King v Brandywine Reinsurance Company [2005] EWCA Civ 235

“13. … liability under Section I of the [GCE] was not going to turn simply upon construction of the policy language in light of the factual matrix. Rather, the outcome of the claim depended upon an interpretation of the parties’ intentions as to the meaning of the policy language, as determined by a Texas jury directed by a non-specialist judge. … Jurors are often unfavourable to insurers and biased against them when insurers are arguing for a limitation of cover… 14. In these circumstances, I recommended to Underwriters the payment of $300 million This settlement was about 30% of the coverage plus interest. in settlement of Exxon Corporation’s Section 1 claim. … 16. Underwriters’ denial of Exxon Corporation’s Section 1 claim, when viewed purely as a matter of construction in the commercial context, was certainly reasonable, and based upon reasonable and credible arguments. However, in my judgment, a jury verdict on Exxon Corporation’s Section 1 claim in the District Court in Houston, 189th Judicial District, was going to depend in large part on wider factors.”

“It seems to me that, had the Judge sought to embark upon the question of whether the insurers were indeed liable to Exxon under section 1, he could not have failed to find that there were at least strong arguments that they were not. However, he never did embark upon that task.”

“To the extent the Arbitrators follow the rules of law, such law shall be that of the State of New York to the exclusion of all other laws.”

“I think it plain, almost beyond argument, that the proper law of that policy is English. It was a Lloyd’s policy, negotiated by Lloyd’s brokers and issued by the Lloyd’s Policy Signing Office in London. Notice of potential claims was to be given to Lloyd’s brokers. The policy was for world-wide cover. Unless displaced, the inference that English law was intended to govern is in my view overwhelming.”

“The service of suit clause did contain a reference to New York, which is the proper law for which the insurers contend. There are three points to be made. First, a clause of this type is not inconsistent with an English proper law, where that is otherwise to be inferred: see Armadora Occidental SA v Horace Mann Insurance Co [1977] 1 WLR 520….. Third, the intended effect of this clause, providing for determination of disputes in accordance with the law of the Court in which the insurer is sued, does not suggest that the law of any State of the Union is already the proper law. Certainly the provision for service on New York agents does not support that inference, because service may be made upon them no matter in which State the suit is brought.”

“The average businessman does not differentiate between “damages” and “restitution”; in either case money comes from his pocket and goes to third parties. See United States Fidelity & Guarantee Co.,683 F. Supp. at 1168 (“the insured ought to be able to rely on the common sense expectation that property damage within the meaning of the policy includes a claim which results in causing him to pay sums of money because his acts or omissions affected adversely the rights of third parties”). The average businessman would consider himself covered for clean-up expenditures applicable to others’ properties. Cases such as Armco Inc., which apply a “legal, technical meaning” to the word “damages”, see id. at 1352, are inapposite to this case, to which New York law, mandating construction according to “the reasonable expectation and purpose of the ordinary businessman”, applies.”

“We are asked by the appellant wife here to say that the decision was wrong; that the justices were wrong in their interpretation of the foreign law. The question of foreign law being a question of fact in our courts, must this court regard itself as bound by the findings of the justices on this matter? In my view the question of foreign law, although a question of fact, is a question of fact of a peculiar kind and the same considerations do not apply in considering whether and to what extent this court should interfere with the decision of the magistrates, as in the case of the ordinary questions of fact which come before a magistrates’ court. It is not, I think, inappropriate to bear in mind that under the provisions of section 102 of the Supreme Court of Judicature (Consolidation) Act, 1925, it is provided that an issue of foreign law in a case which is being tried by a jury is a question of fact for the judge and not the jury. And bearing that in mind, and bearing also in mind the provisions of rule 73(7) of the Matrimonial Causes Rules, 1957 (S.I. 1957 No. 619) which enable this court to draw any inference of fact which might have been drawn in the justices’ court, I think it is our duty in this case to examine the evidence of foreign law which was before the justices and to decide for ourselves whether that evidence justifies the conclusion to which they came.”

