Applying New York law, English Court of Appeal (Civil Division) dismisses Exxon's appeal from adverse rulings on coverage of insurance policies having to do with Alaskan oil spill of 1989
Early in the morning of March 24, 1989, the tanker Exxon Valdez ran aground on Bligh Reef in Prince William Sound, Alaska. The incident spilled some 11 million gallons of North Slope crude oil. At the time, Exxon Shipping Corp. (ESC), an Exxon subsidiary, owned the tanker while Exxon (plaintiff) had title to its cargo. By September, 1989, investigators had identified 790 miles of shoreline within Prince William Sound as having been "oiled" along with more than 2,400 miles of shoreline in Western Alaska.
ESC and Exxon took various steps to contain the spill, and to clean up the polluted shorelines. These included: the lightering of the Exxon Valdez; the skimming of oil from the surface of the water; the booming off of sensitive areas of shoreline; the burning of oil on the surface of the water; the washing of the shoreline, coupled with the skimming of oil washed off the shoreline into the sea; and the moving of rocks/pebbles etc. into the tidal zone to allow natural tidal flushing. Plaintiff also used "bioremediation" by adding compounds to the environment that amplified the natural process by which bacteria and other microorganisms transformed the organic molecules in oil into other substances; and the cleaning up of animals, including otters and birds. Exxon spent $1.25 billion and ESC spent $885 million on these remedies.
Not surprisingly, Exxon and ESC had a number of claims filed against them. Claims by the U.S. Government and the State of Alaska led to Exxon's agreed payment of some $900 million in October 1991. Additionally, there were claims by commercial fishermen, Alaska Natives, seafood processors and their employees, and private landowners. Exxon settled some of these claims for about $267 million. The consolidated claims of 30,000 other plaintiffs went to trial, producing a jury award of $287 million in compensatory damages, and $4.5 billion in approved punitives.
Exxon and its affiliates had three primary policies, the largest of which was the Exxon Global Corporate Excess (GCE) Policy with its deductibles. The GCE Policy had three different sections: Section I respecting loss of, or damage to, property; Section IIIA dealing with Marine Liabilities; and Section IIIB having to do with Public and Third Party Liability.
Service-of-Suit clauses provided that, in the case of a dispute over payments, the insurers agreed to submit to the jurisdiction of any court of competent jurisdiction within the State of New York or (under Section IIIB) in the United States, all matters to be decided pursuant to the law and practice of the relevant court. Each of the three sections also contained an arbitration clause. Under Sections I and IIIA, the arbitrators could abstain from following the rules of law strictly. To the extent the arbitrators did follow them, however, they were to apply New York law. The arbitration clause under Section IIIB was otherwise the same as the preceding although it did not specify New York law.
Some relevant provisions of the policies were as follows. Art. VII, par. 4(b) of Section I (property damage) covered: "Removal of, or attempted removal of, debris or wreck of property and/or residual structure covered hereunder." Section I, inter alia, provided that "Notwithstanding anything contained as above, there shall be no recovery hereon for liabilities as described under the insured's Liabilities Policy(ies)."
In August 1993, Exxon sued insurers in a Texas court under Section IIIA of the policy. Three years later, the court awarded Exxon $238,473,752, plus interest of $161,106,406 and fees and costs of over $10 million. In March 1996, the parties settled all claims under the Section I policy for $300 million. Ten months later, the parties negotiated all of Exxon's claims under the Sections IIIA and IIIB policies (including the claims in the Texas judgment) for $480 million. The agreement did not allocate the payment as between Section IIIA and Section IIIB.
Exxon's insurers had reinsured their liabilities with the claimant reinsurers making the defendants the retrocessionaires of the claimants. It was common ground that, under the terms of the retrocessions, the claimants had to prove that the primary policies and the outward retrocessions covered the losses. All the retrocession contracts, except certain Lloyd's policies, included the following language: "This contract excludes any loss arising from seepage, pollution or contamination on land unless such risks are insured solely on a sudden and accidental basis." The exclusion did not apply to liability under the 1986 Offshore Pollution Liability Agreement.
In the English insurance litigation, one issue for the trial Court was whether Exxon had been entitled to recover under either Section I or Section IIIB. If they were not, claimants could not bring the payments under Section I into the calculation of the ultimate net loss in the retrocession agreement, nor could they apportion any part of the Section IIIA and Section IIIB settlement to Section IIIB for the purposes of computing the ultimate net loss as between the claimants and defendants. A further question was whether ESC could recover from the Section I primary insurers and, if so, whether there had been a settlement of the insurers' liability to ESC. There was also an issue as to whether, on the proper construction of the retrocession, the defendants were entitled to rely upon exclusion of liability under the "Seepage and Pollution" clause.
Exxon appealed certain adverse rulings on these points. The English Court of Appeal (Civil Division), however, dismisses the appeal. In its view, New York law, not English law, governed the GCE. The arbitration and service-of-suit clauses indicated the parties' agreement that New York law applied to the GCE. For purposes of interpretation, the Court recalls that the background of such agreements lies in pertinent international agreements and implementing statutes.
