Bermuda is one of the world's leading insurance and reinsurance jurisdictions. The legal framework of the insurance market in Bermuda is deliberately structured to facilitate innovation and creativity. As the type of insurance products in Bermuda experience consistent development, it would be natural to assume that the Bermuda courts are continuously entertaining insurance disputes. However, as insurance contracts are commonly subject to arbitration agreements, Bermuda jurisprudence concerning insurance disputes is fairly rare, particularly in recent years.
Those Bermuda cases that do concern insurance disputes generally relate to technical points of law such as the requisites for the removal of arbitrators or a strike-out application; these are explored further below.
II THE LEGAL FRAMEWORK
i Sources of insurance law and regulation
The Insurance Act
Aside from the Companies Act 1981, which is the principal piece of legislation governing companies in Bermuda, insurance and reinsurance companies in Bermuda are also governed by the provisions of the Insurance Act 1978 (the Insurance Act) and its related regulations. The Insurance Act applies to any person carrying on insurance business in or from within Bermuda, and provides for the registration of all insurers and insurance managers, brokers, agents and salesmen. If a long-term insurer issues life insurance policies that are made in Bermuda and governed by Bermuda Law, the Life Insurance Act 1978 (the Life Act) will apply. The Life Act contains a number of provisions that govern a variety of matters including policy issuance, and beneficiary rights and entitlements.
There have been several amendments to the Insurance Act over the past 12 months, namely through the implementation of the Insurance Amendment Act 2018 (First Amendment) and the Insurance Amendment (No. 2) Act 2018 (Second Amendment, together with the First Amendment: the 2018 Amendments).
The First Amendment brought about a number of changes to the Insurance Act to introduce a new class of innovative insurers and innovative insurance managers, brokers and agents (intermediaries).
More significantly, the Second Amendment amends the Insurance Act by updating winding-up provisions for insurance business for the purpose of protecting policyholders during the winding up of an insurer. The amendment requires the accounts of long-term business and general business to be kept separate in that no payment from the insurer's long-term business fund shall be made directly or indirectly for any purpose other than the insurer's long-term business. The same applies to general business. In the event of winding-up, the assets of the long-term business fund must be discharged as a matter of priority to debts attributable to long-term business. The same applies to general business. The result of these changes is that unsecured policyholder creditors will rank in priority before all other non-preferential unsecured creditors.
The Second Amendment received Royal Assent and became operative, with respect to insurers carrying on long-term business, on 30 July 2018. The Second Amendment will become operative for general business insurers on 1 January 2019.
The Insurance Act is supplemented with various statutory rules and regulations as well as various addenda in respect of commercial insurers and long-term insurers. Bermuda's insurance regulator, the Bermuda Monetary Authority (the Authority) has also published various guidelines to reflect the minimum standards that the Authority expects insurers and other relevant parties to observe.
Until this year, the right to pursue claims derivatively in Bermuda was governed exclusively by common law, and in particular, the various exceptions to the rule in Foss v. Harbottle.2 As of July 2018, following an amendment to the Rules of the Supreme Court 1985, derivative actions commenced in Bermuda may not be continued without leave from the Supreme Court of Bermuda (the Supreme Court). The introduction of a formal requirement of judicial leave brings Bermuda into line with other offshore jurisdictions such as the Cayman Islands and BVI, and should provide additional protection against frivolous or vexatious shareholder claims.
Such an application must be made after the writ has been filed and a defendant has entered an appearance in the proceedings (i.e., filed a memorandum of appearance). The application must also be made within 21 days of the defendants' appearance.
On hearing the application, the Supreme Court may (1) grant leave to continue the action, for such period and upon such terms as it thinks fit, (2) dismiss the action, or (3) adjourn the application and give directions for the joinder of parties, the filing of further evidence, discovery, cross-examination of deponents and otherwise as it may consider expedient.
