Judge rules in favour of Lexington in long running legal battle

In the early 1990s, the US Environmental Protection Agency compelled Alcoa to clean up pollution at its sites; the pollution in question had been caused over up to 50 years. Alcoa claimed for the costs of the clean-up on its insurance policies, of which Lexington's was one.

Lexington's insurance contract with Alcoa had been from 1 July 1977 to 1 July 1980. The Supreme Court of Washington found that Lexington was jointly liable with all the other insurances affected for the clean-up costs in respect of any pollution found at sites covered by its policy during those three years, whenever that pollution actually occurred.

AGF and Wasa had underwritten in the London Market and subject to English law reinsurance policies for Lexington covering the period for 36 months from 1 July 1977 . Lexington then sought to recover from AGF and Wasa their share of the Alcoa settlement.

In an important ruling for London market and foreign reinsurers, Mr Justice Simon held that AGF (and Wasa) were not liable, as the period of reinsurance was sacrosanct and the principle that you get only the cover you pay for in terms of time was fundamental.

The Court of Appeal has now ruled in favour of Lexington. For AGF, 3 specified years' cover will in fact mean paying out for 53 years of pollution. Bill Perry comments that, if it stands (an appeal to the House of Lords is being sought) "any reinsurer who wishes to ensure that the period clause in his English Law reinsurance means what it says will have to make it abundantly clear by adding phrases to exclude losses outside the period of cover and to disapply the terms or interpretation of the foreign law policy reinsured".