“It is further agreed that this insurance is extended to also cover any loss sustained by the Insured or indemnify or pay on behalf of the Insured any sum or sums which the Insured may be obliged to pay or agrees to pay or incurs as expenses, on account of Removal of Debris or Wreck of vessels and/or craft as per schedule contained in Endorsement No.1 even if incurred solely as the result of governmental or other authoritative order.” 77. Article 1(a)(ii) thus expressly contemplates cover for first party expenses incurred in the removal of debris. The Article applies to the long list of vessels which appear under the heading “Vessels not entered in ITIA” on page 69 of the Policy. It may be seen from Section I, Article 8(1)(d), on page 21 of the Policy, that the same cover is extended to all of Exxon’s vessels, including Exxon’s oil tankers. If the learned Judge’s conclusion were right, the cover which was given in this way by the Policy would immediately be withdrawn in respect of non-ITIA vessels by reason of the Notwithstanding clause; the costs and expenses would be recoverable only under Section IIIA, and for that reason would, given the Notwithstanding clause, be irrecoverable under Section I. It would, on the learned Judge’s approach, mean that if the liabilities covered by Section IIIA arising from the incident were such as themselves to exhaust cover under Section IIIA, the additional first party loss would not be recoverable at all, despite the clear effect of the insuring clauses in Section I. This cannot have been how the parties intended the Notwithstanding clauses to operate.” 72. In his skeleton he also deals with another unexpected consequence. It is accepted that ESC has no claim under Section IIIA for clean up costs by virtue of the ITIA exclusion clause. Exxon however does have such a claim as is now admitted. So, Mr Edelman’s argument runs, it would be surprising if as a result of ESC having no claim under Section IIIA, it thereby had a claim under Section I, whereas Exxon because it had a claim up to $250 million under Section IIIA did not have the claim for the further losses under Section I. So, Mr Edelman argued, if the words “removal of debris” did include the clean up of oil pollution when used in Section I, and if therefore it had been intended to grant that cover at the level at which Section I operated, i.e. in excess of £400 million, it would be an unexpected result for that same cover to be removed simply because the cover can be found described in Section IIIA. 73. Mr Edelman had various arguments by which he suggested the unexpected consequences could be avoided. First he argued that in fact the clause was concerned only to ensure that such liability cover as there might be under Section I (e.g. Collision Cover as per American Institute Hull Clauses – see Article V11(5)) was not provided under Section I if it was covered by Sections IIIA and IIIB. Second he argued that if that were not right, then the clause was only concerned with “liabilities” covered by Sections IIIA and B. He drew attention to the language:- “… there shall be no recovery hereon for liabilities as described under the Assureds Liabilities Policies (as more fully defined and as covered under Policy Numbers 8KM52362 and 03-0366-88 as applicable) or for ‘Directors and Officers’ and ‘Fidelity’ coverage (form to be advised).”

“As the Judge was aware, and was shown, the GCE, its terminology, and its treatment of pollution cover, were not made in a vacuum. In particular, the contract was made against a background in which oil pollution was a particular, recognised problem, and oil clean up costs were the subject of specific and explicit treatment in international agreements and insurance arrangements. (i) Thus, it has been recognised, at least since the Torrey Canyon disaster in 1967, that oil spills from ocean going tankers give rise to unique problems by reason of the widespread pollution which they can cause, potentially affecting vast areas, large quantities of wildlife, and causing disruption to many communities. (ii) As a result there have been international treaties and a great deal of national legislation which deals with responsibility for oil pollution. (iii) In particular, there has been the 1969 International Convention on Civil Liability for Oil Pollution Damage, made at Brussels, and implemented in the UK by the Merchant Shipping (Oil Pollution) Act 1971; and the 1971 International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage. Each of these refers to “Pollution Damage”, and defines this as “loss or damage caused outside the ship carrying oil by contamination resulting from the escape or discharge of oil from the ship … and includes the costs of preventive measures and further loss or damage caused by preventive measures”. (iv) This national and international legislation has been supplemented by action taken by the major tanker owners (including Exxon), in agreeing TOVALOP. As already indicated, under TOVALOP Participating Owners assume liability for “Pollution Damage caused by oil which has escaped or which has been discharged from a Tanker, and the cost of Threat Removal Measures taken as a result of the Incident. “Pollution Damage” means “loss or damage caused outside the Tanker by contamination resulting from the escape or discharge of oil from the Tanker … and includes the costs of Preventive Measures, wherever taken …”; and “Preventive Measures” means “any reasonable measures taken by any Person after an incident has occurred to prevent or minimise Pollution Damage”. (v) The raison d’etre of ITIA was to deal with the insurance implications of liability for oil pollution. In particular, ITIA insured against the obligations assumed under TOVALOP, including liability for the costs of Preventive Measures (see ITIA coverage quoted in paragraph 98 of the judgment [Core 133]). (vi) In addition to TOVALOP, oil companies (commencing in 1971) agreed CRISTAL, the Contract Regarding a Supplement to Tanker Liability for Oil Pollution. It provided supplemental compensation to persons who had sustained “Pollution Damage”. “Pollution Damage” includes both “physical loss or damage caused outside the Tanker by contamination resulting from the escape or discharge of Oil from the Tanker” and costs incurred in taking measures “to restore or replace natural resources”. (vii) Exxon, as the largest oil company in the world, was obviously well aware of all these matters, and intimately involved in them. It was a member of TOVALOP. Its tankers, including the Exxon Valdez, were entered in ITIA. Exxon was a member of CRISTAL. Within the Exxon organisation, the issue of oil pollution was, unsurprisingly, so-called, and characterised in the same way as in these various international conventions and agreements. To demonstrate this one need look no further than the terms of Article 15 of the Contract of Affreightment between Exxon Corp and ESC which regulated the very carriage during which the Exxon Valdez grounded.” 88. This is a background in which oil pollution was recognised as a particular problem, was so-called, and was the subject of elaborate national and international arrangements applicable to it. It is against this background that, he submitted, it is to be considered whether the parties intended, by the simple reference to “removal of debris or wreck of property and/or residual structure” to make any provision for the consequences of oil pollution and the notoriously difficult, complicated and expensive processes which may be involved in the clean up of an oil spill. 89. He referred us to the contract of affreightment in this case, and how it deals with “pollution damage” [Bundle Q1 page 1173 and onwards]. 90. He referred us to the various dictionary definitions. (a) “wreckage; ruins; rubbish; a mass of rocky fragments”[The Chambers Dictionary]; (b) “The remains of anything broken down or destroyed, ruins, wreck”[OED]; (c) “broken or torn pieces of something larger”[Cambridge Advanced Learner’s Dictionary]; (d) “a. The scattered remains of something broken or destroyed; rubble or wreckage. b. Carelessly discarded refuse; litter. 2. Geology. An accumulation of relatively large rock fragments.”[American Heritage Dictionary of the English Language] 91. All he said favoured the view that debris meant bits of some larger solid which had broken into fragments.