Until 28 March 2016, the strict rules of privity applied to the enforcement of contracts under the law of Bermuda. The Contracts (Rights of Third Parties) Act 2016 (the Third Parties Act) provides that contracting parties may extend the ability to enforce the contract (or certain parts of it) to those outside the scope of privity. This change to the law will be welcomed by anyone attempting to extend the benefit of an indemnity to a designated person. Contracting parties must 'opt in' for the Third Parties Act to apply, for example:
- the third party must be identified in the contract by name, as a member of a class, or as answering a particular description; or
- the contract expressly provides in writing that the third party can enforce the terms.
ii Insurable risk
Pursuant to the Insurance Act, 'insurance business' is defined as the business of effecting and carrying out contracts (1) protecting persons against loss, or liability to loss in respect of risks to which such persons may be exposed; or (2) to pay a sum of money or render money's worth upon the happening of an event, and includes re-insurance business. The definition, which was deliberately drafted broadly, does not require there to be an insurable interest in effecting and carrying out insurance contracts.
That said, the Life Act requires there to be an insurable interest in the case of certain long-term business contracts.
iii Fora and dispute resolution mechanisms
Generally, insurance disputes in Bermuda are litigated through arbitration because insurance agreements commonly contain arbitration clauses.
The Bermuda International Conciliation and Arbitration Act 1993 (the 1993 Act) governs international commercial arbitration and the enforcement of foreign arbitral awards in Bermuda. The 1993 Act enacts the UNCITRAL Model Law on International Commercial Arbitration 1985. The 1993 Act provides for the recognition and enforcement of a 'Convention award', namely, an award made in pursuance of an arbitration agreement in a state or territory other than Bermuda that is a party to the New York Convention.
There are no legal impediments to arbitrating any kind of dispute, save where statute prescribes that the only relief available is by order of the Supreme Court. For example, pursuant to the Companies Act 1981 certain relief in respect of Bermuda-registered companies may only be granted by the Supreme Court.
In the case of an arbitration agreement in what would be an international commercial arbitration, the Supreme Court shall, if a party requests it no later than when submitting its first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed. Where there is an arbitration agreement or clause, proceedings brought before the Supreme Court, in breach of the arbitration agreement will in the ordinary course be stayed.
Domestic arbitration is subject to the Arbitration Act 1986.
Where there is no arbitration agreement in place, insurance disputes will be heard by the Supreme Court, which is Bermuda's principal court. The Supreme Court hears all civil disputes with a value in excess of 25,000 Bermudian dollars and appeals from civil (and criminal) actions in the lower courts. The Bermuda Court of Appeal (Court of Appeal) hears appeals from the Supreme Court, and there is a further and ultimate right of appeal from the Court of Appeal to the Judicial Committee of the Privy Council in England. The Privy Council sits before a five-member panel comprising members of the English House of Lords and certain senior Commonwealth appellate judges. The Supreme Court is bound by the decisions of the Court of Appeal, which, in turn, is bound by decisions of the Privy Council.
Bermuda courts reserve the capacity to deviate from an English House of Lords decision if 'the social conditions of Bermuda make inappropriate the particular path of development taken by the House of Lords against the background of British conditions'.3 There are no known instances where a Bermuda court has failed to follow an English House of Lords decision. Furthermore, English Court of Appeal decisions are highly persuasive in the Bermuda courts and are invariably treated as authoritative statements of the common law. Similarly, other reported English decisions are persuasive and are generally treated as authoritative or highly persuasive. As to the interpretation of statutes, the Bermuda court will follow decisions of the English courts in cases where the Bermuda statute contains identical statutory language to that found in the equivalent English statute.
III RECENT CASES
Given that the majority of insurance disputes are litigated primarily through arbitration, jurisprudence on insurance disputes is quite scarce. Generally, when insurance disputes are referred to the Supreme Court, the substance of the proceedings is more technical in nature. Consequently, the significant cases that we will refer to below reflect technical developments raised in the context of insurance disputes.
i Removal of arbitrator
The English court of first instance,4 and subsequently the English Court of Appeal,5 heard applications for the removal of an arbitrator in respect of Bermuda Form insurances governed by New York law and subject to arbitration in London, whereby it was contended that the failure, by the arbitrator appointed in respect of three separate arbitral proceedings concerning liabilities stemming from the same event, to disclose his appointments gave rise to a real possibility that the appointed arbitrator was biased.
Popplewell J rejected the application, and his decision was upheld by the English Court of Appeal, who held:
- The test for potential bias was whether a fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the arbitral tribunal was biased.