"If the arbitration and service-of-suit clauses are viewed as a whole, and in isolation ..., it seems to be beyond doubt that they point to an inferred choice of New York law as the proper law of the GCE. Certainly, there is nothing in them which points to English law."
"The question is whether there is enough in those clauses to displace the consequences of the major placement in the London market, the location there of the leading insurers and so forth. In our opinion, the key provision is that with which we started, i.e., the New York arbitration clause in Section IIIB. It is difficult, if not impossible, to infer a choice of English law as the law to govern a contract, a substantial part of which provides for any difference between the parties (if either requests it) necessarily to be determined by an arbitration to which the law of New York applies."
"That view of the contract as a whole is consistent with the New York arbitration clauses in Sections IIIA, even though, in those sections, the agreement of both parties is required. It is also consistent with the service-of-suit clauses in those sections. Moreover, as we have already observed, it is not inconsistent with the service-of-suit clause in Section IIIB." [¶ 47]
The Court then addresses whether the words "removal of debris" in Section I of the GCE covered clean up costs. "... [A]lthough foreign law is a question of fact, it is, in our view, rather different from other findings of fact. Indeed there is, as it seems to us, a special feature of a case such as the present." [¶ 67]
"The New York court ... would, particularly in the area of marine insurance, find decisions of the English Court persuasive. We further suspect that, although it may be possible to say that different courts in different states and indeed different courts in different parts of the world will enjoy different ranges of respect, most courts will ultimately be most influenced by the reasoning of "persuasive' decisions which attract it most. If the position is that, under New York law, the decision of an English Court as a matter of English law on the terms of this policy would have some persuasive effect, it would seem unreal to ignore that decision in reaching a view as to what New York law would hold."
"The role of [a foreign law] expert, unless the court is concerned with special meanings, is to prove the rules of construction of the foreign law, and it is then for the court to interpret the contract in accordance with those rules. In other words the view of the expert as to the meaning which would be given to the word "debris' is not admissible evidence unless he is saying that it has a special meaning under New York law.[Cite]. That again points to the Court of Appeal being entitled to review a question of construction simply being guided by the rules of construction of the foreign law including that court's attitude to persuasive authorities." [¶ 68]
" ... [W]e find it difficult to accept that a New York court and [an] English Court would reach a different conclusion on the construction of a policy negotiated, as this one was, between organisations well versed in what they were seeking to cover and well versed in the risks that were likely to materialize from the business being carried on by the various assureds. Both systems of law are seeking to identify what the parties agreed, and both systems of law use similar pointers to ascertaining that intention. On the Judge's findings ... a New York court [would have been unlikely] to find that removal of debris in Section I was intended to cover the clean up costs of an oil spill, unless the Notwithstanding clauses excluded the same." [¶ 116]
"We think furthermore that [the lower court's] view as to the proper construction of the Notwithstanding clauses primarily reinforced his view that "removal of debris' in Section I was not intended to cover clean up costs.... Debris is not the natural way in which to describe "spilled oil' or pollution from spilled oil, and it would need some significant feature or other provision of the policies if it was to have that meaning in this policy. ... [D]uring the course of argument, Lord Justice Rix asked [counsel for claimants] how he would describe oil spilt onto a beach, he could not reply and absolutely properly could not reply, "debris'." [¶ 117]
"Significantly, as there is more to clean up than "removal', and where oil pollution is dealt with both in the Conventions which form the background and in the policy itself, the words which describe the clean up are not "removal of debris'. It follows that the starting point for consideration of the Notwithstanding clauses is that "removal of debris' does not cover clean up costs for an oil spill, and, whatever difficulties there may be in construing the Notwithstanding clauses, no point can be made which points to "removal of debris' acquiring some special meaning for the purposes of this policy." [¶¶ 118-19]
"We accordingly would uphold the Judge's construction of removal of debris simply on the basis that under neither New York law nor, if it be relevant, English law, do the words "removal of debris' in Section I of the GCE cover clean up costs as described ... above." [¶ 121]
The Court summarizes its conclusions as follows. "The proper law of the GCE was New York law, although in the end our opinion on that question does not matter. As a matter of New York law and English law, Section I of the GCE on its true construction did not cover pollution clean up costs. The claimants cannot recover on the basis of ESC's putative claim under Section I. As a matter of New York law and English law, Section III(B) of the GCE [also] provides no cover for pollution clean up cost. ... The appeal must accordingly be dismissed." [¶ 158]
Citation: King v. Brandywine Reinsurance Co., [2005] 1 Lloyd’s Rep. 655, [2005] 1 C.L.C. 283, [2005] Env. L. R. 33, [2005] 2 All E.R. (Comm) 1, [2005] E.W.C.A. Civ. 235 (Eng. Ct. App. Civ. Div.).
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