FEDERAL MOGUL ASBESTOS PERSONAL INJURY TRUST V FEDERAL-MOGUL LTD AND OTHERS

[2014] EWHC 2002 (Comm), Queen's Bench Division, Commercial Court, Mr Justice Eder, 27 June 2014

Reinsurance - Duty of reinsurers under policy to act in a businesslike fashion in the spirit of good faith and fair dealing - Whether claimants against the assured could seek declaratory relief as to the obligations of the reinsurers - Meaning of reinsurers' duty

T&N and its subsidiaries had worldwide liability insurance cover from its captive, Curzon, under an Asbestos Liability Policy which covered personal injury claims for £500 million in excess of £690 million. Clause 4f stated that, following insolvency "the Insurer shall have ... the full, exclusive and absolute authority, discretion and control, which shall be exercised in a businesslike manner in the spirit of good faith and fair dealing, having regard to the legitimate interests of the parties to the Policy and the reinsurers thereof, of the administration, defence and disposition (including but not limited to settlement) of all Asbestos Claims". Curzon reinsured one-third of its liability with reinsurers. The reinsurance provided that if Curzon became entitled to handle claims on behalf of T&N, then "that authority, discretion and control shall be exercised by a majority of the Reinsurers". In 1998 T&N was acquired by Federal-Mogul Corporation, and it filed for bankruptcy in October 2001. That meant that claims handling passed to Curzon under the direct policy and to the reinsurers under the reinsurance agreement. By an order of the US Bankruptcy Court on 8 November 2007 the Trust was established under a Plan and a Trust Agreement. The purpose was to preserve those parts of the group which were free of asbestos claims, and to provide a trust fund for partial payment of those claims. The Trust assumed liability for all claims and was required to make distributions from the assets of the Trust to claimants. Claims were to be considered and assessed by the Trust in accordance with Trust Distribution Procedures (TDPs). The reinsurers put in place a claims-handling framework in the US designed to manage anticipated claims against them by the Trust. On 21 December 2012 the Trust presented 200 anonymised claims to the reinsurers. On 22 May 2013 the reinsurers by letter effectively rejected the claims, noting a series of deficiencies: the claims were time-barred; the claimants had been exposed to asbestos other than by T&N; absence of proof of exposure to T&N products; and lack of evidence that the disease was caused by asbestos. These events led to the present proceedings in which the Trust sought a range of declarations. The most important concerned the obligations of Curzon and the reinsurers with regard to claims handling, including their duty to establish a claims-handling standard. In particular the Trust sought to show that the TDPs that it had established were at least as good as the best practice for claims handling in the US, and that if the reinsurers adopted more stringent standards then there would be a breach of Curzon's obligations under the ALP to act "in a businesslike manner in the spirit of good faith and fair dealing".