Arbuthnott v Feltrim Underwriting Agencies Ltd ((in Liquidation)) (no 2) [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Phillips J. |
| Judgment Date | 09 August 1995 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 09 August 1995 |
Queen's Bench Division (Commercial Court)
Phillips J.
Jeremy Cooke QC, Stephen Moriarty and Marcus Smith (instructed by Richards Butler) for the plaintiff names.
David Johnson QC, John Rowland and Kirsten Houghton (instructed by Clifford Chance) for Feltrim.
Bernard Eder QC, Christopher Butcher and Nigel Eaton (instructed by Elborne Mitchell & Co) for the members' agents.
The following cases were referred to in the judgment:
Arbuthnott & Ors v Feltrim Underwriting Agencies Ltd & Ors[1995] CLC 437.
Deeny & Ors Gooda Walker Ltd (in voluntary liquidation) & Ors[1994] CLC 1, 224.
Negligence Damages Lloyd's insurance market Action for negligence by Lloyd's names against underwriting agents following heavy losses Underwriting agents held liable Assessment of damages.
This was an application for the determination of issues concerning how damages were to be assessed in accordance with a judgment delivered on the issue of liability ([1995] CLC 437).
The plaintiff Lloyd's names were members of three Lloyd's syndicates 540, 542 and 847 which wrote primarily excess of loss business. 540 was a marine syndicate whereas 542 and 847 were non-marine syndicates. The defendants were the syndicates managing agents (Feltrim) and the names members agents. From 1983 the Feltrim syndicates grew considerably, and the marine market wrote an increasing amount of non-marine business.
During the underwriting years 1987, 1988 and 1989 the names on those syndicates suffered very heavy losses as a result of a series of catastrophes and because the claims outstripped the reinsurance cover put in place. The names alleged that their exposure to such losses was attributable to a failure, on the part of the active underwriters, competently to apply established principles of excess of loss underwriting in relation to assessing and making provision for exposure to a single loss event. Feltrim and the members' agents contended that the underwriters adopted a competent approach to vertical exposure. They maintained that the losses were attributable to two factors which could not reasonably have been foreseen, namely the impact on marine cover of non-marine losses and an unprecedented series of catastrophes. The members' agents claimed an indemnity from Feltrim in respect of any liability the members' agents might be under to the names.
Phillips Jgave judgment for the names and held that damages were to be assessed by putting in place a notional reinsurance cover which was sufficient to reduce the net exposure to a probable maximum loss or PML event to 100 per cent of the stamp. The issue was how the notional reinsurance cover was to be applied.
Held, ruling accordingly:
1 The notional reisurance should fill the gap above the existing cover from the bottom upwards as that was in a manner consistent with the underwriter's overall policy.
2 The type of notional reinsurance taken out, namely joint whole account cover to protect the syndicates' higher levels of exposure, was not challenged, but damages were to be assessed to compensate the names for the inadequacy of that joint cover.
3 The notional reinsurance was to be treated as subject to co-insurance.
4 The assessment of damages did not require or permit retained premium or investment income to feature in the calculations.
5 The assessment of damages was to be on the basis that reinsurance cover was available to meet each catastrophe on a first loss basis and that any erosion by other events was to be ignored.
Phillips J:
The judgment that I delivered in these actions addressed, for the most part, the issue of liability (see [1995] CLC 437). So far as the assessment of damages was concerned, at p. 490F, I expressed the intention to:
do no more than formulate the basic principle to be applied, leaving open for later argument the manner of application of that principle. That principle is simply that the damages awarded should place the names on each syndicate year in the same position as if the underwriters had purchased reinsurance protection sufficient to restrict the names net exposure to the PML to 100 per cent of stamp. In calculating net exposure regard should be had not merely to the gap above the top layer of reinsurance cover, but to retentions and co-insurance.
A number of issues have arisen as to the manner in which the basic principle should be applied. The parties have advanced their respective contentions in relation to these issues and invited me to rule on them, in so far as I am able to do so. My rulings will affect the scope of the evidence that will be relevant to the assessment of damages.
My judgment requires the court to put in place notional reinsurance cover sufficient to reduce the net exposure to a PML event to 100 per cent of stamp.
The Feltrim underwriters had put in place actual reinsurance cover which left deliberate exposure in the form of retentions and in at least one instance co-insurance, but which also left exposure above the level of reinsurance cover to an extent that was not appreciated or intended, and which substantially exceeded 100 per cent of stamp. When dealing with liability in the judgment (at p. 489D) I held that the...
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Berriman v Rose Thomson Young (Underwriting) Ltd [QBD (Comm)]
... ... The following cases were referred to in the judgment: ... Arbuthnott v Feltrim Underwriting ... Arbuthnott v Feltrim Underwriting Agencies Ltd (in liq.) (No. 2) [1995] CLC 1,550 ... Arbuthnott v ... The first defendants, who went into liquidation in December 1994, were the managing agents of the syndicate ... ...
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Arbuthnott v Feltrim Underwriting Agencies Ltd (No 3) [QBD (Comm)]
...J on liability ([1995] CLC 437) and a further judgment by Phillips J on issues of principle concerning the assessment of damages ([1995] CLC 1550). The plaintiff names were members of three Lloyd's syndicates, 540, 542 and 847, which wrote primarily excess of loss business; 540 was a marine......