Beazley Underwriting Ltd (claiming on its own behalf and on behalf of all underwriting members of syndicate 2623 and on behalf of all other subscribing underwriters to Policy Number 823/FB0302995 for the 2003 year of account) and Another v The Travelers Companies Incorporated
| Jurisdiction | England & Wales |
| Judge | Mr Justice Christopher Clarke |
| Judgment Date | 17 June 2011 |
| Neutral Citation | [2011] EWHC 1520 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2009 FOLIO 1396 |
| Date | 17 June 2011 |
[2011] EWHC 1520 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Christopher Clarke
Case No: 2009 FOLIO 1396
Dominic Kendrick QC and Josephine Higgs (instructed by Clyde & Co) for the Claimants
Siobán Healy QC and Jessica Sutherland (instructed by Freshfields Bruckhaus Deringer LLP) for the Defendant
This is in substance a claim by The Travelers Companies Incorporated (“Travelers”) for US $ 20 million, being the limit of indemnity available under two policies of primary and excess professional indemnity insurance (“the contracts of insurance”) subscribed by the Claimants (collectively the “Insurers”) in respect of claims made in the period 16 th May 2003 to 15 th May 2004. Beazley Underwriting Ltd (“Beazley”) subscribed to the primary layer of US $ 10 million in excess of Travelers' US $ 10 million. Liberty Mutual Insurance Europe Ltd (“Liberty Mutual”) subscribed to the second excess layer of US $ 10 million. The cover in respect of which the claim is brought relates to a Deed of Indemnity dated 16 th May 1997 between Travelers, then named The St Paul Companies Inc (“St Paul”), Aon Corporation and a number of “Group Companies”.
Overview
The subject matter of the contracts of insurance was liabilities which arose under the Deed of Indemnity (“the Deed”) relating to Travelers' sale of the Minet Group of insurance broking companies to Aon in May 1997. By clause 2.1 of the Deed Travelers agreed to indemnify Aon Corporation, Minet, Minet Holdings Guernsey Ltd and Minet Holdings Inc and their respective subsidiaries and subsidiary undertakings against any loss, liability, claim or cost arising out of any event or matter occurring on or before the date of completion of the sale of Minet to Aon Corporation, which was 16 th May 1997 (“Completion”), relating to the business of or conduct of business by any Group Company (i.e. Minet Guernsey and Minet Inc and their subsidiaries and subsidiary undertakings) to the extent that the same was not specifically provided for in the March Accounts 1 (save to the extent that the amount provided for had actually been used against the matters provided for).
An “ Indemnified Claim” was defined as any “ loss, liability claim or cost referred to in clause 2 other than an Indemnity Exclusion”. Clause 4.14 of the Deed provided that where there was a continuing series of related events, occurrences or matters which amounted to or would amount to an Indemnified Claim then such events occurrences or matters occurring during the period of 12 months following Completion would be deemed to have arisen or occurred prior to Completion.
The contracts of insurance were intended to respond to claims made between the 6 th and 7 th anniversaries of the Deed. They were the last in a series of 3 such contracts taken out by Travelers in respect of its potential liabilities under the Deed 2. Travelers paid Insurers a total premium of US $ 1,755,000 for the US $ 20 million excess of US $ 10 million cover provided by the contracts of insurance.
In Standard Life Assurance v Oak Dedicated and others and Standard Life Assurance v Aon [2008] Lloyd's Rep IR 552 (“ Standard Life v Oak”) Tomlinson J, as he then was, held that the policy excess definition in Standard Life's professional
Until 1994 Standard Life had never had professional indemnity (“PI”) insurance, preferring to self-insure against its own errors and omissions. In that year it was persuaded by a specialist financial institutions insurance broker called SRS to take out such insurance in order to meet the risk of an accumulation of large numbers of small consumer or regulator-driven claims. The policy excess in Standard Life's 1994/1995 policy applied “per claim” and ‘claim’ was defined in terms which permitted aggregation of claims arising from a common cause or source. But, when the insurance was renewed for 1995/6, the lead underwriter of Lloyd's Syndicate 702 amended the excess provision so as to read “claim and/or claimant”. The significance of this was not appreciated by the SRS broker, Mr de Zulueta, who informed Standard Life that SRS had successfully resisted underwriters' attempts to try to restrict coverage and that the only change made was clarificatory.
