Le demandeur, un fabricant de produits alimentaires, s'est acquitté d'un règlement à l'amiable dans le cadre d'une action intentée par le franchisé de l'une de ses filiales. Il a cherché à recouvrer auprès du défendeur, son assureur, le montant total du règlement qu'il considérait comme une pure perte financière (pure financial loss), couvert à ce titre par les polices d'assurance de base. L'assureur a contesté la réclamation aux motifs, notamment, que le franchisé cherchait à obtenir le remboursement de son investissement initial et non d'une perte de bénéfice, que l'action du franchisé avait été intentée avant la date de prise d'effet des polices d'assurance, que ces dernières étaient des polices dont la couverture était déclenchée par la survenance d'événements et que tous les faits et préjudices en question étaient survenus avant leur date de prise d'effet.

'IX.Applicable Law to the Substance of the Case

92. On […], Respondent requested the "Arbitrator's authorization to present a timeliness argument in that

Claimant's Request for arbitration was not timely filed under French law". The Arbitrator rejected the application but directed the parties to address the following two issues at the beginning of their submissions:

• What is the applicable law to the substance of the claims?

• Do any rule of law or equity bar coverage?

93. Respondent claims that French law is applicable to the substance of the dispute while Claimant believes that California law, not French law, should be applicable.

94. Respondent alleges that French law is applicable because:

A French insurer provided pure financial loss coverage underwritten in France and drafted by a French broker to a French conglomerate on a difference in conditions basis so that the French insurer's uniquely French coverage would reach down worldwide to fill the gaps in underlying liability policies. Accordingly, as a matter of consistency, the only way to apply this coverage is through French law. Furthermore, coverage for pure financial loss is a uniquely French coverage not written in the United States. As a result, there is no case law in California or anywhere else in the United States interpreting coverage for pure financial loss.

95. Respondent invited however the Arbitrator to be guided by both laws and apply California and French laws:

[...] [S]ince French and California law is consistent, the Arbitrator should be guided by both laws. This position is consistent with California's choice of law provisions.

96. Respondent explained that when California courts must decide between applying California state law or foreign law, they apply the "governmental interest approach", the objective of which is to "apply the law that most appropriately applies to the issue involved" 12 Cal. Jur. 3d (Rev), §29 at 449. According to California law, an insurance contract should be interpreted "according to the law of the state in which the most performance takes place" 12 Cal. Jur. 3d (Rev), §97 at 535. It is the Tribunal's opinion that this is equivalent to the "most significant contacts" choice-of-law approach frequently used in international arbitration. There can be no doubt that in this case the most significant contacts are in the U.S.A. and more specifically in California.

97. To determine the issue, the Arbitrator considered the following elements:

98. The insurance program is divided into two separate prongs, with the US and Canada on one prong and the rest of the world on the other; the insured is a US corporation; the Master Policies mandate that premiums and claims are payable in the currency where the insured is located; the parties decided to issue the Master Policies in English so as to avoid reference to "[c]ertain concepts or phrases [that] are not easily rendered in French"; and the Master Policies were purposely prepared in English, in full recognition of (1) their worldwide nature and (2) the fact that any litigation over the policies would not fall under any French jurisdiction. As [the broker] stated:

Bear in mind, any litigation arising between the parties with respect to the application of the contract does not fall under French jurisdiction. Such claims are submitted to arbitration under the auspices of the International Chamber of Commerce. . . .

99. The events underlying the claims at issue took place in California and involved California claimants; Respondent adjusted the [A] claims entirely in the US and clearly told Claimant when denying it coverage that California law might be applicable . . .

100. Although maintaining that French law was applicable, Respondent said it would rely nonetheless on both French and California laws where appropriate to respond fully to Claimant's claim. In fact, Respondent relied heavily, repeatedly and nearly exclusively on US and California laws and authorities in all its written submissions. References to French law and authorities were, most of the time, supplementary. Respondent finally stated on a number of occasions that French law was consistent with California law.

