Aneco Reinsurance Underwriting Ltd v Johnson and Higgins Ltd

JurisdictionEngland & Wales
JudgeEvans,Aldous,Ward L JJ.
Judgment Date30 July 1999
Date30 July 1999
CourtCourt of Appeal (Civil Division)

Court of Appeal (Civil Division).

Evans, Aldous and Ward L JJ.

Aneco Reinsurance Underwriting Ltd
and
Johnson and Higgins Ltd

Ian Hunter QC and David Joseph (instructed by Cameron McKenna) for the appellant.

Christopher Clarke QC and Richard Southern (instructed by Clifford Chance) for the respondent.

The following cases were referred to in the judgments:

Alexander v Cambridge Credit Corp (1987) 9 NSWLR 310.

Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1995] CLC 410; [1995] QB 375 (CA).

Banque Keyser Ullmann SA v Skandia (UK) Insurance Co LtdELR [1991] 2 AC 249.

Bristol & West Building Society v MothewELR [1998] Ch 1.

Caparo Industries plc v DickmanELR [1990] 2 AC 605; [1990] BCC 164.

Doyle v Olby (Ironmongers) LtdELR [1969] 2 QB 158.

Galoo Ltd v Bright Grahame MurrayWLR [1994] 1 WLR 1360; [1994] BCC 319.

Gorris v ScottELR (1874) LR 9 Ex 125.

Hadley v BaxendaleENR (1854) 9 Ex 341.

March v E & M H Stramare Pty LtdUNK (1991) 171 CLR 506.

National Justice Compania Naviera SA v Prudential Assurance Co Ltd (“The Ikarian Reefer”)UNK [1993] 2 Ll Rep 68.

Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No. 2) [1998] CLC 116; [1997] 1 WLR 1627.

Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (“The Wagon Mound”)ELR [1961] AC 388.

Platform Home Loans Ltd v Oyston Shipways Ltd [1999] CLC 867; [1999] 2 WLR 518.

Royal Greek Government v Minister of TransportUNK (1949) 83 Ll L Rep 228.

Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996] CLC 1958; [1997] AC 254.

Society of Lloyd's v Clementson [1996] CLC 1590.

South Australia Asset Management Corp v York Montague Ltd [1995] CLC 410; [1995] QB 375 (CA); [1996] CLC 1179; [1997] AC 191 (HL).

Yorkshire Dale Steamship Co Ltd v Minister of War TransportELR [1942] AC 691.

Youell v Bland Welch & Co Ltd (“Superhulls Cover No. 1”)UNK [1990] 2 Ll Rep 423.

Youell v Bland Welch & Co Ltd (“Superhulls Cover No. 2”)UNK [1990] 2 Ll Rep 431.

Insurance — Reinsurance — Broker's duty of care — Measure of damages reinsurer could recover from broker after reinsurance avoided for non-disclosure — Whether reinsurance could have been obtained if proper disclosure had been made.

This was an appeal by reinsurers from a decision of Cresswell J that they were entitled only to some US$10m in damages for the defendant brokers' failure to exercise reasonable skill and care in placing reinsurance for them.

In 1988 the defendant Lloyd's brokers proposed to the plaintiff reinsurer, “Aneco”, that Aneco should participate in a treaty reinsuring the marine excess of loss account of certain Lloyd's syndicates (the “Bullen treaty”). The proposed reinsurance was not quota share or facultative but of a type known as “fac/oblig” under which the reinsured could decide which risks to declare under the treaty. The brokers suggested that Aneco should protect any share it took in the Bullen treaty with excess of loss reinsurance. Aneco agreed to take a share of the Bullen treaty on the basis that the brokers could obtain satisfactory reinsurance. The brokers obtained such cover and Aneco took a share of the Bullen treaty. Substantial claims were made on the treaty and Aneco's liability exceeded US$30m. When Aneco tried to claim on its reinsurance the reinsurers avoided the contracts for non-disclosure of the fact that the Bullen treaty was a fac/oblig treaty. The judge held that the contracts were properly avoided, that the brokers had been negligent in misbroking the contracts and that Aneco was entitled to damages consisting of the amount of some US$10m Aneco would have recovered under the reinsurance which could have been obtained if full disclosure had been made. Aneco appealed arguing that the brokers were under a duty to advise Aneco as to whether satisfactory reinsurance was available in the market, that in fact it would not have been obtainable if the brokers had disclosed the true nature of the Bullen treaty, that Aneco would not have written any part of the treaty if it had been told that reinsurance was not available and that in the circumstances it was entitled to recover from the brokers its whole loss of some US$30m.

Held, allowing the appeal (by a majority):

1. The evidence was sufficient to discharge the burden of proving that on the balance of probabilities excess of loss on excess of loss reinsurance for the Bullen fac/oblig treaty could not have been found in the London market at the relevant time in 1988 at commercially sensible rates. The judge was wrong to reach the opposite conclusion.

2. The brokers' role in this case went beyond merely obtaining reinsurance cover and extended to undertaking the responsibility of advising Aneco to enter into the Bullen treaty. On that basis the brokers were in breach of a duty to report that no insurance cover could be obtained and Aneco was reasonably entitled to compensation for that failure and was entitled to recover damages for the whole of the losses suffered in consequence of entering into the Bullen treaty because it was within the scope of the duty imposed on the brokers to safeguard Aneco for the loss it had suffered. (South Australia Asset Management Corp v York Montague Ltd[1996] CLC 1179; [1997] AC 191applied.)

(Per Aldous LJ dissenting) The brokers wrongly informed Aneco that reinsurance was in place and by implication was available, which it was not. They were under a duty of care to provide accurate information which Aneco would use to decide whether or not to enter into the Bullen treaty. They were liable for the loss which occurred by reason of the information being wrong, i.e. loss of the US$10m reinsurance cover, and not the loss of US$30m which would have occurred even if the information supplied had been correct. (Banque Keyser Ullmann SA v Skandia (UK) Insurance Co LtdELR[1991] 2 AC 249considered.)

JUDGMENT

Evans LJ: 1. Large sums of money are involved in this appeal. The plaintiffs have obtained judgment against the defendants for damages of US$10,897,752 together with interest in excess of US$3.5m. They now appeal, contending that the loss they in fact suffered was of the order of US$30m and that the judgment figure should be increased to that amount. The appeal raises two issues, one of fact and one of law, or mixed fact and law. The issues are clearly defined by the submissions we have received from counsel, both written and oral. The submissions are of the highest quality and we are indebted to leading and junior counsel for them.

2. The figure of US$30m represents (to a very large extent) losses which the appellants have suffered as the result of entering into a contract of reinsurance with a number of syndicates of Lloyd's underwriters, known by the name of the leading underwriter, Mr N T Bullen. They say that they entered into this contract, which I shall call the “Bullen treaty”, in consequence of negligent advice which they received from the respondents who are reinsurance brokers. The appellants retained the respondents to obtain reinsurance for part of the liabilities undertaken by them as reinsurers under the Bullen treaty.

3. Such further reinsurance is sometimes known, perhaps more accurately, as retrocession, viz. the further insurance of reinsured risks. But it has been referred to throughout these proceedings simply as reinsurance, and I shall do likewise. It was of the type known as “excess of loss on excess of loss” (XL on XL) and it will be convenient to use that description for the cover which the respondents undertook to procure for the appellants. They did in fact procure it in the form of policies underwritten at Lloyd's and in the London companies market. The leading underwriter was Mr David King. But the policies were avoided by most, though not all, of the underwriters on grounds of non-disclosure by the respondents of material facts, namely, the true nature of the underlying insurance which the appellants undertook under the Bullen treaty.

4. The underwriters' right to avoid the policies was upheld by an arbitration tribunal appointed by Lloyd's (Sir Michael Kerr QC, Hugh Thompson and Peter Fryer). The respondent brokers were not parties to the arbitration and the issue whether there was non-disclosure of material facts was re-litigated in the present proceedings. The trial judge Cresswell J held that there was, and it followed that, as between the appellants and the respondents, the underwriters who avoided liability under the policies were entitled to do so. This led to the question whether the respondents failed in their duty, owed to the appellants, to exercise reasonable skill and care in placing the reinsurance on their behalf. They do not challenge the judge's findings that there was non-disclosure of material facts and that they were negligent and in breach of duty in that regard.

5. The value to the appellants of the reinsurance cover which was avoided, had it been effective, has been assessed in the US$10m figure for which judgment was given. The respondents say that that is the correct measure of damages for their negligence, and the judge agreed with them.

6. In essence, therefore, the issue is this. The respondents as reinsurance brokers obtained reinsurance cover for the appellants which the underwriters later avoided. The grounds for avoidance was the respondents' failure to disclose material facts. They accept that there was material non-disclosure and that they were negligent and in breach of duty towards the appellants for that reason. They submit that the correct measure of damages is the value of the reinsurance cover which the appellants lost when the cover was avoided. The appellants on the other hand say that if the respondents had made full disclosure to the underwriters, as reasonable competence required that they should, then they would have discovered (if they did not already know or suspect it) that reinsurance cover of the kind which the appellants required was not available...

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