“In respect of any vessel insured under this Policy which is a tanker as defined by the Rules of the International Tanker Indemnity Association Limited (hereafter ITIA) prevailing at the time of the loss, this insurance does not insure against:- Any liabilities, costs and expenses which are insured by the Indemnity Provisions of the ITIA Rules prevailing at the time of the loss, nor for any amount in excess of ITIA limits…” (ii) Charterers’ liability for oil pollution is the subject of the express provisions at Section IIIA, 1(c). (iii) References to, and the relationship with, ITIA cover run through the whole of Section IIIA (see 1(a)(iv), 1(c), 1(e), 1(h)). (iv) The issue of coverage for pollution emanating from onshore facilities is dealt with in Section IIIB. Again, there is clear provision, in the form of Endorsements 2 and 2A. This cover plainly embraces clean up costs.” “In respect of any vessel insured under this Policy which is a tanker as defined by the Rules of the International Tanker Indemnity Association Limited (hereafter ITIA) prevailing at the time of the loss, this insurance does not insure against:- Any liabilities, costs and expenses which are insured by the Indemnity Provisions of the ITIA Rules prevailing at the time of the loss, nor for any amount in excess of ITIA limits…” 93. It is right to say in this context that Mr Edelman in his skeleton relied on certain provisions in Section I as establishing that “pollution” was covered by that Section. Thus:- “INSTITUTE POLLUTION HAZARD CLAUSE: Subject to the terms and conditions of this Policy, this insurance covers loss of, or damage to the interests insured directly caused by any governmental authority acting under the powers vested in them to prevent or mitigate a pollution hazard, or threat thereof, resulting directly from damage to the interests insured for which the Underwriters are liable under this Policy, provided such act of governmental authority has not resulted from want of due diligence by the Assured, the Owners, or Managers of the interests insured or any of them to prevent or mitigate such hazard or threat …”

“WELL CONTROL COSTS, ETC. : … For the purposes of coverage hereunder, a well out of control shall be defined as a well from which and whilst there is a flow of drilling fluid, Oil, Gas or Water which is uncontrollable and cannot be controlled by the blow out preventer or storm chokes or Christmas tree or other equipment generally considered prudent for the operation insured, or any well that the Assured is required by any Governmental and/or regulatory authority to control.” (Emphasis added)