SRS was acquired by Minet in September 1995, although it continued to operate under the SRS name as a separate division. Mr Castle of SRS/Minet assumed principal day to day responsibility for the Standard Life account, both as account executive reporting to Standard Life and as broker to the lead underwriters, with Mr de Zulueta retaining a strategic role. Mr Castle placed Standard Life's 1996/1997 Policy using the previous year's slip as a quote sheet. He too failed to appreciate the significance of the “and/or claimant” amendment, even when an identical manuscript amendment was made to the 1996/1997 policy wording which he had drafted and submitted for agreement to the new lead underwriter, Mr Kerrison of The Independent, in about November 1996. On various occasions in 1995 and 1996 SRS/Minet continued to reassure Standard Life that its PI cover was suitable to insure it against a large accumulation of individually small mass consumer or regulator-driven claims.
Mr Castle renewed Standard Life's PI cover in 1997, and again in 1998, by which time Minet had been sold to Aon Inc and he, along with Mr de Zulueta, had become an Aon employee. On each occasion the policy excess continued to be defined as applicable to each and every “claim and/or claimant”. 4
On 30 April 2001, within the period of the 1998–2001 Policy, Standard Life notified its PI insurers of circumstances which might give rise to claims against it in respect of endowment mortgages. It was then met with the contention that the policy excess applied separately to each of 97,000 mortgage endowment claimants.
Standard Life claimed against its insurers and Aon. That led to the judgment in Standard Life v Oak (“the judgment”). Aon claimed over against Travelers under the Deed, on the basis that the “ and/or claimant” wording had been inserted by the lead underwriter in 1995 at a time when the brokers within SRS were well aware of Standard Life's need for catastrophe cover for a large number of small claims. The same wording continued to be used by the same broking personnel on renewal in 1996, 1997 and 1998. Aon contended that the negligence in 1998 fell within Clause 4.14 of the Deed. Travelers settled Aon's claim under the Deed in the amount of US $ 32.5 million and sought an indemnity of the limit of US $ 20 million excess of its US $ 10 million retention under the contracts of insurance subscribed by Insurers.
On 26 th November 2010 Insurers served Amended Particulars of Claim. These abandoned a number of defences originally pleaded. The issues that remain for determination are these:
i) was Travelers liable to Aon under the Deed?
ii) if so, does Travelers' claim fall within the scope of the contracts of insurance?
The contentions in outline
Issue (i)
Insurers
As to issue (i), Insurers contend that Travelers was not liable to Aon under the Deed because:
a) the negligence was that of Aon and not Minet and the claim was therefore excluded by one of the Indemnity Exclusions, which excluded any obligations of any subsidiary or subsidiary undertaking of Aon Inc at the date of the Deed (other than a Minet company) arising out of its own negligent act, breach of duty, error or omission; and
b) the indemnity extension provision at Clause 4.14 is inapplicable where Aon itself was negligent and could have been held liable regardless of what had taken place in earlier years.
In relation to issue (i) Insurers also contend that Aon's negligence in placing the 1998–2001 Policy occurred more than 12 months after completion of the sale of Minet to Aon (i.e. after 16 th May 1998) and thus fell outside Clause 4.14 of the Deed. Although according to its terms the 1998–2001 Policy incepted on 15 th May 1998 (within 12 months of Completion), Insurers contend that Standard Life was uninsured and no contract of insurance was in place until a formal signing slip was scratched and stamped on or after 11 th June 1998 (more than 12 months after Completion), or at any rate until after 16 th May 1998, because, as they contend, until that time underwriters' scratches on the slips relating to the insurance were stated to be contingent upon the fulfilment of “subjects”, namely reinsurance, the provision of satisfactory proposal forms and a Y2K questionnaire. Insurers submit that there was,...
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