Insured entitled to compensation under the insurance policy as settlement funds have been withdrawn from the escrow account


Teal Assurance Co Ltd v (1) WR Berkley Insurance Europe Ltd (2) Aspen Insurance UK Ltd [2015] EWHC 1000 (Comm)

Mr. Justice Eder, April 25, 2015


The court was asked to decide a preliminary issue, namely whether the obligation to pay settlement monies arose when monies were paid into an escrow account or when those monies were to be withdrawn.


Teal is a captive insurance company, incorporated in the Cayman Islands. She insured Black and Veatch Corporation (“BVC“) and the wider BVC Group which operates a global engineering and construction business.

During the period from November 1, 2007 to November 1, 2008 (the “Insurance period“), BVC’s professional indemnity insurance program included the “Lexington policy”, three Tower policies and a final “Top and Drop” policy. WR Berkley Insurance Europe Ltd and Aspen Insurance UK Ltd (“Defendant reinsurers“) has agreed to reinsure Teal under the Top and Drop policy (the “Reinsurance contract“), subject to a limit per claim of £10 million or its equivalent in other currencies.

Teal faced a number of claims filed by BVC during the policy period, and in 2010 Teal filed suit against the defendant reinsurers regarding their liability under the reinsurance contract. Following a first round of preliminary questions before Judge Andrew in 20111the court ruled in favor of the defendant reinsurers, finding that the insurance policy addressed the claims”by reference to the order and time of establishment and determination of BVC’s liability” and not when the indemnities have been paid.

Preliminary question

Teal reviewed its case in light of Andrew J’s ruling. A second set of preliminary issues then arose from a settlement BVC reached with a contracted party on terms that required BVC to pay more than $13 million. Americans into an escrow account pursuant to the terms of an escrow agreement. Judge Eder was asked to decide when BVC suffered a loss for the purposes of its right to compensation under its insurance policies – was it: (i) when the funds were poured into the escrow account; or (ii) as the contracting party pulled down on these funds in accordance with the escrow agreement?

According to Teal, the establishment and determination of liability occurred when the settlement counterparty became authorized to withdraw funds from the escrow account. This was significant because applying the different draw dates, rather than the payment date in the escrow, was financially beneficial to Teal, as more than $11 million of the claim would then be payable by Teal to BVC under Top and Drop policy. and the defendant reinsurers would then be liable to indemnify Teal under the reinsurance contract. However, if the defendant reinsurers were correct and liability arose when the monies were paid to escrow, then no payment would be due to Teal under the reinsurance contract.

Teal Submissions

Teal argued that the liability is not “established and confirmed“unless and until (i) the insured is liable for wrongdoing, (ii) the amount of the insured’s liability is quantified, and (iii) the time of payment of the determined amount Teal argued that the agreement to pay money into the escrow account did not meet this test: since (i) the payment into the account was not a payment to the counterparty; (ii) ) the withdrawal of funds by the counterparty was conditional and not absolute; and (iii) the exact amount of liability would not be known until a later time, when proof of the cost of the repair work had been provided and, even in that event, any excess remaining in the account after the costs have been paid would be refundable to BVC.

Teal relied on the principle in Post Office v Norwich Union2in which Lord Denning held”the right to sue for such sums arises only when the liability of the tortfeasor is established and the amount is determined” and Bradley vs. Eagle Star3in which Lord Brandon argued that “… under a civil liability insurance policy towards third parties, the insured can only claim compensation from the insurers if and until the existence and the amount of his liability towards a third party have been established by action, arbitration or agreement, are indisputably correct.Teal also relied on subsequent cases building on the above, including Burns v Shuttlehurst Ltdas well as the conclusions of Andrew J during the first round of preliminary questions and those of the Court of Appeal.

Observations of the defendant reinsurers

The defendant reinsurers argued that liability arose when the monies were paid into the account. They relied heavily on Cox v Bankside Members Agency Ltd4with respect to interim orders in which Philips J held that a court order to make an interim payment to a plaintiff established liability in the amount and at the time of the interim payment for the purposes of the liability policy. The defendant reinsurers argued that there was no material difference between an interim damages payment order and the settlement in this case, as the recipient of an interim payment order would still have to overcome hurdles to prove the liability and amount before being entitled to retain payment.


The judge found that the interim payment in Cox was different from that case for two reasons:

  • First, an interim payment order was a legal obligation to pay damages and would only be granted if the court was satisfied that the plaintiff would obtain from the defendant a judgment for substantial damages (of at least the amount of the temporary allowance). The amount of the interim order would necessarily involve a determination by the court of the likely amount of damages that the defendant would ultimately be required to pay. While in the present case the payment into the escrow account did not constitute an agreement to pay damages, but was rather voluntary, there were no conditions as to the assessment of the amount likely to be paid. , and the amount that could be withdrawn was conditional on the fulfillment of the terms of the escrow agreement.
  • Second, the policy ground in Cox that an insured could be rendered insolvent by an interim order if he could not seek compensation from his underwriters did not apply. The settlement was consensual and the payment in escrow was a security for future payments, he was not obligated to do so by court order and there was no political reason why he should be compensated for the payments made under receiver before he becomes legally bound to pay them. , which corresponded to when funds could be withdrawn pursuant to the escrow agreement.

Accordingly, the judge found in favor of Teal and against the defendant reinsurers on the basis that BVC had suffered a loss for purposes of its entitlement to compensation relating to the US$13 million settlement as the counterparty to the regulation pulled down the money from the escrow account, not when BVC paid the money in the account.


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