss/pay to be paid

New approach: right accrues as soon as insured’s liability is ascertained
by judgement, award or binding settlement. Post Office v Norwich Union
[1967]

Consequently: the right to be indemnified accrues when such liability is
established and not when the event happened in the past or when
payment is made in the future.
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Omega Proteins v Aspen Insurance
1.
The insured must establish that it has suffered a loss which is covered
2.
How: by showing a judgement, award or agreement to pay
3.
The loss must be within the scope of the cover
4.
The judgement, award or agreement, must settled the question as to whether the loss is
covered by the policy
5.
Neither the judgement nor the agreement are determinative of whether or not the loss
is covered by the policy ( assuming that the insurer is not a party/ No agreement to be
bound
6.
It is open to insurers to dispute that the insured was liable/ exclusions
7.
Insurers have the right to enquire as to the real nature of insured’s liability
8.
Insureds do also have the right to dispute the nature of liability with insurers as to secure
cover.
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Astrazeneca v. XL and ACE: The Facts

Product Liability claim/ class action

Product: antipsychotic drug ‘Seroquel’ which contained information about
weight gain and diabetes. USA and Canadian Manufacturer/The Group of
Companies (AZ)

Putative class action was filed in Florida on the ground that Seroquel caused
personal injury, it was defective and failure to provide adequate warning

The US manufacturer issued the claimants with a notice of integrated
occurrence in accordance with the insurance policy

The insurer settled claims £83.5 ( only one case was litigated) and several
dismissed

Also paid £ 786 million in defence costs/ average £ 20000 per claim.
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Astrazeneca v. XL and ACE: The Policy

Astrazeneca Captive Insurance for the manufacturing group

Policy/ Bermuda Form

Governed by English Law

Insurer has no duty to defend

Did not have a follow the settlements clause

Occurrence reported policy

Also provided the aggregation of personal injuries into one occurrence

Defence Costs were included within and not in addition to the policy limits

XL and ACE were the reinsurers
Astrazeneca v. XL and ACE: The
Dispute/ Issue One
1.
Applicable Law as to the interpretation of the agreement: English v. New
York State.
2.
Bermuda Forms/ English Arbitrators and New York State Law.
3.
AZ policy contained a choice of English Law and not arbitrators
4.
Reinsurers denied cover on the grounds that according to English Law,
liability must be actual and not merely arguable
5.
The claimant argued that the contract contained several indications
that what the parties really wanted was to applied New York Law which
accepted ‘arguable liability’ as the basis for indemnity
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Astrazeneca v. XL and ACE: The
Dispute/ Issue One

Claim failed/ English Law requires actual liability

Express choice of English Law forces the construction of the policy
according to English Law

“ to indemnify the insured for ultimate net loss the insured pays by reason
of liability imposed by law for damages on account of personal injury”
(emphasis added)

The policy required actual liability to trigger the insurer’s duty to indemnify
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Astrazeneca v. XL and ACE: The
Dispute/ Issue Two
1.
Whether the defence cost cover was within and not a free-standing
right
2.
“ Defense Costs means reasonable legal costs and other expenses
incurred by or on behalf of the insured in connection with the defense of
any actual or anticipated claim” ( emphasis added)
3.
Procedural and Substantive Trigger of Liability
4.
“Damages means all forms of compensatory damages…. and shall
include Defense Costs”
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Astrazeneca v. XL and ACE: The
Dispute/ Issue Two

Claim failed/ Defence Costs was not a free-standing agreement yet part
of the aggregate limit of indemnity

When “Defence Costs is included as part of the losses, it complements the
core insuring clause. It does not have independent existence and follows
the fortunes of that clause” AP, DN

Silberman v. CGU Insurance Ltd: a dishonesty exclusion relieved the insurer
of liability not only for the substantive cover but also DC

Wilkie v. Gordian RunOff Ltd: DC formed part of a single undertaking so
an exclusion clause affects both substantive and DC cover
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Astrazeneca v. XL and ACE: The
Dispute/ Issue Two

Wyeth v. Cigna: “ DC only arises when the claim falls within the terms of
the primary insuring clause”

When Insurers’ consent is needed, DC cover is triggered when such
consent is obtained, and the claim falls within cover. Thornton Springer v.
NEM

Poole Harbour Yacht Club Marina Ltd v. Excess Insurance Co: “ claimant
was entitled to DC incurred with insurers’ consent, in the absence of
express exclusions in regard to such DC”

In general, parties are free to decide but all depends on policy
construction.
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Conclusions

Actual Liability at Law

One word matters: England or New York State Law!

Defence Costs follows the fortunes of the substantive cover

DC could be a free standing agreement

There may be insurmountable obstacles to have the right to recover in
class actions cases

Careful drafting, translations and negotiations are paramount
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Thank You
Dr Adolfo Paolini
adolfo.paolini@buckingham.ac.uk
apaolini@dacbeachcroft.com