101. Respondent's claim that "pure financial loss" is a uniquely French coverage not written in the United States and that there is no case law in California or anywhere else in the United States interpreting the concept is not conclusive. It was not proven that the concept was specifically French or even well known in France.

102. One of Respondent's arguments in favor of French law is that the policy was written in France for a French conglomerate. The least that could be said is that this attachment is distant and loose when compared to the factual and legal arguments in favor of applying California law. The argument is also questionable. If French law could be applicable because [Claimant's parent company] is a French conglomerate even if the Insured is its American subsidiary, the same reasoning could lead to apply American law because the Insurer was the subsidiary of a US corporation! For these reasons and considering Article 17 of the ICC Rules,

103. The Arbitral Tribunal's decision is

• California law is applicable to the merits of the case. . . .

X. The Prescription of the Case

104. On 5 May 2000, Respondent requested the "Arbitrator's authorization to present a timeliness argument in that Claimant's Request for arbitration was not timely filed under French law". The Arbitrator momentarily rejected the application but directed the parties to address the issue in their future submissions.

105. Respondent, in its Written Submission on . . . repeated its previous claim:

Under French law, the date of the generating fact starts the two-year prescription period for filing suit. With regard to liability insurance, the period starts when a third party sues the insured in court. In that case, the [A] Plaintiffs directly sued Claimant on November 20, 1991. Thus, the prescription period expired on November 20, 1993, but Claimant did not file this claim until May 5, 1999. Thus, Claimant's claim is also time-barred under French law. This is a further basis upon which Claimant's claim can be rejected in its entirety.

106. [Respondent's witness], when testifying, emphasized that there is a public policy provision in French law to the effect that the action of the insured against the Insurer is prescribed by two years from the beginning of the action by the third party and this action was therefore prescribed.

107. This case is about international coverage of international business hazards by an international Insurer. I have determined that California law was applicable to the merits and offered Respondent the possibility to develop its argument on prescription even if its first claim was late. I was not convinced by Respondent's arguments and I see no reason to modify my previous determination of this issue.

108. The Arbitral Tribunal's decision is

• the case is not prescribed and Claimant is not barred from action. . . .

Part III: Determination of the Issues

I. Principles of Contract Interpretation

A. The California Civil Code

. . . . . . . . .

110. In short, the Tribunal must interpret the contract in a way that gives effect to the mutual intention of the parties as it existed at the time of contracting. In doing so, the Tribunal has to look for the expressed intent under an objective standard. 1 Witkin at Sec. 684, see also Mission Valley East Inc v. County of Kern, 120 Cal. App. 3d 89, 97 (Cal. Ct. App. 1981).

111. The courts adapted these general rules to the specific situations involving a contract of insurance. For instance, the interpretation of insurance is governed by the mutual intent of the parties when they formed the contract. Montrose Chem. Corp. of Cal. v. Admiral Ins. Co., 913 P.2d 878, 888 (Cal. 1995); AIU Ins. Co. v. S. C. of Santa Clara County, 799 P.2d 1253, 1264 (Cal. 1990). If possible, the intent is inferred from the written provisions of the insurance policy. Montrose, 913 P.2d at 888. The words of the insurance policy are read in their ordinary sense and accorded the meaning a layperson would ascribe to them, unless the parties have used the language "in a technical sense, or a special meaning is given to [the language] by usage". Montrose. Coverage provisions are read broadly and policy exclusions are read narrowly against the insurance company. AIU, 799 P.2d at 1264; Garvey v. State Farm Fire and Cas. Co., 770 P.2d 704, 710 (Cal. 1989); State Farm Mut. Auto. Ins. Co. v. Partridge, 514 P.2d 123, 128 (Cal. 1973). Most importantly, the interpretation that a defendant insurance company has placed on a specific insurance policy provision in other cases, under identical or similar insurance policies, should bind that defendant; evidence of such interpretations is admissible and should be considered when construing policy language. Aetna Cas. & Sur. Co. v. Haas, 422 S.W.2d 316, 319-320 (Mo. 1968); Leebov v. United States Fidelity and Guar. Co., 165 A.2d 82, 86 (Pa. 1960).