“10. While the property insured is on board a waterborne conveyance, loss of or damage to said property directly caused by governmental authorities acting for the public welfare to prevent or mitigate a pollution hazard or threat thereof, provided that the accident or occurrence creating the situation which required such governmental action would have resulted in a recoverable claim under the policy (subject to all of its terms, conditions and warranties) if the property insured would have sustained physical loss or damage as a result of such accident or occurrence.” 94. Mr Butcher submitted that in reality they too demonstrate that where pollution is contemplated it is described as pollution. 95. Mr Butcher further submitted that if one examined what clean up of oil pollution involved as described in paragraph 4(iv) to (vii) above the word removal was simply inappropriate – words such as “containing, neutralising, cleaning up” would be the expected language. 96. In answer to the point that in Article VIII 2(b) the main cargoes were oil, and a debris removal provision was repeated in that clause, he pointed out that solid cargoes were carried, and that the answer to Mr Edelman’s point as to why there should be differentiation between liquid cargo and solid cargo was simply the extent of the risk. 97. He argued that the structure of the GCE was to deal with pollution under Section IIIA. He ultimately accepted that he could not argue as had been argued in the Texas proceedings that it was the rules of the ITIA which covered oil pollution, and that by virtue of the ITIA exclusion the result was that oil pollution was excluded altogether from the GCE. He accepted that Exxon could recover for oil pollution under Section IIIA on the basis that the ITIA exclusion did not apply to them as Cargo owners, but he argued that the fact that it had been right to hold that the words of Section IIIA covered oil pollution and right to hold that the words of the ITIA exclusion had not succeeded in excluding that liability altogether, gave no support to the notion that oil pollution was intended to be covered by Section I. 98. He submitted that the judge was right to ignore the United States authorities when considering the question of construction from an English law stand point, but in any event he submitted that in reality the approach to construction of the New York court and the English court would not be very different and that the judge was in any event wrong in concluding that, as a matter of New York law, Section I would be construed so as to cover clean up of pollution. 99. He took us to the agreed joint statement of the experts on New York law which, so far as material, provided that:- (i) The Exxon policy is to be construed as a whole and to give effect to the parties’ intended purpose (see Memorandum sub-paragraph (1)). (ii) A New York court would look at the whole policy as a “package”, and not just at one clause or a selection of clauses in isolation, to discern the intent of the parties in drafting a particular provision (see Memorandum sub-paragraph 2)). (iii) In attempting to discern the meaning of the Exxon policy, a New York court would do so in the light of the reasonable expectations of a business person engaged in a similar line of business (see Memorandum sub-paragraph 3). (iv) To the extent that a contract is unambiguous, a New York court will look to the plain meaning of the words used to determine the parties’ intent (see Memorandum sub-paragraph (6)). (v) If the policy or parts of the policy are determined by the court to be ambiguous because they are susceptible of two or more reasonable interpretations, then the New York court would consider extrinsic evidence to determine the proper interpretation (Memorandum sub-paragraph (8)). 100. It was common ground between the experts that if extrinsic evidence was admissible, any evidence which throws light on the parties’ intentions, including evidence of their subjective intentions, can be admitted. The experts also agreed that if this extrinsic evidence did not resolve the question, a New York court would apply a construction, contra proferentem, against the drafter. 101. He submitted that the judge was wrong, when he came to consider construction as a matter of New York law, to think that some assistance could be gained from Lexington. It, he submitted, was not a case involving marine insurance. It did not involve an insurance with different sections of cover for first party damage and liabilities. It involved a construction against the insurer as the supplier of the wording. It is quite plain that the Georgia court was not addressed with the same arguments as have been advanced by the Defendant in this case. It was in any event a very thinly and questionably reasoned decision, which invented a definition of “debris” different from normal usage. 102. He referred us as had Mr Edelman to Bell Power Systems v Hartford Fire Insurance Co, and to the fact that the Superior Court of Connecticut clearly had difficulty with the definition of debris and the reasoning of the Georgia court in Lexington. 103. He also referred us to Compass v Cravens Dargan 748 P. 2d 724, a decision of the Supreme Court of Wyoming. In that case it was found that the costs of clean up of neighbouring property damaged by an oil leak were the responsibility of liability insurers and not property insurers (notwithstanding that the property insurance included a “removal of debris” provision). 104. On any view he submitted the reliance by the judge and the claimants on Antilles, which was simply a case in which the word debris had been used in a judgment to refer to the remains of a liquid chemical which had solidified and in its solidified state been dug out of the hold of a ship, was quite misplaced. 105. Mr Butcher also submitted that the judge having found as a matter of English law that the words “removal of debris” did not cover oil pollution clean up costs, it was illogical to find the parties’ presumed intention different as a matter of New York law, or at the very least he submitted he should have found as a matter of New York law that the phrase was ambiguous. On this basis the New York court would have examined the extrinsic evidence. That evidence was summarised in paragraphs 128 to 134 of Mr Butcher’s skeleton, and was unchallenged. Those paragraphs read:- “128. In the first place, the underwriters gave evidence (on behalf of some of the Claimant Syndicates, among others) which indicated that it had not been their intention to afford cover for oil clean up costs under Section I. (i) The leading underwriter, Richard Youell, who had enormous experience of the market, said “… one thing removal of debris is not, is pollution. Pollution is something quite different and quite separate.” (ii) Mr Youell’s assistant, Christopher Compton-Rickett, who took much of the responsibility for the underwriting of the property cover under Section I of the GCE, gave evidence as follows: “Q. So removal of crude oil that’s floating on the water would not be covered under removal of debris? A. Oh, no. Not at all. That’s clean-up and removal of pollution. Q. What about removal of crude oil from – that washes ashore? A. That’s the same thing… Crude oil and other substances that pollute do not form the proper subject for removal of debris coverage, and always would be the subject of any pollution. Q. What about removal of crude oil from – that washes ashore? . . . “129. Evidence from the other side of the contractual dividing line came from William Jueds who was President of Exxon Insurance Corp from 1986-1993. That was the company which was responsible for arranging Exxon’s insurances. . . . . Mr Jueds gave evidence that his view was that the term “removal of debris” in Section I was not intended to cover oil pollution. 130. Entirely consistent with the absence of any intention on Exxon’s part to insure oil clean up costs under Section I is the following further evidence: (i) Exxon had investigated the possibility of buying pollution coverage in excess of the US$400 million coverage under ITIA, before the Exxon Valdez spill. It obtained quotations for excess pollution coverage, but decided that the ITIA level was adequate and that the additional insurance would be too expensive. (ii) At the time of the renewal of the GCE cover in August/September 1989, after the Exxon Valdez spill, Exxon had no idea that there would be a Section I claim for removal of debris. Exxon decided to pursue a removal of debris claim only in February 1991. The idea for that claim came from lawyers at Covington & Burling. 131. As to the brokers, the position is the same. (i) The brokers had never, before the Exxon Valdez spill, heard it suggested that removal of debris covered oil pollution. . . . Mr Tyndall gave evidence that he had been a broker for 28 years with Bowrings, specialising in placing marine and energy business. He had never heard anyone (including his major petrochemical clients) suggest that removal of debris covered marine oil pollution cleanup expenses. He was not aware of any situation where an insured obtained insurance for oil pollution cleanup expenses and it was called anything other than pollution. (ii) Mr Delach, managing director of Marsh & McLennan, stated that, in the marine insurance industry, an oil spill would always be described as pollution. . . . . 132. In addition to this evidence was the evidence that there simply was not cover of $600 million excess of ITIA available in the market for pollution coverage.”

