Insurance policy: market reform contracts vs reinsurance certificates

In Tyson v GIC, the English court considered the choices of law and jurisdiction in a reinsurance contract where a standard market contract and a subsequent certificate contained inconsistent clauses.

Summary

In Tyson International Company Ltd v GIC Re, India, Corporate Member Ltd, the court considered the interaction between the market reform contract (the MRC - used, as standard, in the London market on placement), and a subsequently issued facultative reinsurance certificate (the Certificate). The two documents contained inconsistent dispute resolution provisions. The court, in this case, relied on a hierarchy clause in the Certificate to conclude that the terms in the MRC took precedence over the inconsistent terms in the Certificate.

Background

This case forms part of a suite of judgments issued by the English High Court in determining the applicable law and jurisdiction that applies to a set of disputes between Tyson Foods' captive insurer (TICL) and TICL's reinsurers (Reinsurers) under the tower of facultative reinsurance under which TICL was reinsured.

The underlying claim relates to a fire at Tyson Foods' poultry rendering plant in Alabama, USA. GIC Re, India, Corporate Member Ltd (GIC) participated as a Reinsurer on two layers of the facultative reinsurance. GIC allege misrepresentation by TICL of the value of one of the reinsured properties. Consequently, GIC alleges that it is entitled to avoid the facultative reinsurance.

The judgment related to an application by GIC for a stay in the English proceedings and an application by TICL for a permanent (or alternatively continuing) anti-suit injunction to prevent GIC pursuing arbitration.

The Reinsurances

As is usual in the London market, the reinsurance layers were each placed using the MRC.

The MRC contained the following  choice of law and jurisdiction clause: "This Reinsurance shall be governed by and construed according to the Laws of England and Wales. The Courts of England and Wales shall have exclusive jurisdiction of the parties hereto on all matters relating to this insurance."

Subsequently, after GIC had signed the MRC, the Certificate was issued. This contained:

• an Arbitration clause which stated that: "As a condition precedent to any right of action hereunder, any dispute arising out of the interpretation, performance or breach of this Agreement, including the formation or validity thereof, shall be submitted for decision to a panel of three arbitrators." The default venue for arbitration was New York.

• a choice of governing law as "the substantive law of the State of New York". The Certificate also contained a Service of Suit clause.

• an Entire Agreement Clause which stated that the Certificate, including any endorsements or amendments "shall constitute the entire agreement between the Parties and shall supersede all contemporaneous or prior agreements and understandings... between the Parties..."

• a "Hierarchy" or "Confusion" Clause which stated: "RI Slip to take precedence over the reinsurance certificate in case of confusion." It was common ground between the Parties that "RI Slip" referred to the MRC and "reinsurance certificate" referred to the Certificate.

The Judgment

The court found that:

1. The Certificate was a separate contractual document that was intended to have contractual effect, and was more than just an administrative document.

2. Following the Court of Appeal judgment in the related case of Tyson International Co Ltd v Partner Reinsurance Europe SE (decided in 2024), the starting point is that where the parties agree a reinsurance certificate of this type following the conclusion of the MRC, the former supersedes the latter.

3. This is, however, subject to the terms of the Certificate.

4. In this case, the effect of the Hierarchy clause was that the MRC took precedence where there was inconsistency with the Certificate.

5. This meant that the English law and jurisdiction clauses in the MRC, and not the Arbitration and New York law clauses in the Certificate, governed the dispute.

Comment

This judgment follows on the back of the Partner Re judgment noted above in construing the relationship between the MRC and subsequently issued reinsurance certificates.

The MRC was introduced by the market following regulatory (and commercial) pressure to ensure contract certainty following decades of disputes that flowed, in part at least, from the frequent difficulty in establishing the contract terms that governed insurance or reinsurance arrangements. This came to a head following the WTC disaster in 2001. The MRC followed in 2007.

Prior to the introduction of the MRC, it was established that a contract wording issued subsequent to the conclusion of the slip would supersede the slip terms (see for example Youell v Bland Welch and HIH General Insurance Ltd v New Hampshire Insurance Co Ltd). The question was whether this approach still applied in the new world of the MRC, especially given the drive to create certainty upon conclusion of the contract. Where a slip is used, this is usually when the (re)insurer's line goes down at the latest.

The short answer is that this approach does apply where (as in the Partner Re case) the parties clearly intend that a subsequent set of terms may be issued which override the previously agreed MRC. Although that might be thought to create some uncertainty, the parties will have the benefit of terms at conclusion which will apply unless and until a new set of terms is issued.

However, this hierarchy can be amended in the documents themselves. In this case, the Hierarchy Clause achieved this effect. The court concluded that inconsistent terms (in this case, the jurisdiction, arbitration and choice of law clauses) produced "confusion". The court was not persuaded by the argument that the Hierarchy clause only applied as an aide to construction where there was confusion within the Certificate itself.

The court was also not perturbed by a "Certificate Clause" that was incorporated by reference into the MRC and stated that any certificate of insurance issued in connection with the reinsurance was "issued solely as a matter of convenience or information." This clause was, on the face of it, dealing with an underlying contract in which it was contained (the TICL captive insurance policy), albeit that the term was incorporated by reference into the Certificate. This clause also did not prevent the parties agreeing a variation to the existing terms of the Reinsurance.

Nor did the Entire Agreement clause in the MRC prevent the parties concluding a variation through the Certificates where, in the court's view, this was the clear intention of the parties.

The court also rejected the opportunity to read the two sets of clauses together. This is the approach that is often taken when an arbitration clause and an exclusive jurisdiction clause appear together in the same contract. The former is assumed to take priority in determining any substantive dispute, with the latter governing the court that has jurisdiction to determine the validity of the arbitration agreement and the primary forum in which any award is enforced. Here, though, the court considered that this construction would not give effect to the intention of the parties, which was that the MRC should take precedence.

Finally, it is interesting to note the limited assistance the court got from expert evidence on market practice. Amongst other things, the court considered this to be an exercise in construction of the words used, with neither side able to demonstrate a sufficiently notorious practice that determined the status of the two documents. As is frequently the case, the fact that there were two respected market experts who gave different views on the market's view highlighted, in the court's mind, that there was no uniform practice.