Court steps in to remedy mistake in policy documents

In Markel Bermuda Ltd v Caesars Entertainment Inc [2021] EWHC 1931 (Comm), an insurer sought an anti-suit injunction restraining its insured from bringing a claim against it in the courts of Nevada, USA, for indemnity under a policy on the basis that this was in breach of a London arbitration agreement contained in the policy.

The policy wording did not, in fact, include a London arbitration agreement as the relevant endorsement was mistakenly not attached to the policy wording as issued. The insurer argued that this was an obvious omission that did not reflect the intention of the parties and the contract should be reformed as a matter of New York law (analogous to rectification under English law). After a careful analysis of events leading up to the conclusion of the contract of insurance, the Court agreed and granted the injunctive relief sought by the insurer.

Background

An insurer, Markel Bermuda Limited (Markel), sought a permanent anti-suit injunction restraining its insured, Caesars Entertainment Inc (CEI, a well-known casino operator in the United States), from bringing a claim for indemnity against it in Nevada, USA in breach of what Markel alleged was a valid London arbitration agreement contained in the policy.

CEI claimed an indemnity in respect of alleged property damage and business interruption losses arising out of Covid-19. While CEI accepted that a number of its other policies for the relevant period contained arbitration agreements, it denied that the policy in issue (the Eldorado Policy, which had been issued to CEI under its former name of 'Eldorado Resorts Inc') did so. The issue for the Court was whether the parties had agreed that the Eldorado Policy should include an arbitration agreement.

Markel argued that the policy documentation was incomplete since email correspondence between the parties prior to placement demonstrated that the risk was underwritten on the basis of certain "Special Conditions" which included New York as the governing law and a London arbitration agreement. However (in a situation described as a "cock up" in oral submissions) these Special Conditions were not included when the policy wording was issued as a relevant endorsement was not attached.

It was common ground that it was the ordinary rules of contract construction under English law that should be applied to the question of whether the parties had agreed the Special Conditions would apply to the Eldorado Policy.

Markel argued that the contract had been formed by negotiation and agreement of the essential terms through the correspondence between the parties, which were then to be incorporated into the subsequently issued policy. CEI asserted that even if a binding contract of insurance had been concluded including the Special Conditions, these terms were superseded by the subsequently issued policy wording (which omitted the Special Conditions including the arbitration agreement).

Both parties accepted the principle of separability of the arbitration agreement, namely that an arbitration agreement is a "distinct agreement" from the contract (as per Fiona Trust v Privalov [2007] UKHL 40).

Decision

Was there an arbitration agreement?

The Court reviewed in detail the correspondence between the parties to determine the precise terms which had been agreed. Applying ordinary contractual principles of offer and acceptance (and noting the separability of any arbitration agreement from the associated contract of insurance), the Court found that an agreement providing for London arbitration had been concluded during the course of email correspondence between the parties.

Multiple quotes had been provided by Markel containing the Special Conditions providing for London arbitration and, although queries were raised regarding the price and other terms, it was confirmed that all other terms and conditions were "as per previously agreed". The Court found that the latest time when a binding arbitration agreement was entered into was when an email was received which included "BIND COVER" in the subject title in response to a previous quote. The Court noted that it was possible (and indeed quite common) for an arbitration agreement to be concluded before the associated contract is finalised although the Court was satisfied that a binding contract of insurance was entered into upon Markel's receipt of this email.

However, under pressure to issue the Eldorado Policy documentation quickly, Markel mistakenly omitted to attach an endorsement reflecting the Special Conditions which had been agreed. Markel argued that this was a classic case for reformation under New York law or (if English law applied) rectification under English law so that the Eldorado Policy accords with the parties’ intentions. CEI, however, argued that even if (as the Court had found) the terms of the contract of insurance included London arbitration and New York law:

• such terms were superseded by the terms of the issued policy documentation (which referred to Nevada law and jurisdiction), or
• the Court ought not to grant equitable relief in the form of reformation or rectification on the basis that Markel does not have "clean hands" (although bad faith was not pleaded).

Did the policy wording supersede the contract of insurance?

CEI argued that there were strong commercial reasons to infer that, where there is a full issued policy wording, that is the basis of the contract between the parties. Where a subsequent policy wording follows a prior agreement (e.g. in a slip), it will usually be the intention of the parties to supersede the earlier agreement and it is unlikely to be useful to look to the earlier agreement to establish the terms of the policy – referring to HIH Casualty & General Insurance Ltd v New Hampshire Insurance Company [2001] EWCA Civ 735.

The Court did not agree with CEI or consider the authorities it relied on supported its argument. In particular:

• this was not a case where there was a slip to be expanded upon in a more detailed policy wording (although the Court noted that if a slip or binder had been issued by Markel it would have included the Special Conditions which would then have had to be carried into effect in the issued policy);
• the policy wording relied on by CEI was never intended by the parties to contain the contractual wording as to law and jurisdiction as the methodology adopted in previous and subsequent policies was that an endorsement would be attached detailed the agreed terms as to London arbitration and New York law; and
• it would be a "bizarre" conclusion if despite the parties contractually agreeing London arbitration and New York law (as the judge had found), this was superseded, without discussion or negotiation or agreement between the parties, with an entirely different jurisdictional and law regime (Nevada) which was a regime that Markel had never quoted on the basis of.

The Court endorsed the comments of Rix J in HIH Casualty that where a slip has been followed by a policy, there is no rule of law that the terms of a prior contract (as distinct from mere negotiations) are inadmissible. Instead, it is a question of construction which depends in part on all the surrounding circumstances.

Reformation / rectification

The Court found that there was a mutual intention that the issued documentation would accurately reflect the contract of insurance which had already been concluded. The correspondence showed that the parties had agreed (objectively and subjectively) to London arbitration and New York law and intended that any subsequent policy wording would reflect these terms. However, the policy documentation subsequently issued failed to do so and did not, therefore, embody the true agreement of the parties as mutually intended and should be reformed .

The Court held that the applicable law was New York law and was satisfied that the requirements for reformation under New York law were met. If English law applied then, similarly, the Court concluded that requirements for rectification of the contract (set out recently in the Court of Appeal decision in FSHC Holdings v GLAS Trust [2020] Ch 365) were met.

Clean hands

Finally, the Court considered submissions by CEI that relief should be refused as Markel did not have "clean hands".  In support of this position, CEI relied on certain actions taken by Markel after the policy was placed, including failure to raise the alleged mistake, permitting CEI to sue it in Nevada and the way in which its injunction application was presented.  However, the Court rejected CEI's arguments on the facts.

As the Court was satisfied that there was a valid binding London arbitration agreement, it had jurisdiction under s.37 Senior Courts Act 1981 to make a final injunction to enforce the terms of the arbitration agreement unless the other party could show "strong reasons" why it should not. CEI had not shown such a reason and so the anti-suit injunction was granted.

Comment

The Court in this case gave effect to the intention of the parties after considering in some detail the correspondence between them leading to the conclusion of the contract of insurance and the circumstances of the preparation of the policy wording. It is clear that the court will step in to rectify (or reform) a contract in circumstances of genuine mutual mistake.

It is also an important reminder for contracting parties that they can be bound by an arbitration agreement at a different (and earlier) time than the policy incepts and, as in this case, that the contract of insurance can also be binding before the policy incepts or the policy wording is issued.