EQUITAS LTD V ALLSTATE INSURANCE CO

[2008] EWHC 1671 (Comm), Queen’s Bench Division, Commercial Court, Mr Justice Beatson, 17 July 2008

Reinsurance – Conflict of laws – Dispute between reinsured and excess of loss reinsurers in arbitration in the US – Further dispute between excess of loss reinsurers and quota share reinsurers – QS reinsurers commencing judicial proceedings in England – Whether English proceedings should be stayed on case management grounds

Highlands were in the period 1977 to 1984 reinsured under quota share (QS) treaties by reinsurers who included a number of Lloyd’s Syndicates. The QS treaties were subject to arbitration in Texas. The QS treaties required Highlands to obtain common account excess of loss reinsurance (CAXOL) contracts with respect to the liabilities accepted by the QS reinsurers and also with respect to Highlands’ own retention under the QS treaties. A series of such contracts were entered into. Those were governed by the law of Texas, and any disputes under them were to be referred o arbitration in Texas. Substantial claims were made against Highlands by a number of assureds. Highlands in due course went into receivership, and its Special Deputy Receiver entered into funding arrangements with the QS reinsurers so that those claims could be settled. On 16 December 2004 Equitas (the reinsurer of the Lloyd’s Syndicates) entered into a commutation agreement with Allstate in respect of 1992 and prior years of account. The commutation was governed by English law and subject to the exclusive jurisdiction of the English High Court. Early in 2006, after the claims were settled, Highlands billed the CAXOL reinsurers – including Allstate – for sums due in respect of the claims. Allstate refused to pay, and also informed Equitas that it faced no further liability towards the Lloyd’s Syndicates by reason of the commutation agreement. On 4 January 2007 Highlands commenced arbitration in Texas against Allstate under the CAXOL reinsurances, and in its claim sought payment of sums which were allegedly due to itself and to Equitas. Allstate counterclaimed for a declaration that the commutation agreement precluded Highlands recovering common account recoveries due to Equitas. Equitas, which was not a party to the arbitration, in March 2008 commenced proceedings in England seeking a declaration that the commutation agreement did not apply to the Syndicates’ interests in the CAXOL contracts, to which they were not parties. The present application before Beatson J was by Allstate, for a stay of the English proceedings pending the determination of the arbitration in Texas between itself and Highlands. Beatson J refused the stay, on the following grounds: