In a long awaited judgment the Court of Appeal has overturned the decision of the English Commercial Court that Lexington Insurance Company was not entitled to claim, from its reinsurers Wasa International Insurance Company Ltd and ASF Insurance Ltd, sums paid out in settlement, to the Aluminium Company of America (Alcoa), for remediation costs of pollution damage.

The US Environmental Protection Agency required Alcoa to clean up pollution and contamination of groundwater, surface water, and soil at numerous manufacturing sites.

The Supreme Court of Washington held that Lexington was liable to indemnify Alcoa for the full costs of remediation provided only that some damage had occurred during the years that Lexington had provided cover.

However, Wasa and AGF, the reinsurers, refused to pay Lexington on the basis that as the reinsurance policy was governed by English law, they could not be held liable for the cost of remedying damage which had occurred out with the insurance period.

In allowing Lexington’s appeal the Court of Appeal held that, instead of examining whether the insurance contracts were back to back or whether they were intended to apply to loss or damage within the insurance period, the same or equivalent wording in the insurance and reinsurance contracts should be give the same meaning, unless there were clear indications to the contrary.

As the insurance and reinsurance contract provided cover for the same period, that period was afforded the same interpretation in each contract.

The case highlights the fact that policy language clearly determines the scope of coverage. Accordingly, insurers and reinsurers must take greater care when wording their insurance contracts.

If similar or equivalent wording is used in insurance and reinsurance contracts the court is entitled to infer the same meaning in both contracts whether that is intended or not!

The Court of Appeal Judgment is available via the following link.

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