B. The Parties' Understanding of the Contract Interpretation Rules

112. Claimant asserts that the principles of policy construction reflect the fact that the parties to an insurance policy typically have unequal bargaining power. The insurance company is typically the unilateral drafter of the insurance policy and the policyholder usually has little meaningful opportunity to bargain for policy wording or modifications to policy terms. This explains why the ambiguous language is construed against the insurance company and in favor of coverage. AIU, 799 P.2d at 1264; Globe Indem. Co. v. People, 118 Cal. Rptr. 75, 78 (Cal. Ct. App. 1974) ; Spaid v. Cal-Western States Life Ins. Co., 182 Cal. Rptr. 3, 5 (Cal. Ct. App. 1982). The rule is intended to protect the policyholder's reasonable expectations of coverage. Montrose, 913 P.2d at 888; see AIU, 799 P.2d at 1264.

113. Claimant is right in principle but this case is not a typical situation of a contract of adhesion. The dispute is about an international insurance coverage drafted by a broker for an international conglomerate and accepted by another conglomerate. It should be presumed that such an important policy was reviewed by lawyers and accepted by the Insurer and the Insured after careful evaluation of its terms and the risks they intended to cover.

114. According to Respondent, the "Pure Financial Loss" coverage, fundamental in this case, is clearly unambiguous. Thus, one should look solely to the written provisions of the Master Policies and apply the meaning a layperson would ascribe to the language. See Montrose Chemical Corp. of Cal. v. Admiral Ins. Co., 913 P.2d 878, 888 (Cal. 1995). However, Respondent says, in case of ambiguity the ambiguous language should be construed against Claimant because the contract was written by its broker or an independent broker. 7 Couch on Insurance 3d § 22:25, at 22-57 (1995 & Supp. 1999); Newport Assoc. Dev. Co. v. Travelers Indemnity Co. of Ill., 162 F.3d 789, 794-95 (3d Cir. 1998) Newport Assoc. Dev. Co. v. Travelers Indemnity Co. of Ill., 162 F.3d 789, 794-95 (3d Cir. 1998).

115. Again, this is not completely true. The parties and their experts discussed the concept and could not produce or agree on any interpretative literature, drafting history or standardized insurance policy language that could be considered as specific trade usage and custom materials or that offered a meaningful assistance in interpreting this central concept of the dispute.

C. The . . . Master Policies

116. The insurance for the . . . affiliated companies was segregated into US and non-US programs. The US program comprised a primary comprehensive liability policy, an umbrella policy and a Worldwide Master Policy ("Master Policy").

117. Respondent issued three successive third-party liability policies to Claimant: Worldwide Master Policy No. . . ., which began on 1 January 1991 and ended on 31 December 1991 (the "91 Policy"); Policy No. . . ., which began on 1 January 1992 and ended on 31 December 1992 (the "92 Policy"); and Policy No. . . ., which began on 1 January 1993 and ended on 31 December 1993 (the "93 Policy"). In short, Claimant was insured by Respondent from 1 January 1991 to 31 December 1993. The Master Policies provided primary coverage for "Pure Financial Loss", a condition not included in the underlying primary or umbrella policies.

118. The 1991, 1992 and 1993 Master Policies look similar while in fact they include important differences. They are the unfinished product of a "cut and paste" exercise undertaken without consideration for the basic rules of contract drafting. Each policy is poorly drafted. The ambiguity becomes evident when the three policies are compared.

. . . . . . . . .

120. The general form of the 91 Policy is acceptable. The policy is divided into Parts, Parts are divided into Sections and Sections into Paragraphs. The dispute is about the risks covered by Section I "Worldwide Master Liability Coverage" of Part II "Liability" of the Policy.

121. Part II of the 92 Policy is apparently similar to Part II of the previous policy with the important difference that it is shorter. It is limited to provisions equivalent to those of Section I of the 91 Policy, so Part II of the 92 Policy is not divided into sections. Nonetheless, different provisions of this Part refer to non existing "Sections". For example, the definition of "Occurrence" begins by "whenever used in this section...." This is only one of several examples.

122. Again, Part II of the 93 Policy appears to be a duplicate of Part II of the 92 Policy. Its provisions continue to refer to the absent Sections. However, the 93 Policy contains important differences with the previous two. For instance:

123. - the single occurrence clause is in capital letters and is defined differently from the definition in the previous policies. For example the 93 Policy says "For the purpose of this section, [...], where a series and/or several actual alleged losses, [...]" while in the previous policies the equivalent sentence was "For the purpose of this section, [...], where a series of and/or several actual or alleged losses, [...]"! (emphasis added)

124. - In the 93 Policy, the Trigger Clause has been "upgraded" from its original position at Par. 4 of Section I of Part II, to Schedule 4 at the beginning of the Policy before Parts I and II. More importantly however, in the first two policies the events had to happen before the inception of the first Policy while in the last Policy the occurrence date was extended until 1 January 1993. This created an intriguing and unexplainable two year retroactive coverage overlap!

125. Because the Policies are so poorly drafted, I cannot rely only on their terms. I have to investigate the true intention of the parties.

. . . . . . . . .

II. Were The Various Causes of Action Alleged Against Claimant in the Underlying Action Covered by One of The Master Policies?

. . . . . . . . .

E. The Determination of the Issue

157. [The franchisee] was called as a witness. He testified under oath, was examined and cross-examined. He said that he was looking for a business to run and was interested by a return on his investment. He wanted a cash generating investment . . . but he was caught instead in a distribution franchise that was fraudulently represented to him to be a concept franchise. [The franchisee] invested his efforts and money and ended up nearly bankrupt. He lost everything and could hardly save his house. He did not want to do business anymore "with these people".

158. [The franchisee] is a businessman who invested all he had in a business he wanted to run. One can easily conclude that he would not have bought the franchise had he not expected profits equal to those he was promised. As things happened, not only did he not earn the profits he legitimately expected, but his franchise became worthless and he lost his savings and time.

159. [The franchisee] is not a lawyer; he had to rely completely on his lawyers in an expensive legal fight he could not afford against a conglomerate. When questioned about his claims it was obvious that he could not understand the legal subtleties. He talked of "legal maneuvering", and "lawyering"; he confessed that he never wanted punitive damages, "attorneys used these". [The franchisee] cannot be responsible for requesting the cancellation of the franchise, rescission of the contract and damages but not explicitly "Pure Financial Loss", "Loss of Profit" or "Loss of Intangible Property". He was not concerned by [Claimant]'s insurance coverage. All he wanted was to have his lawyer obtain for him maximum possible compensation for his lost investment and lost profits. His lawyer did what he thought would best serve his client's interests. A reasonable businessman engaging his savings in a business is presumed to seek both a safe investment and profits.

160. [The franchisee's] losses were real and verified and exceeded by far his initial investment. His lawyers claimed for him over 2 million dollars as compensation for his damages. He confessed that he did not expect to get all this but the claims were for more than restitution of investment. They included both loss of profit and loss of intangible property.

161. When out of resources, all [the franchisee] wanted was to get his money back. He was ready for concessions. Although the amount he finally received is more or less equal to his investment, it cannot be inferred from the terms of the settlement that the settlement amount was a reimbursement of the price paid for the franchise. Mutual concessions are a requisite of every settlement. [The franchisee] made the necessary financial concessions and Claimant bought confidentiality and peace.

162. Claimant paid the [the franchisee] a lump sum that covers all claims, including but not limited to Pure Financial Loss. As the amount paid is much smaller than the damage, the Tribunal does not need to evaluate or isolate the Pure Financial Loss element from the others.

