Measure of loss

Gard Marine & Energy Ltd v Tunnicliffe and Ors [2011] EWHC 1658 (Comm), a decision of David Steel J, gave rise to a tricky question of the interpretation of a deducible clause in a reinsurance contract. The learned judge resolved the question by reference to expert evidence of market understandings and also to the principle that reinsurance coverage matches the underlying insurance.

Gard: the facts

Gard was an insurance company situated in Bermuda but carrying on business in Norway. For the period 1 July 2003 to September 2006 Gard subscribed to a 12.5% share of a policy issued to Devon Energy Corporation, an oil exploration and production company with interests in a number of wells and platforms in the Gulf of Mexico. The policy was an Energy Package Insurance, and the coverage included all risks of physical loss or damage to offshore and onshore property, and business interruption. These loses were subject to a combined single limit of US$400m (for 100% interest), any one accident or occurrence arising out of a named windstorm in the Gulf of Mexico. Significantly, the direct policy covered the situation in which Devon’s interests in a well were less than 100%. In that situation: