Aiken v Stewart Wrightson Members Agency Ltd ('The Pulbrook Syndicates') [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Potter J. |
| Judgment Date | 10 February 1995 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 10 February 1995 |
Queen's Bench Division (Commercial Court).
Potter J.
Jonathan Sumption QC and Michael Swainston (instructed by Clyde & Co) for the plaintiffs.
Nicholas Strauss QC and Adam Fenton (instructed by D J Freeman) for the syndicates.
Jeremy Cooke QC and Rory Phillips (instructed by Cameron Markby Hewitt) for PUM.
The following cases were referred to in the judgment:
Anns & Ors v Merton London Borough CouncilELR [1978] AC 728.
Aylott v West Ham CorpELR [1927] 1 Ch 30.
Boobyer v David Holman & Anor (No. 2)UNK [1993] 1 Ll Rep 96.
Caparo Industries plc v DickmanELR [1990] 2 AC 605; [1990] BCC 164 (HL).
Central Trust Co v Rafuse (1986) 31 DLR (4th) 481.
Collin v Duke of Westminster & OrsELR [1985] QB 581.
Container Transport International Inc v Oceanus Mutual Underwriting Association (Bermuda) LtdUNK [1984] 1 Ll Rep 476.
Cynat Products Ltd v Landbuild (Investment and Property) Ltd & OrsUNK [1984] 3 All ER 513.
D & F Estates & Ors v Church Commrs for England & OrsELR [1989] AC 177.
Dixey (C W) & Sons Ltd v Parsons (1964) 192 EG 197.
Everett v Hogg, Robinson & Gardner Mountain (Insurance) LtdUNK [1913] 2 Ll Rep 217.
Green v Fibreglass LtdELR [1958] 2 QB 245.
Greenhill v Federal Insurance Co LtdELR [1927] 1 KB 65.
Gutsell v ReeveELR [1936] 1 KB 272.
Harrower v HutchinsonELR (1870) LR 5 QB 584.
Hedley Byrne & Co Ltd v Heller & Partners LtdELR [1964] AC 465.
Henderson v Merrett Syndicates Ltd [1994] CLC 55 (CA); [1994] CLC 918 (HL); [1995] 2 AC 145.
Levy v SpyersENR (1856) 1 F & F 3; 175 ER 599.
Lynn v BomberELR [1930] 2 KB 72.
McDermid v Nash Dredging & Reclamation Co LtdELR [1987] AC 906.
Midland Bank Trust Co Ltd & Anor v Hett, Stubbs & Kemp (a firm)ELR [1979] Ch 384.
Moschi v Lep Air Services Ltd & OrsELR [1973] AC 331.
Photo Production Ltd v Securicor Transport LtdELR [1980] AC 827.
Punjab National Bank v de Boinville [1992] 1 L Rep 7.
R v Williams & AnorELR [1942] AC 541.
Rogers v Night Riders (a firm)UNK [1983] RTR 324.
Ross v CountersELR [1980] Ch 297.
Royal Trust Co v Attorney-General for AlbertaELR [1930] AC 144.
Société Commerciale de Reassurance v Eras International Ltd & OrsUNK [1992] 1 Ll Rep 570.
Sumner v William Henderson & Sons LtdELR [1964] 1 QB 450.
Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd & OrsELR [1986] AC 80.
Thomson v Lord ClanmorrisELR [1900] 1 Ch 718.
White & Anor v Jones & AnorWLR [1993] 3 WLR 730.
Wilsons & Clyde Coal Co v EnglishELR [1938] AC 57.
Tort — Duty of care — Reinsurance — Lloyd's insurance market — Underwriting agency agreement between names and members' agents — Members' agents delegated underwriting to managing agents — Placing of run-off reinsurance contracts by managing agents on behalf of underwriting names — Reinsurers avoided contract on ground of non-disclosure — Whether managing agents owed duty of care to names — Whether duty of care owed only to members of syndicate when reinsurance contract entered into or to all members until contract avoided — Whether members' agents owed non-delegable duty of care to names in respect of underwriting — Whether failure by managing agents to disclose material information to reinsurers — Whether breach of duty of care.
Contract — Whether members' agents owed contractual duty to names in respect of negligence by managing agents.
Limitation — Breach of contract — Underwriting agency agreements under seal — Whether action for damages constituted action “upon the specialties”— Whether 12-year limitation period applied — Limitation Act 1980, s. 8.
These were preliminary issues arising out of 11 consolidated actions by 378 Lloyd's names on five syndicates for the 1985 year of account against their members' agents and the syndicates' managing agents for damages for breach of contract and negligence against the members' agents, and for negligence against the managing agents, arising out of a contract of reinsurance avoided by the reinsurer.
The plaintiffs were members of Lloyd's syndicates no. 333, 334, 335, 426 and 427 (collectively “the syndicate”) for the 1985 underwriting year of account. The plaintiffs were indirect names, who entered into underwriting agency agreements with members” agents. Their underwriting was conducted by managing agents, instructed by the members” agents on behalf of the names. Certain of the underwriting agency agreements were under seal. On 18 September 1981 the syndicate's managing agent (“PUM”) placed with syndicate 418 a contract of run-off reinsurance in respect of all liability which the syndicate might incur on its 1975 and earlier years of account without limit in excess of an aggregate net loss of $12m with effect from 1 January 1981, at a premium of $425,000. On 4 May 1989 syndicate 418 gave the plaintiffs notice of avoidance of the contract of reinsurance on the ground that in 1981 PUM had failed to disclose to syndicate 418 matters material to the assessment of risk underwritten. The plaintiffs denied syndicate 418“s right to avoid the contract. The matter was referred to arbitration. By a majority, the arbitrators made an interim final award on 2 February 1990 in favour of syndicate 418, which was held to have lawfully avoided the contract of reinsurance on three grounds, discharging it from all liability.
The plaintiffs, by their actions, claimed damages in negligence against PUM for breach of a duty of care in the management of the syndicate's underwriting at Lloyd's, the breaches alleged corresponding to the three grounds of avoidance upheld by the arbitrators in relation to the placing of the run-off reinsurance with syndicate 418. The plaintiffs further claimed as against the members' agents that they were liable for breach of contract in respect of PUM's negligence, and liable in tort for breach of a non-delegable duty of care. The plaintiffs alleged that if full disclosure had been made by PUM to syndicate 418, a run-off reinsurance contract would have been concluded although on different terms with either a higher premium and/or a higher excess point.
It was conceded by the members” agents that they were contractually liable to the plaintiffs in respect of any negligence by PUM, subject to limitation defences. Since the cause of action arose on 18 September 1981, the contract date, the claims in contract were statute-barred, with the exception of those agreements under seal in respect of which the plaintiffs claimed a 12-year limitation period as “specialties” under s. 8 of the Limitation Act 1980.
A number of preliminary issues were tried to determine whether any of the defendants owed a duty in contract or in tort to the plaintiffs to act with reasonable skill and care in placing the run-off reinsurance in September 1981; if so, whether any such defendant was in breach of any such duty by failing to disclose matters which it was held in the interim arbitration award should have been disclosed, if so whether, if those matters had been disclosed, run-off reinsurance would have been placed and if so on what terms and at what premium; and whether any of the plaintiffs' claims were statute-barred.
Held, ruling accordingly:
1. The members' agents were under a common law duty of care to exercise reasonable care in the selection of and liaison with the managing agents, coupled with a general oversight of the names' interests. Unless put on inquiry as to the managing agents' competence, the members' agents were not required to supervise or interfere in managing or controlling the syndicate's affairs. In the absence of a non-delegable duty of care in tort, parallel to the contractual duty, which was not established, the members' agents were not liable in tort for the negligence of PUM.
2. Although the members' agents delegated to the managing agents the underwriting of each separate name, in reality the managing agents had a collective client, the syndicate, whose essential identity was unaltered despite changes in membership from year to year. In acting on behalf of the syndicate in placing run-off reinsurance, PUM in reality acted and intended to act for the benefit of the syndicate as constituted from time to time. Further, it was intended and anticipated that the reinsurance to close procedure, whereby one year became liable as reinsurers for the obligations of the previous years, would be repeated annually, and therefore the duty of care extended to cover the entire class of names comprising the syndicate from year to year whose interests the reinsurance was intended to protect. PUM as managing agents accordingly owed a duty of care in tort to the syndicates' names from 1979 until the reinsurance was avoided.
3. It was the duty of PUM as prudent managing agents seeking unlimited protection in respect of the whole of the account for the years up to 1979 to consider with care what required to be disclosed to a prospective reinsurer, especially matters which were giving PUM concern and were arguably, if hot obviously, material to the prudent reinsurer, including a duty to disclose facts so as to avoid unnecessary risk of avoidance. Further a prudent managing agent was under a duty to consider any “grey areas”, and make an informed decision as to whether to supply information concerning those areas, seeking advice where necessary and providing that adviser With the information necessary to advise on whether disclosure was required. Since PUM had failed to consider whether the form and content of the material they presented to reinsurers amounted to a fair presentation of the risk, and would have disclosed the three matters of non-disclosure or negligence if they had given consideration to them, that failure constituted negligence.
4. If full disclosure had been made by PUM to the reinsurer on the balance of probabilities run-off reinsurance on similar terms to those in fact agreed would have been effected, but at a higher premium of $0.75m.
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