“It is common ground that the specified policy numbers … were a reference to section 3 of the GCE policy itself. Thus, on the face of it at least, the policy intended that losses sustained which might otherwise fall within the wording of section 1, but which were recoverable under section 3, should not also be recoverable under section 1.” 108. He suggested that the natural reading of the clause was that if a risk was covered by Section IIIA or IIIB, the Sections covering “liability risks”, then they were not to be covered by Section I. He submitted the judge was right in his view that it was intended that there should not be an overlap between the different Sections. Although the Sections covered different levels, and were not shoulder to shoulder, there was an area of cover i.e.$50 million where, if recovery could be made under Section I and Section IIIA, the result would be an entitlement to recover under both Sections and that was an unlikely intention. The intention was that there should be a clear distinction between “property” cover under Section I and “liability cover “ under Sections IIIA and IIIB, with the Notwithstanding clauses in the property cover providing primacy to the liability covers. 109. Mr Butcher recognised that even if removal of debris meant debris from a solid object such as a vessel or solid cargo, it was possible to think of examples where prima facie there could be recovery under Section I which on the wording of the Notwithstanding clauses might become irrecoverable because of coverage under Section IIIA, but his submission was that to extrapolate from such examples was to allow the tail to wag the dog. In any event it leant no support for removal of debris having the wider meaning covering oil pollution. 110. He in any event suggested that as matter of English law the authorities relied on by Mr Edelman Post Office Norwich Union; Bradley v Eagle Star; and Yorkshire Water v Sun Alliance did not demonstrate that where as here Exxon were actually remedying the damage, the insurers would not be liable. He further suggested that, if New York law was the appropriate law, the US authorities were clear that potential liability could equal liability. New York law he submitted considered “liability” in this context to be simply “amenability or responsibility”; it “expresses some form of obligation and when applied to contracts refers to legal responsibility” (Eberhard v Aetna Insurance Co. 134 Misc 386; 235 NYS 445 at 388, 448). He submitted that the New York authorities relied on by Mr Edelman were cases where there was a liability as a result of a government order, but that they laid down no rule that there had to be such liability. Indeed Aetna was to the contrary. Judge’s judgment 111. He approached construction of Section I initially by reference to English law having held that to be the proper law of the policy. He reasoned on that basis as follows: (1) “debris” is not a word which normally comprehends liquids (para 88);(2) he rejected Mr Edelman’s reliance on the extent of the cover pointing to the inclusion of removal of “liquid cargo” (90 to 95);(3) he relied on the terms of Sections I and IIIA and IIIB which he set out and to which Mr Butcher has again drawn attention and concluded that the “policies treat removal of debris and liability for pollution as two distinct areas of cover”; (4) he considered the commercial environment or contractual matrix which he summarised in this way from paragraph 109 to 115:- “109 The leading underwriters, Mr Youell and the underwriter directly concerned, Mr Christopher Compton-Rickett, of the Jansen Green Syndicate, Exxon Insurance Corporation, which was part of the Exxon group responsible for effecting Exxon’s insurances in general and this policy in particular, and the London placing brokers, Bowrings, in particular Mr Fortescue, Mr Mead and Mr Tyndall, were none of them strangers to Exxon’s global insurance cover or to insurance against pollution risks. “110. This court has not heard oral evidence on market background or commercial matrix but it has had the benefit of transcripts of deposition evidence given in the Texas proceedings by a number of witnesses from the parties concerned with the placing. Hearsay notices were served in respect of passages from those transcripts and were not objected to save on the grounds of admissibility. Most of that evidence is not admissible because it is evidence of negotiations or the subjective understanding or intention of those concerned or of personal opinions after the event, but several of those involved were extremely experienced in the insurance industry and in particular in the insurance of oil producers and tanker operators and the evidence which they gave of their experience of the insurance industry background clearly is relevant to the issues of construction under Section I.” 111. Mr Anthony Fortescue, Chairman of Bowring Marine Ltd said that in his 30 years experience of the marine insurance market he had never heard anyone suggest that pollution cleaning up expenses were encompassed within the term “removal of debris”. 112. Mr Roger Tyndall another very experienced broker at Bowrings who had been responsible for placing the 1988/89 policy for Exxon had not been instructed to obtain any form of pollution cover under the property damage policy. 113. Mr Kettel had many years experience in the energy industry, including 16 years at Atlantic Richfield and 9 years at Chevron, in both corporations responsible exclusively for insurance matters. He had for 18 years been a member of the Oil Insurance Group consisting of about 15 insurance managers from the major energy companies, including Exxon, who regularly met to discuss insurance problems. He was also a board member of ITIA – the International Tanker Insurance Association, from 1975 to 1994. In an affidavit which he swore for the purposes of the Texas proceedings he stated that after the grounding of the Torrey Canyon in 1967, which was the first major oil spill, giving rise to a major coastal pollution problem, it became apparent that the energy industry required as much insurance for tanker pollution as the market had the capacity to cover. From the outset, because of the objective of maximizing market capacity, it was essential that insurers should be able to identify clearly the sources of their exposure to pollution risks. Consequently it became the practice in the marine insurance market to cover tanker pollution costs, liabilities and expenses through specialized policies that expressly addressed the pollution risk. ITIA was set up as a P&I Club specializing in pollution cover. It was in turn reinsured on the London market by virtue of its membership of the International Group of P&I Clubs which was protected by reinsurance in respect of pollution risks, led by the Janson Green Syndicate. Thus ITIA’s ability to provide pollution cover was limited by the extent of the reinsurance cover obtained by it from the London reinsurers. By 1989 that limit was $400 million. In the 1980s some insurers offered tanker pollution cover above the limits offered by ITIA but such insurance policies always specifically identified tanker pollution as the risk. By 1989 it was possible to purchase on the outside marine market for a very substantial premium up to $200 million cover in excess of the $400 million available from ITIA but there was not sufficient market capacity to purchase as much as $600 million pollution clean up cover in excess of the ITIA cover. 114. It is true that Mr Kettel’s evidence was in one sense adduced as a market expert and that, although it was the subject of a hearsay notice, there was no order of this court permitting the calling of expert evidence other than that of New York Law and Alaskan Law. Nevertheless, that which I have summarised was not opinion evidence. Rather it was evidence of the state of the energy insurance industry in the years leading up to the time when this GCE policy was entered into. Most of this evidence is well known to the judges of this court by reason of that specialist background which is one of the main reasons why those involved in international commerce are so willing to refer their disputes to its jurisdiction. To ignore this historical background merely because it had not formally been the subject of a previous court order would therefore be quite unrealistic. 