- There was no objection to an arbitrator accepting appointments in multiple references concerning the same or overlapping subject matter with only one common party, so there was no apparent bias on that ground.
- Disclosure should be given of facts and circumstances known to the arbitrator that would or might give rise to justifiable doubts as to his impartiality. In the present case, the arbitrator should have disclosed appointments, but his failure to do so did not automatically mean that he should be removed. The question was whether the failure to disclose, combined with other factors, would give the fair-minded and informed observer a basis for a reasonable apprehension of lack of impartiality. In the present case, the failure to disclose was accidental and the degree of overlap was limited, so the fair-minded observer would not consider the failure to disclose to give rise to justifiable doubts as to impartiality.6
While not decisions of the Supreme Court, as set out above, this English decision is highly persuasive in Bermuda, and it is likely that the Supreme Court would apply the same approach in application for the removal of an arbitrator on the grounds of potential bias.
ii Taxation and privilege
In Chubb Bermuda Insurance Ltd (formerly known as Ace Bermuda Insurance Ltd) v. Ford Motor Company,7 the Supreme Court assessed whether and to what extent: (1) a bill of costs and other material produced on taxation is subject to an implied undertaking that prohibits other parties from using it for purposes other than the taxation; (2) a bill of costs produced on taxation is a privileged document; and (3) a party producing privileged material on taxation waives privilege for the purposes of that taxation only or alternatively waives privilege generally.
By way of background, Chubb provided excess liability cover to Ford. Ford made a claim under the policy but Chubb declined coverage. This gave rise to a dispute between the parties as to whether the policy covered the claim. By an Originating Summons, Chubb sought to restrain Ford from litigating the dispute in the United States as Chubb claimed that this would breach an arbitration clause in the policy. A consent order was granted, inter alia, (1) staying the Originating Summons generally on terms that Ford gave undertakings not to litigate the dispute in the United States and (2) awarding costs to Chubb, to be taxed forthwith on the standard basis, if not agreed.
The parties were unable to agree costs and Chubb commenced taxation proceedings. The taxation proceedings were adjourned part heard because the question arose as to what use could Ford make in the arbitration of the material disclosed by Chubb on the taxation. The Supreme Court held that:
- the stay of the Originating Summons was lifted to the extent necessary to enable Chubb to make the application contained in the summons relating to the Bill of Costs;
- the Bill of Costs and any other material that Chubb might produce on taxation was: (1) subject to an implied undertaking by Ford not to use it for purposes other than the taxation; and (2) privileged, save to the extent that privilege had been waived for purposes of the taxation; and
- Ford was prohibited from using any material produced by Chubb on taxation for any purposes other than that of the taxation, including, but not limited to, the arbitration between the parties relating to the underlying dispute that gave rise to this action.
iii Payment into court
In the matter of Jose Munoz-Vargas v. Sun Life Assurance Company of Canada,8 the Supreme Court clarified the procedure in which payment may be made into court, particularly in respect of (1) who is responsible for making the application for payment out, (2) who is an 'interested party' for the purposes of being put on notice of the payment into court and (3) the discretion of the courts regarding pay out before the relevant notice period has expired.
The facts of this matter are summarised as follows. Given that the policy owner was now dissolved, the defendant insurer (Sun Life) paid certain funds into court in satisfaction for insurance money payable in respect of a life insurance policy owned by E S Venture Limited (policy owner) (dissolved), with Jose Munoz-Vargas named therein as the life insured, on the basis that there was no person capable of giving valid discharge. Under the policy, Mr Vargas had no rights until it matures; the maturity date being when Mr Vargas reached 99 years of age.
The Supreme Court held as follows:
- It is for potential interested parties to make an application to obtain payment out.
- The term 'interested parties' is to be construed broadly. As such, the insurer, upon paying money into court, is required to identify anyone who might have a possible claim. It is then for those persons who have a sufficient conviction in the strength of their claim to apply to the court to obtain payment out.
- The court has discretion, based on the facts of the case, to shorten the length of time required for notice to 'interested parties'. On the facts of this case, it was held that 28 days' notice should be allowed for the liquidator of the policy owner.
