WASA INTERNATIONAL INSURANCE CO LTD V LEXINGTON INSURANCE CO

[2009] UKHL 40, House of Lords, Lord Phillips, Lord Walker, Lord Brown, Lord Mance and Lord Collins, 30 July 2009

Reinsurance - Facultative policy - Insurers covering liability against pollution losses for three-year period - Reinsurance taken out on same terms and conditions for 36 months - US courts ruling that insurers were liable for losses going back many years - Whether reinsurers liable to indemnify reinsured - Back-to-back cover - Meaning of deductible clause

Lexington insured Alcoa from 1 July 1977 until 1 July 1980 against loss of or damage to property and business interruption risks, with a limit of liability of "US$20,000,000 loss or damage arising from any one occurrence" and a per occurrence deductible for property damage of US$250,000. Lexington agreed to submit to the jurisdiction of the court of any competent jurisdiction within the United States at the request of Alcoa. Lexington obtained facultative reinsurance cover from the London market on more or less the same terms, in the usual form of a slip policy which covered all risks of physical loss (excluding fire) "as original", the amount reinsured was US$20,000,000 each occurrence and in the annual aggregate, and the period of the cover was stated to be "36 months 1.7.77 L/U &/or pro rata to expiry of original". The slip policy referred to a "full reinsurance clause", which provided "warranted same ... terms and conditions and to follow the settlements", and the slip stated that the reinsurers would "pay ... all such loss as may happen to the subject matter ... during the currency of the policy" and that the reinsurers agreed to indemnify the reinsured in respect of loss to the insured subject matter "during the continuation of this Policy". Wasa subscribed to a 1 per cent line and AFG subscribed to a 1.5 per cent line. It was not disputed that the reinsurance agreement was governed by English law.