115. Having regard to the structural and linguistic features of the GCE Policy to which I have already referred and to the commercial background against which the risk was placed, including in particular the limited availability of market reinsurance cover for primary pollution clean-up risks, I have come to the firm conclusion that paragraph 4(b) of Article VII of Section I is not, on its proper construction to be understood as including the cost of clean-up of oil pollution. The provisions of Article VIII, paragraph 2 - "Cargo and Stock" - contain nothing which is to be construed as expanding the meaning of Article VII paragraph 4(b) to include oil pollution clean-up costs. Paragraph 2 does not apply exclusively to liquid cargoes: it covers also cargoes consisting of "materials, supplies, equipment, tools and all other cargoes" as indicated in Paragraph 2(a)(iii). Matching the provisions in Article VIII, Paragraph 1(d) and (f) which deal with cost of removal of debris of property in the context of insured property other than cargo and stock, so Article VIII paragraph 2(b) deals with cost of removal of debris of cargo and stock. The fact that most of the cargo or stock may be in liquid form does not expand the meaning of debris, given that paragraph 2 expressly contemplates solid cargo. 112. He then considered the “Notwithstanding clauses” applying again English law. His conclusions are summarised accurately by Mr Edelman as follows:- “a. The effect of clause 2(g) of Section IIIA is that if and to the extent that the Insured, in its capacity as charterer or cargo owner, incurs expenses which are within the categories set out in 2(g) and connected with its legal or contractual liability as charterer or cargo owner for pollution or contamination, there will be cover under Section IIIA. [134]” b. The Notwithstanding clauses embrace costs and expense incurred pursuant to a sue and labour clause. [138] c. The general principles applicable to sue and labour with regard to the insurance of property or ships are equally relevant to liability insurance. [145] d. If (contrary to the Judge’s conclusion on Section I) “removal of debris” does extend to oil pollution clean-up costs, those costs could only be recoverable under Section I if Exxon were not entitled to recover it under Section IIIA on the ground that Exxon incurred a liability to a third party (viz the State of Alaska) in respect of such clean-up or the cost of it or because the cost was a sue and labour expenditure in the sense expressed in clause 2 (g). [149] e. The clean-up operation undertaken by Exxon was an expense of the character of sue and labour expenditure incurred to avoid an insured potential liability and therefore fell within the scope of clauses 2(e) and (g) of Section IIIA. [152] f. On the hypothesis that the cost of removal of debris was covered under Section I, the Notwithstanding clauses exclude the right of Exxon to recover the actual expenditure incurred since such expenditure was recoverable under Section IIIA. [153]” 113. In reaching those conclusions the judge is, we believe, keeping overly separate and insulating from each other two aspects of what is ultimately a single overall problem of construction. One aspect is to ask whether “removal of debris” in Section I includes clean up costs and for this purpose to consider what support is provided by the fact that clean up costs are covered by Section IIIA. The second aspect is the question whether, if “removal of debris” does include clean up costs, such costs are excluded by the nothwithstanding clauses. This insulation is also apparent when he comes to deal with construction under New York law which he deals with very shortly in the final paragraphs of his judgment. He is of the view having regard to Lexington and Antilles and the weight which he considered a New York court would give to those authorities that “Exxon would thus have been covered under Section I unless such cover were excluded by the Notwithstanding clauses” and his conclusion on balance was that since the costs of clean up were covered by Section IIIA, they would not be recoverable under Section I (paras 258 and 259). 114. Both parties to the appeal have criticisms of this aspect of the judgment. First Mr Butcher criticises the conclusion that reliance on Lexington and Antilles would have negatived all the points forcefully made when applying English law as to why on the proper construction of this particular policy “removal of debris” did not include clean up costs. Mr Edelman criticises the judge for finding that “removal of debris” would as a matter of New York law include clean up costs but then failing to apply the law of New York relating to exclusion clauses or indeed even to mention that law while dealing with the Notwithstanding clauses. 115. These paragraphs came at the conclusion of a very long and detailed judgment, and were unnecessary to the decision. We think there is cogency in the submissions first that the judge did not go back to consider the forceful points made when construing the phrase “removal of debris” as a matter of English law, and that he possibly failed to consider how the Notwithstanding clauses could support the construction he had placed on those words. If despite those points he had still concluded that it was intended that removal of debris would cover clean up costs under Section I, then there is force in the point that on that basis the Notwithstanding clause would be an exclusion clause and special rules of construction might need to be applied to it. Discussion and conclusion on Section I 116. Our starting point is that we find it difficult to accept that a New York court and 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 materialise 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 it is simply Lexington and Antilles, neither a decision of the New York court,which he suggested would have convinced a New York court 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. As already indicated we believe he dealt with this aspect somewhat briefly. The judge erred in not bringing in at this point of his judgment the compelling points which he had already accepted when considering what the parties intended as a matter of the construction of the policy on the basis that English law was the proper law. 117. The points which Mr Butcher made on Lexington (see paragraph 98) above are in our judgment powerful. Since a New York court would have found the decision of an English court considering the terms of this policy persuasive, it seems to us that logically the judge should have compared his reasoning as a matter of English law of this very policy with the reasoning of Lexington relating to an entirely different policy and asked which he found the more persuasive. We think furthermore that his 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. The points made to the effect that removal of debris was not intended to provide cover for clean up costs for an oil spill are too formidable to be displaced by the reasoning in Lexington. 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. It was significant that when during the course of argument Rix LJ asked Mr Edelman how he would describe oil spilt onto a beach, he could not reply and absolutely properly could not reply “debris”. 118. 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”. 119. 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. 120. We do not find it fruitful to explore in detail the meaning of either Article IX .3 or the Notwithstanding clauses on the basis that “removal of debris” does include clean up costs. That would be an entirely different policy. We can see that if clean up costs had been specifically included as part of the cover under Section I, the argument that such cover should not be removed either by virtue of Article IX.3 or by virtue of one of the Notwithstanding clauses, would be powerful, and indeed one can see any court in New York or in England seeking to find a solution which did not do so. What one can say however is that the meanings given to those clauses by Mr Butcher do fit with the concepts (1) that removal of debris in Section I was not intended to cover clean up costs; (2) that Section I was not designed to cover damage to third party property; and (3) that oil pollution and clean up costs were the subject of the liability cover either under Section IIIA or depending on the answer to Mr Butcher’s argument on Section IIIB, Section IIIB. 121. 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 in paragraph 4 (iv) to (vii) above. Section IIIB 122. We now turn to consider Exxon’s claim under Section IIIB, which the claimants seek to pass on in these proceedings to the defendants. 123. The argument put by Mr Edelman on behalf of the claimants was essentially that Exxon’s claim, whether under English or New York law, had been validly made by reference to article I.1’s reference to a loss occurrence in respect of “all transportation activities” and/or endorsement no 2’s reference in its paragraph (a) to liability for third party loss or damage “caused directly or indirectly by seepage, pollution or contamination arising out of the operations of the Insured”

