ASTRAZENECA INSURANCE CO LTD V XL INSURANCE (BERMUDA) LTD AND ANOTHER

[2013] EWCA Civ 1660, Court of Appeal, Lord Justice Moore-Bick, Lord Justice Briggs and Lord Justice Christopher Clarke, 20 December 2013

Reinsurance - Liability insurance - Bermuda Form - Whether New York law relevant - Liability of assured to policy holder for defence costs and settlement - Whether reinsured had to prove liability of assured as a matter of law - Whether reinsured liable for defence costs where claim itself not covered by policy

AZI was the captive insurer of the AZ group. The policy was written on the Bermuda Form but was governed by English law and the arbitration clause had been waived. AZ was reinsured by XL and ACE. AZI sought to recover for its reinsurers an indemnity for payments made to AZ in respect of claims by third parties for injury suffered by reason of the use of an AZ pharmaceutical product. The losses consisted mainly of defence costs, although some monies had been paid by way of settlements. In no case had AZ been found liable to third party claimants, and the argument put forward by AZI was that the policy responded where payments were made in respect of alleged legal liability as opposed to established legal liability. AZ further argued that it was entitled to defence costs on the same basis.