Rectification of insurance policies will rarely be granted
Rectification of reinsurance policies will not generally be granted when the parties have approved the terms of the Policy in writing.
Here is the case citation: Swiss Reinsurance Co. v. Camarin Ltd.[2007] B.C.J. No. 1779. British Columbia Supreme Court. Burnyeat J. (In Chambers). August 10, 2007.
Here is a link to the decision.
This case was originally edited by David Pilley.
Weyerhaeuser Company Limited (“WCL”) negotiated terms and placed various insurance policies with the American International Group (“AIG”). The policies consisted of three layers: a primary layer, an umbrella layer, and an excess loss layer. The primary layer consisted of a commercial general liability Policy, which was the first insurance which would respond if there was a covered claim. The umbrella layer would respond if the claim exceeded the amount covered by the primary layer. The final coverage was an excess layer which consisted of five excess layers of insurance that would respond sequentially to claims that exceeded the umbrella layer. AIG provided WCL with the primary layer of insurance and the umbrella layer. AIG reinsured 50% of its liability under the umbrella layer with Camarin. Camarin then “retroceded” all of its 50% of share under the umbrella layer, with Swiss Re. Insurance would be paid out as follows: AIG was responsible to pay claims under the primary layer of insurance. If that was not sufficient, AIG was responsible to pay claims under the umbrella policy it issued to WCL. Once the umbrella layer was exhausted, Camarin was obliged to pay AIG 50% of what had been paid in the umbrella layer. In turn, Swiss Re, as the reinsurer of Camarin, was obligated to pay Camarin 100% of what Camarin had paid. Camarin retained no risk, and received no premiums for the relevant times.
A class action was commenced against WCL in 1999 on the grounds that a roofing product failed and the failure caused damage to property. AIG agreed to make payments to the Plaintiff’s class action in the amount of $70,000,000. Swiss Re commenced an Action against Camarin for an Order rescinding the reinsurance policies issued to Camarin for the years 1993, 1995, and 1998 on the basis that Camarin had failed to disclose or misrepresented exposure to roofing and exterior side claims. Camarin counterclaimed against Swiss Re seeking a Declaration that the policies were valid and enforceable by Camarin. In addition, Camarin further plead that Swiss Re was obliged to follow the settlements of the underlying insurer. Camarin plead that a “follow the settlements clause” (“Clause”) was contained in a 1991 and 1992 policies and that Camarin and Swiss Re intended to include the Clause in the 1993 and 1995-1998 policies, but that this Clause was not included in those policies through a mutual mistake and the Clause should be read in - rectification of the policies.
Camarin brought an application pursuant to Rule 18A for a determination as to whether the Clause should be written into the 1993 and 1995-1998 policies. If Swiss Re is not required to follow the settlements of AIG, then at the trial of the action, Camarin may be required to prove that each of the Plaintiff in the class action suffered damage from the roofing product and that such damage falls within the umbrella layer of insurance coverage. If Swiss Re is required to follow settlements arranged by AIG, which would happen if the Swiss Re policies are rectified to include the Clause, then the main issue remaining in the Action would be whether the Swiss Re policies are valid and enforceable, and where the settlement arranged by AIG was reasonable.
The first policy of insurance that was issued by Swiss Re to Camarin was in 1991. Before the end of 1991, the parties agreed to renew for 1992. The offer to reinsure did not include the Clause in the wording of the policy. The renewal was noted as “as expiring”, which meant that the renewal policy would be on the same terms as the previous policy. The wording of the 1992 policy contained the Clause. As part of the 1992 renewal, Swiss Re agreed to an indefinite semi-automatic renewal of the Policy “as expiring”. The semi-automatic renewal meant that the Policy would be renewed “as expiring” unless either party cancelled within 90 days of the expiry of a particular policy term.
The policy with Swiss Re was renewed for the 1993 Policy year, but the Clause was not contained within the wording of the policy provided for the renewal. For the 1994 Policy year, AIG offered to expand the pollution coverage in the umbrella policy. As Swiss Re did not wish to expand the pollution coverage, the excess layer was placed 100% with AIG with no reinsurance participation with Camarin or Swiss Re.
For 1995, Swiss Re was approached to provide reinsurance. The parties negotiated a policy that was acceptable to both Swiss Re and Camarin. The policy was not a renewal, since there was no Swiss Re reinsurance policy in 1994. However, the 1993 policy was used as a precedent, therefore, the 1995 policy did not contain the Clause. Aon London reviewed the 1995 Policy to ensure it was correct, and identified several “minor” corrections that needed to be made. The absence of the Clause was not identified by either Aon London or Aon Vancouver as a mistake that needed to be corrected. The same Policy was essentially renewed “as expiring” each year until 1998.
Burnyeat J. noted that the doctrine of rectification provides for the correction of documents where those documents inaccurately record the intention of the parties. Burnyeat J. cited with approval Hanbury & Maudsley’s Modern Equity, 15th ed., which provides the following explanation of rectification:
The crux of the remedy is proof of what the parties actually had decided at the time of reaching their agreement and not what they, or one of them, had thought at a later date, or what they might have thought if they had considered the matter in greater detail or in the light of more information than that available to them. (at p. 841)
Burnyeat J. noted that the remedy of rectification is available even where one of the parties to the instrument denies that there is a mistake. A claim for rectification based on common or mutual mistake requires the following to be established:
(a) existence and content of a prior agreement;
(b) a written instrument that does not reflect the true agreement of the parties;
(c) …a common continuing intention up to the time of signature that the provision in question stand as agreed rather than as reflected in the instrument; and
(d) the precise form in which the written instrument can be made to express the prior agreement.
Burnyeat J. noted that he could not conclude that there was a prior agreement to include the Clause in the 1993 policy. There was nothing in the negotiations leading up to the execution of the 1993 policy by Swiss Re that Swiss Re was agreeing that the policy would be renewed “as expiring”. Once a slip or Offer to Reinsure is initialled by an Insurer, such as Swiss Re, the accepted offer to reinsure constitutes a final acceptance of the offer to reinsure. At that point, Swiss Re was bound to provide coverage in accordance with the terms of reinsurance that had been agreed to. The signed acceptance was the proof that the parties were then consensus ad idem. The signed acceptance was a requisite element of an outward expression of the common continuing intention of the parties. The Swiss Re Policies were checked carefully at Aon London, Aon Vancouver, Camarin, and WCL. No mistakes or omissions were identified during those examinations. Burnyeat J. was satisfied that there was no basis for which the rectification of the policies should be Ordered and dismissed the Application.