“…it is necessary to keep in mind the overall coverage structure which, it is to be inferred, was mutually intended to be created as between the brokers and the underwriters. This involved (i) protection against property damage in respect of property owned by or held in trust or under responsibility by the Insured and certain kinds of expenditure by the Insured relating to such property (Section I); (ii) protection against marine liabilities of a P and I nature, including oil pollution if not covered by ITIA (Section III A); (iii) third party liabilities of a non-marine nature arising out of the Insured’s commercial activities in relation to the energy industry (Section III B). As I have already concluded…the expenditure on oil pollution clean-up was recoverable by Exxon as cargo owner under Section III A and not under Section I. That right of indemnity under Section IIIA arose from the fact that such policy provided cover to a cargo owner who, not being a shipowner or bareboat charterer, did not have the benefit of cover from ITIA. As cargo owner Exxon therefore had the benefit of a wider scope of cover in relation to P and I risks, including ocean carriage than ESC as shipowner. In as much as Section III B does not provide P and I cover, the question arises whether it is to be inferred from the terms of that section, against the background of the overall structure of the cover provided by the insurers, that Exxon, not being the owner or bareboat charterer, was to have the benefit of cover of a scope which overlapped with that already granted to it as cargo owner in respect of marine liability risks under Section III A.” 126. Mr Edelman does not we think take issue with the judge’s overall summary of the GCE’s structure and his categorisation of its constituent elements, even if it has been his contention that all its three sections in their various ways, possibly unintentionally, cover Exxon’s pollution clean up costs. What he says, however, is that Exxon’s, as distinct from ESC’s, liability is not a “marine operation” but a “transportation activity”