163. After considering the Master Policies, the Experts' opinions, [the franchisee's] testimony and the way Respondent understood Pure Financial Loss and handled the case,

164. The Arbitral Tribunal's decision is

• the Pure Financial Loss is not an exclusively French concept; . . .

• the various causes of action alleged against Claimant by the [franchisee] included Pure Financial Loss and the Master Policies afforded coverage for Pure Financial Loss; . . .

• Respondent's treatment of [two other cases in which similar coverage issues were raised] proves that Claimant's interpretation of the Pure Financial Loss provision of the Master Policies is reasonable; . . .

• Claimant compensated the [franchisee] for Pure Financial Loss. . . .

III. Was Claimant Insured by Respondent when the Alleged Acts Occurred? Do the Master Policies Fail to Identify The Event That Triggers Insurance Coverage Under the Pure Financial Loss Section of the Master Policies?

165. I have determined that the [franchisee] suffered Pure Financial Loss as defined by the Master Policies. I have now to decide whether the loss triggers coverage. Claimant says it does while Respondent claims it does not.

A. The Definition of Some Insurance Concepts

(1) Basic Notions of Insurance Coverage

166. One of three dates is important when determining insurance coverage and insurer's liability: the date of the generating event, the date of the resulting damage and the date of the claim for compensation or redress. The date to be considered depends on whether the policy is "Claims-made" or "Occurrence based", as well as on the definitions of the terms "Occurrence" and "Single Occurrence" and on the wording of the "Trigger Clause".

167. When the insurance policy is claims made, coverage is afforded if the claim occurs after the inception of the policy and before its termination. The policy covers only claims made during its period even if the generating event happened prior to its inception. Coverage is denied however if the generating event or consequential damages occur during the policy period but no claim is made before its termination.

. . . . . . . . .

D. The Determination of the Issue

187. The determination of the issue depends on the interpretation of two provisions of the Master Policies: the "Occurrence Clause" and the "Trigger Clause".

(1) The Occurrence Clause

188. The [franchisee] alleged that Claimant and the other defendants in the [franchisee's action] agreed to interfere in their business . . .

189. Claimant and Respondent agreed that the agreement to interfere on 1 June 1989 is an event that could have caused damage. Furthermore, Respondent suggested that the implementation of the agreement on 19 July 1989 could also cause damage while [Respondent's witness] said that he would accept 7 December 1989 when the [franchisee] sued [the claimant's subsidiary]. The three events are before the inception date of the 1st Master Policy. Claimant also submitted 6 September 1991, when [the claimant's subsidiary] filed a Chapter 11 bankruptcy procedure, was the time the [franchisee] knew for sure that they had lost their investment. This last date is after the inception of the insurance.

190. The 91 Master Policy defines "Occurrence" as follows:

(j) Occurrence:

The term "Occurrence" wherever used in this section shall mean

(1) An event or a continuous, intermittent or repeated exposure to conditions which causes, allegedly causes, or is deemed to cause personal injury or property damage, or gives rise to advertising liability, which event or conditions commence at or subsequent to the inception date (or, if applicable, the retroactive coverage date) and prior to the expiration of coverage; or [...]

(2) Use of goods [...]

For the purposes of this section, other than in respect of individual occurrences, where a series of and/or several actual or alleged losses, injuries, damages or liabilities occur, which are attributable directly, indirectly or allegedly to the same event, condition, cause, defect or hazard, or failure to warn of such, all such actual or alleged losses, injuries, damages or liabilities shall be added together and treated as one occurrence irrespective of the period or area over which the actual or alleged losses, injuries, damages or liabilities occur or the number of such actual or alleged losses, injuries, damages or liabilities.

191. Claimant and Respondent agree that sub-paragraph (1) of the definition does not apply to Pure Financial Loss as it is limited to events that cause, or are deemed to cause personal injury or property damage, or give rise to advertising liability. Pure Financial Loss is not included in this definition.