IV THE INTERNATIONAL ARENA
In Bermuda, subject to certain requirements, a foreign civil judgment may be registered or enforced pursuant to:
- the Judgments (Reciprocal Enforcement) Act 1958 (Reciprocal Judgments Act); or
- the principles of recognition and enforcement pursuant to Bermuda's common law.
In Bermuda, under the Reciprocal Judgments Act, any judgment of a superior court in the United Kingdom or other designated common law jurisdiction that is (1) final and conclusive as between the parties and (2) is for a fixed sum of money (not being in respect of taxes or in respect of fines or penalties) (qualifying foreign judgment) may be registered as a judgment in the Supreme Court.
A qualifying foreign judgment may be registered any time within six years after the date it was rendered, or if it was appealed, within six years of the date of the last appeal. Upon registration, the qualifying foreign judgment is enforceable in the same manner as a judgment given by the Bermuda court, and is treated for all practical purposes as if it had been given by the Supreme Court on the date of its registration in Bermuda.
Under Bermuda's common law, the Bermuda court may recognise the US judgment (or any other judgments of a foreign jurisdiction that are not otherwise qualifying foreign judgments) for a liquidated sum by way of summary judgment.
The Rules of the Supreme Court of Bermuda do not provide any specific procedure for the recognition of foreign judgments. That being said, however, it has long been recognised that the Bermuda court may enforce foreign judgments under the 'Doctrine of Obligation', by way of summary proceeding (i.e., on the basis that the guarantor has no bona fide defence to the claim).
To qualify for enforcement under Bermuda's common law, the US judgment must meet the following criteria:
- the foreign court is a court of competent jurisdiction in relation to the issues in dispute;
- the foreign judgment is final and conclusive as between the parties;
- the foreign judgment is for a fixed sum of money, not being a sum payable in respect of taxes or other charges of a like nature in respect of a fine or penalty or in respect of multiple damages;
- the foreign judgment was not obtained by fraud and the defendant put or was entitled to put his or her defence and be heard; and
- the foreign judgment is not otherwise contrary to Bermuda law or public policy.
An example of proceedings in which the Bermuda court recognised a US judgment against a guarantor is Desarrollo Inmobiliaro Y Negocios Industriales De Alta Tecnologia De Hermosillo Sa De Cv v. Kader Holdings Company Limited.9 That case involved an Arizonian Superior Court money judgment (the Arizona Judgment) against Kader Holdings Company Limited (Kader) (a Bermuda company), in respect of a guarantee given by Kader to the plaintiff concerning certain obligations under a lease. The Bermuda court recognised the Arizona Judgment pursuant to Bermuda's common law, granting summary judgment in respect of the plaintiff's claim to enforce the Arizona Judgment. We note, however, that Desarrollo was later set aside on the basis that Kader had not submitted to the jurisdiction of the Arizonian court.
More recently, in 2017, Bermuda's Commercial Court joined the Judicial Insolvency Network formed in Singapore linking various courts with which Bermuda has close ties. Building on these connections, in September 2017, the Supreme Court entered into two agreements with the Supreme Court of Singapore designed to facilitate cooperation between the two courts, namely:
- a Memorandum of Guidance as to Enforcement of Money Judgments, which confirms that the courts will apply similar common law principles to enforcing money judgments from Singapore in Bermuda and from Bermuda in Singapore; and
- a Memorandum of Understanding on References of Questions of Law, which confirms a willingness of each court to entertain applications from parties to civil litigation for questions of Singapore law arising in Bermudian proceedings to be referred to Singapore for determination, and vice versa as regards questions of Bermuda law arising in Singaporean proceedings.10
V TRENDS AND OUTLOOK
In the wake of the 2017 losses from hurricanes Harvey, Irma and Maria, catastrophe indemnity is currently the busiest area of claims in Bermuda. The 2017 hurricanes are estimated to have caused around 90 billion Bermudian dollars of insurance and reinsurance industry-wide losses.11
Commercial market claims data aggregated by the Authority show that Bermudian reinsurance firms paid out a huge 208.7 billion Bermudian dollars to policyholders and cedants from the United States for losses from large catastrophes, related property insurance and general liability over the past 20 years.12 Accordingly, we would expect the volume of catastrophes, related property insurance and general liability claims to continue to have a large hold on the area of claims in Bermuda.