“Thus: (i) there was evidence from the underwriters that the parties did not intend Section IIIB to cover tanker pollution liability: Compton-Rickett at B2/292-299; Youell at B3/720-728; (ii) there was evidence from the brokers that they did not believe that Section IIIB covered contingent cargo pollution liability: Delach at B2/p.327 line 17 to 328 line 11; (iii) there was evidence from Mr Jueds of Exxon Insurance Services that the parties did not intend Section IIIB to cover tanker operations: Jueds at B3/533 line 20 – 535 line 8; (iv) there is no extrinsic evidence that the parties intended Section IIIB to cover tanker pollution liabilities.” 143. We therefore conclude that the claimants’ appeal under Section IIIB fails. The Seepage and Pollution Exclusion 144. We now turn to an issue which arises under the retrocession policies, except certain of the Lloyd’s policies, rather than under Exxon’s GCE itself. It is common ground therefore that it arises only as a matter of English law. It is only relevant, however, to exclude liability under Sections I or IIIB. Since we have concluded that there is no relevant liability, the point is moot. We will therefore deal with it briefly. 145. The exclusion provides: “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. This contract also excludes liability in respect of disposal or dumping of any waste materials or substances. These exclusions shall not apply to coverage provided in respect of: (a) control of well policies where such seepage, pollution or contamination follows a well out of control above the surface of the ground or waterbottom; (b) liability under: 1. Offshore Pollution Liability Agreement 2. Outer Continental Shelf Lands Act, Federal Water Quality Improvement Act, Arctic Waters Pollution Protection Act, 3. Seepage, pollution or contamination covered by Protection and Indemnity policies, 4. Aviation policies subject to clauses no less restrictive than Aviation Seepage and Pollution Exclusion Clause (1988) amendment).” (a) control of well policies where such seepage, pollution or contamination follows a well out of control above the surface of the ground or waterbottom; (b) liability under: 1. Offshore Pollution Liability Agreement 2. Outer Continental Shelf Lands Act, Federal Water Quality Improvement Act, Arctic Waters Pollution Protection Act, 3. Seepage, pollution or contamination covered by Protection and Indemnity policies, 4. Aviation policies subject to clauses no less restrictive than Aviation Seepage and Pollution Exclusion Clause (1988) amendment).” 146. We have emphasised the words “on land”, because that is what the issue under this exclusion is about. The defendants say that “on land” describes where the effect of the seepage, pollution or contamination is located. The claimants say that the expression describes where the seepage, pollution or contamination originates from. The defendants say that since almost the whole of the clean-up costs were directed to contamination of the land and not the sea, its potential liability, if any, did not even reach the deductible. The claimants say that since the contamination came from the sea and not the land, the exclusion is wholly inapplicable. 147. In Commercial Union plc v. NRG Victory Reinsurance Ltd [1998] 1 Lloyd’s Rep 80 at 89, Clarke J held that the exclusion referred only to a case where the source is on land. He was therefore in favour of the claimants’ construction. He regarded the defendants’ construction as unarguable. He said no more about it. 148. Colman J said he would have agreed, but for the argument arising from the disapplication of the exclusion in respect of liability under the Offshore Pollution Liability Agreement (“OPOL”) which can only arise out of an escape or discharge into the sea from an “offshore facility” as there defined. A similar point arose from the disapplication in respect of liability under P and I policies. The judge remarked on the fact that there is no sign that such an argument was presented to Clarke J, else he would have been bound to have mentioned and dealt with it, a fortiori in a judgment concerned with summary disposal. The judge was persuaded that the disapplications favoured the defendants’ construction, for otherwise they would have been entirely redundant. 149. The claimants riposte that the argument from redundancy is an unsafe basis for a decision on construction: since such redundancy is common in insurance policies (and other commercial documents) to drive home a point. Mr Edelman gave as an example an exclusion for dishonesty in a liability policy where the insuring clause could only ever apply to negligence. 150. We are inclined to agree that the argument from redundancy is often of doubtful cogency. However, unlike Clarke J and Colman J, we find the defendants’ most basic submission, as to the meaning of “seepage, pollution or contamination on land” irrespective of the argument from redundancy, to be less obvious than they appear to have done. There is nothing express in that phrase to determine whether what is being looked to is the source, as distinct from the physical presence, of the seepage, pollution or contamination. The question, therefore, is where does the seepage, pollution or contamination occur, on land or at sea? Two of us (Lord Justice Waller and Sir Martin Nourse) think that there are two linguistic indications inherent in that question, which derives from the wording of the exclusion, which point in this case to the answer “at sea”; with the result that the exclusion does not apply. One is the concept of seepage, which is suggestive of a source as well as a location of seeping material. The other is the preposition “on” in the expression “on land”, which to our mind is to be contrasted with the alternative which might have been found “of land”. “On land” suggests to us the place where the active process of contamination is taking place, which in the case of seaborne pollution does not occur on land but at sea. The third of us, however, Lord Justice Rix, is doubtful about this, thinking that if you have a source of seepage, pollution or contamination offshore, it is likely to wash ashore and show up on land: and that if, therefore, you are anxious to differentiate between the source of seepage, pollution and contamination, leaving offshore sources within the cover and only excluding onshore sources, then the draftsman would concentrate in his language on distinguishing the source of loss, which this draftsman, he thinks, has failed to do. 151. Mr Edelman, however, has a second point, to which the judge did not allude in his judgment. This second point concentrates on the primary proviso “unless such risks are insured solely on a sudden or accidental basis”

“an event or a continuous or repeated exposure to conditions”