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04 February 2020
In Hiscox Dedicated Corporate Member v Weyerhaeuser Co  EWHC 2671 (Comm), the High Court (the English Court) continued an anti-suit injunction against the defendant (Weyerhaeuser), having been satisfied to a high degree of probability that the parties had agreed to submit their dispute to London arbitration.
The central question was one of contractual interpretation: whether, on a true interpretation of the relevant excess insurance policy (the Policy), the 'service of suit' clause entitled the insured, Weyerhaeuser, to pursue its substantive claim against its Insurers before the District Court in the State of Washington (the US Court), or whether Weyerhaeuser was compelled to arbitrate.
While this case illustrates the importance of clear drafting when incorporating an arbitration clause in any context, in an insurance context the decision emphasises the importance of ensuring consistency, to the extent possible, in dispute resolution clauses that are used within a tower of insurance to minimise the risk of disputes.
Weyerhaeuser, a wood products manufacturer based in Seattle, USA, purchased liability insurance which included a tower of excess liability cover for 2016/2017 placed on the London Market.
The Policy in issue in the case was written on a 'follow form' basis and followed the form of the lead underlying policy (the Lead Policy).
The Lead Policy contained three key endorsements of a type frequently found in excess policies issued in the London and Bermuda Markets:
The Policy provided in material part that:
"This Following Form Excess Liability Policy has been issued on the basis that it is following the same terms, definitions, exclusions and conditions (except to the extent inconsistent with this Policy) as are, at inception hereof, contained in the Lead Underlying Policy…"
"CHOICE OF LAW AND JURISDICTION:
NMA 1998 Service of Suit Clause (USA) (amended), as attached.
As per Lead Underlying Policy".
The NMA 1998 Service of Suit clause set out in the Policy (the Service of Suit clause) was slightly different from Endorsement 9. In particular, it did not include the words "Solely for the purpose of effectuating arbitration".
In April 2018, Weyerhaeuser filed proceedings in the US Court (the First US Proceedings), seeking a declaration, amongst others, that there was no valid arbitration agreement applicable to coverage disputes between itself and various defendant insurers (including the Insurers) and that the US Court was the appropriate forum for such disputes.
Another insurer participating in the tower, XL Catlin, promptly sought and obtained an anti-suit injunction against Weyerhaueser from the English Court. Weyerhaeuser then obtained a temporary restraining order (a TRO) from the US Court, which became a preliminary injunction, restraining other insurers from seeking to obtain an anti-suit injunction from the English Court.
On 16 August 2019, Weyerhaeuser's claims in the First US Proceedings were dismissed on the basis that they were non-justiciable. Freed from the preliminary injunction made against them in the First US Proceedings, the Insurers sought and obtained from the English Court an interim anti-suit injunction against Weyerhaeuser in respect of the further claim which Weyerhaeuser had filed against the Insurers on 12 August 2019 (the Second US Proceedings).
The English Court was then asked to determine whether this interim anti-suit injunction should continue.
The English Court first considered, and rejected, the arguments advanced by Weyerhaeuser as to why it was for the US Court to decide the issue of whether its claim against the Insurers should be resolved by US litigation or by London arbitration. In particular, the English Court found that the Insurers had not submitted to the jurisdiction of the US Court by the filings it had made or by its attendance at a hearing to argue the issue in the Second US Proceedings; it had been clear to all parties at all times that the Insurers were not departing from their position that this issue should be decided by the English Court, as the supervisory court under the arbitration agreement.
As to the interpretation of the Policy, the English Court was satisfied to a high degree of probability that the parties had agreed to submit their dispute to London arbitration. It accordingly held that the interim anti-suit injunction granted against Weyerhaeuser should continue, unless Weyerhaeuser was ready to provide suitable undertakings to the English Court to equivalent effect.
The Court rejected all of the arguments made on behalf of Weyerhaeuser as to why the arbitration agreement in Endorsement 7 had not been incorporated into the Policy. In particular, it found that, applying the relevant principles of interpretation:
There is a long line of case law illustrating that the English courts will make every effort to give effect to an arbitration agreement, including where this has been incorporated by reference into an insurance policy which also includes an express reference to English jurisdiction or 'service of suit' provisions. Moreover, as already seen earlier this year in another insurance case commented on in this blog post, the English courts show no diffidence in granting an anti-suit injunction to protect a party's contractual right to have claims brought against it pursued in arbitration.
What this case also reflects, however, is that where there remains scope, based on the expressly agreed wording in the contract (in this case, the Policy), for dispute as to whether the parties agreed to submit all disputes to arbitration, there is an increased risk of the counter-party commencing foreign court proceedings in breach of the arbitration agreement.
Clear drafting is important to minimise the scope for any argument as to whether the parties intended to incorporate an arbitration agreement covering all disputes under their contract. In an insurance context, ensuring consistency of dispute resolution clauses within a coverage tower is also crucial both to minimise the risk of disputes and the potential for inconsistent judgments. It is also critical for a party to act promptly to protect its rights to have any claims against it determined in accordance with the agreed arbitration agreement.
In this case, the time and money which the Insurers had to spend defending their position in the US Court was significantly increased as a consequence of Weyerhaeuser's strategic move in response to XL Caitlin's application in the English Court. Had the Insurers been aware of XL Caitlin's intention to obtain an anti-suit injunction from the English Court in respect of the First US Proceedings, they might have sought such relief at the same time.
For further information on this topic please contact Paul Lewis, Craig Tevendale, Naomi Lisney or Sarah Irons at Herbert Smith Freehills LLP by telephone (+44 20 7374 8000) or email (firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com). The Herbert Smith Freehills LLP website can be accessed at www.herbertsmithfreehills.com.
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