192. Claimant concludes that the Policy is ambiguous because it does not define Pure Financial Loss and therefore is triggered by the damage itself but Respondent argues that the Single Occurrence provision is severable from the definition of Occurrence and is applicable. I disagree with Respondent.

193. In short, Respondent's arguments in favor of severability are that the definition of "Occurrence" is followed by a period and that the "Single Occurrence" provision is in capital letters in the 93 Policy. The arguments are weak. The Single Occurrence clause immediately follows the definition of the Individual Occurrence and addresses the specific circumstance where a series of alleged losses are attributable to the same event or condition. The Single Occurrence clause is intimately related to the definition of Occurrence. It is under the same sub-par. (j) and stands before sub-par. (k) that defines the term "Policy Period". The use of capital letters in the 93 Policy is not a better argument as the Policy is very poorly drafted. Capital letters are used even in the 91 Policy to emphasize an idea. This is the case, for instance, in Par. III- "Exclusions". Still more, the definition refers to events deemed to cause personal injury or property damage, or gives rise to advertising liability. These terms are repeated in the same order in the Single Occurrence clause. The Single Occurrence clause is not severable from the definition of the individual occurrence. Neither the definition of Occurrence nor the Single Occurrence provision apply to Pure Financial Loss.

194. [Claimant's witness] testified that "when coverage is provided for Pure Financial Risk such exposure is not typically provided subject to an occurrence. [...] Where a policy providing separate coverage for Pure Financial Loss is silent or unclear on the trigger, as are the Master Policies, insurance and risk management industry custom and practice would deem the coverage trigger to be financial loss during the policy period." I agree with his findings.

195. The Master Policy defines Pure Financial Loss in Paragraph II:

THIS SECTION SHALL ALSO INDEMNIFY

"Pure Financial Loss": Any damage other than personal injury, property damage and advertising liability resulting from any loss of profit or loss of intangible property.

196. No reference is made here to the concept of occurrence. The damage is Pure Financial Loss. The Policy is triggered by Pure Financial Loss and the resulting damage is covered without reference to the concept of Occurrence or Single Occurrence.

197. The [franchisee] made a poor decision when they bought their franchise and lost money since the beginning, but the complete loss of their investment let alone any chance of making profit became certain only when [the claimant's subsidiary] filed for bankruptcy in 1991. The damage occurred at this date.

(2) The Trigger Clause

198. As I have determined that the [franchisee's] Pure Financial Loss materialized during the Master Policies' life and triggered coverage, I do not need to address this issue. I shall however investigate it very briefly.

199. The 91 policy contains the following Trigger Clause:

This policy is issued on an "occurrence basis".

In the event that a third party liability coverage in effect after January 1, 1978 but prior to January 1, 1991 - issued on any kind of "claims made", would exclude occurrences unknown to the Assured on or before January 1, 1991, this section will enter into effect for the coverage of such occurrences on the basis of the terms and conditions set forth herein.

200. Claimant was insured by a [company X] claims made third party liability coverage from 1 January 1987 to 1 January 1989. [Company X] refused coverage because the [franchisee's] Action was introduced well after the termination of the Policy.

201. The Trigger Clause is not an open-end clause. It is designed to close eventual gaps between two policies. For the claim to be covered by the last policy, an Occurrence should have occurred during the previous policy period. This is not the case. The [company X] Policy was terminated before any of the harmful acts or damage could have happened. The Trigger Clause is irrelevant for this case.

202. Claimant paid the [franchisee] . . . to settle the underlying . . . Action. The Master Policy was triggered by the loss and Respondent should reimburse Claimant of [sic] the amount paid less . . ., the deductible amount for any one occurrence. The amount due by Respondent to Claimant is . . .

203. The Arbitral Tribunal's decision is

• the Occurrence and Single Occurrence clauses do not apply to Pure Financial Loss; . . .

• the Trigger Clause does not apply in this case; . . .

• the damage occurred during the Policy life and triggered coverage; . . .

• Respondent is ordered to pay Claimant . . .