Over the past few years the insurance and reinsurance markets have experienced significant consolidation, with a number of mergers and acquisitions. Companies are keen to improve their bottom lines by increasing the scope of their books, both in terms of the volume of business and the variety of insurance and reinsurance being offered. We expect this trend to continue, with smaller insurance and reinsurance companies being targeted for acquisition by the larger names in the market. From a litigation perspective, this consolidation is likely to result in a greater number of employment disputes (usually proceeding by way of arbitration) and potentially litigation resulting from the mergers and acquisitions themselves.
While 2017 saw impressive gains in the Bermuda life sectors,13 2018 has been marked by a large portion of life insurers in a wind-down state or selling or consolidating portions of their books. Consequently, we would expect insurers to make increasing numbers of applications to the Supreme Court for payments into court of policy funds that cannot be paid out to beneficiaries (for example, because those beneficiaries cannot be located), and conversely applications by purported beneficiaries for the payment out of court of those insurance policy proceeds.
The Authority is becoming increasingly active in its enforcement of anti-money laundering (AML) and anti-terrorist financing (ATF) regulatory requirements as they apply to Bermuda-based insurers. In early 2017, a Bermuda investment company was fined 1.5 million Bermudian dollars by the Authority and its licence was restricted owing to failures to comply with the relevant AML and ATF legislation. We expect the Authority's increasingly rigorous approach to these matters will impact on its regulation of insurers and that insurers are likely to face similar enforcement action and decisions in the coming years.
The Authority's increase in enforcement is particularly projected in light of the Authority's publication of the Enforcement Guide – Statement of Principles and Guidance on the Exercise of Enforcement Powers (the Enforcement Guide). The purpose of the Enforcement Guide is to:
- satisfy the requirement of the Regulatory Acts14 to publish a statement of principles in accordance with which the Authority will exercise its formal enforcement powers;
- explain when and in what circumstances the Authority will consider taking enforcement action;
- explain how enforcement action is taken by the Authority;
- encourage effective alignment and coordination of regulatory processes within the Authority; and
- ensure consistent, proportionate, effective and dissuasive enforcement outcomes.
The Enforcement Guide replaced the following documents, which no longer have effect, with a unified statement of principle on the Authority's exercise of its enforcement powers:
- the 2010 'Statement of Principles on the Use of Enforcement Powers – Proceeds of Crime (Anti-Money Laundering & Anti-Terrorist Financing Supervision and Enforcement) Act 2008'; and
- the 2012 Statement of Principles on the Use of Enforcement Powers.
1 John Wasty is the group head of dispute resolution in Bermuda and global head of the insurance disputes team, and Jessica Harris is an associate at Appleby.
2 (1843) 2 Hare 461.
3 Haley v. Crockwell (1993) Civil Appeal No. 23 of 1992, Bermuda Court of Appeal.
4 H v. L and Others  1 Lloyd's Rep. 553;  EWHC 137 (Comm), Queen's Bench Division, Commercial Court, 3 February 2017.
5 Halliburton Company v. Chubb Bermuda Insurance Ltd  EWCA Civ 817, Court of Appeal, 19 April 2018;  1 Lloyd's Rep. 638.
6 2018] 1 Lloyd's Rep. 638.
7  SC (Bda) 88 Civ.
8  SC (Bda) 28 Comm (27 March 2018).
9  Bda LR 55.
10 Ian R C Kawaley CJ (as he then was), Judiciary Press Release, 3 October 2017.
11 ARTEMIS, 'Bermuda reinsurance & ILS to pay 30% of hurricane losses', 22 November 2017.
14 Section 2A(1) Insurance Act 1978, Section 9(1) Banks & Deposit Companies Act 1999, Section 9(1) Investment Business Act 2003, Section 2B Investment Funds Act 2006, Section 6(1) Trusts (Regulation of Trust Business) Act 2001, Section 6(1) Corporate Service Provider Business Act 2012, Section 6(1) Money Service Business Act 2016, Section 7(1) Proceeds of Crime (Anti-Money Laundering & Anti-Terrorist Financing, Supervision, & Enforcement) Act 2008, Section 5(1) Credit Unions Act 2010, and Section 5(1) Digital Business Act 2018.