BP Plc v AON Ltd and Aon Risk Services of Texas Inc.

JurisdictionEngland & Wales
JudgeMR JUSTICE COLMAN,Mr Justice Colman
Judgment Date13 March 2006
Neutral Citation[2006] EWHC 424 (Comm)
Docket NumberCase No: 2003 FOLIO NO 429
CourtQueen's Bench Division (Commercial Court)
Date13 March 2006
Between:
Bp Plc
Claimant
and
Aon Limited
Aon Risk Services of Texas Inc
Defendant

[2006] EWHC 424 (Comm)

Before:

Mr Justice Colman

Case No: 2003 FOLIO NO 429

IN THE HIGH COURT OF JUSTICE

COMMERCIAL COURT

QUEEN'S BENCH DIVISION

Mr A Popplewell QC, Mr R Masefield and Mr F Pilbrow (instructed by Herbert Smith) for the Claimant

Mr George Leggatt QC, Mr T Weitzman QC and Mr P Ratcliffe (instructed by Simmons & Simmons) for the Defendants

Hearing dates: 17 October to 20 December 2005

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of thisJudgment and that copies of this version as handed down may be treated as authentic.

MR JUSTICE COLMAN Mr Justice Colman

Introduction

1

This is a claim for damages in tort against the First Defendant, referred to in this judgment as "Aon London". It is brought by BP on its own behalf and on behalf of (28) co-insureds in respect of the placement and operation by Aon London of a Global Construction All Risks Open Cover agreement ("the Open Cover"). The co-insureds were of three categories: (i) affiliates of BP, (ii) international oil and gas companies which were co-venturers with BP or its affiliates, and (iii) project contractors. The purpose of the Open Cover was insured on an all risks basis in respect of physical loss and damage to the property of BP and/or its co-assured involved in oil and gas construction projects throughout the world. That part of the Open Cover in respect of offshore projects, with which this claim is concerned, took effect from 23.59 on 31 December 1998 and terminated on 1 July 2000 at 00.01 GMT. In order to obtain cover in respect of any such project that project had to be declared to the underwriters under the Open Cover.

2

Some 30 projects were declared to the leading underwriters, Swiss Re and AIG. BP had no interest in the relevant loss or damage to project property which forms the basis of these claims. The losses were sustained by BP affiliates and joint venture partners in the projects or by contractors or sub-contractors whose losses were passed on directly or indirectly to BP's affiliates or the joint venturers. Whether a particular joint venturer was covered depended upon whether it chose to avail itself of the facility offered by BP's Open Cover. The extension of cover to particular contractors was usually the consequence of effect being given by project participants to contracts to procure cover for such contractors. BP affiliates have taken assignments of various claims of contractors and sub-contractors involved in projects that have been declared.

3

In order to explain how the claims now advanced arise it is necessary to set out, at this stage in outline, the unusual history of the Open Cover and the ensuing litigation in relation to it.

4

The initial negotiations for the Open Cover did not involve BP. They took place in the latter part of 1998 and involved Amoco, Aon and the European and London markets, including certain Lloyd's syndicates, as well as the American market. The European and London Leaders were Swiss Re and the American Leaders were AIG. Aon became involved as placing brokers by having taken part in and won a tender process competition conducted amongst American brokers by Amoco. By a Broker Letter of Record dated 29 July 1998 Amoco confirmed that, with immediate effect, it had appointed Aon Risk Services Inc, its exclusive insurance broker for its Global Onshore and Offshore Construction Program. However, Aon Risk Services Inc was a non-existent entity in the sense that there was no separate corporation of that name. The Aon Group had many offices and included various separate corporations throughout the United States and abroad and, although "Aon Risk Services" was often used in correspondence to refer to different broking offices, there was no corporation of that name. The earlier stages of the negotiations between Amoco and Aon were handled by Mr Burke of Aon Risk Services of Texas Inc based in Houston, to which I shall refer as "Aon Texas", and Mr Cahill of Aon Risk Services Inc of Connecticut. Less directly involved was Roger Backhouse of Aon Group Ltd, which was incorporated in London and which in 2000 changed its name to Aon Ltd —the first defendant. In the course of the evidence it emerged, as I accept, that Aon personnel drawn from different Aon offices and employed by different companies in the Aon Group cooperated to produce the presentations to Amoco directed to winning the Global Cover brokership appointment.

5

By 20 July 1998 Amoco and Aon had agreed to the fee structure applicable for Aon's services as brokers. This structure was divided between remuneration for the "implementation" of the Global Construction Programme, which related to the wording and placement of the Open Cover and a percentage fee per project of 6.25 per cent of the gross premium of each project declared to the Open Cover. The fee structure thus reflected the two main aspects of Aon's function of placing brokers, namely the placing of the Open Cover but limited to a maximum free of US$75,000 per project itself and the making of the declarations to underwriters in respect of each project for which Amoco sought cover.

6

As to the placing function, on 28 July 1998 Mr Tentinger of Aon Texas sent a draft slip to Mr Canning of Amoco. This was then further discussed by email between Mr Canning and other Amoco representatives, Mr Burke, Mr Young and Mr Tentinger of Aon Texas, in Houston, and Mr Cahill of Aon Connecticut. There was then prepared a presentation document for the purpose of being shown to underwriters. It set out both the slip wording and the policy wording and was stated to have been prepared by Aon Natural Resources, Houston. It was sent to Aon London on 11 August 1998 for presentation to the London and European market. "Aon Natural Resources" was not a corporate entity within the Aon Group, but rather a convenient description of a group of employees drawn from various Aon companies who had experience in natural resources insurance.

7

The first presentation to Swiss Re in Zurich was by Aon London on 13 August 1998. Mr Brewer and Ms Humfrey of Aon London then referred back to Mr Tentinger in Houston a number of proposals raised by Swiss Re who had tentatively expressed willingness to lead the Open Cover with a 20 per cent line. Aon Texas then replied to Aon London who passed on the reply to Swiss Re. In the event on 18 August Swiss Re agreed to a 15 per cent line and on 19 August they sent to Aon London a signed slip and wording.

8

In the course of the period from 19 August to 11 November 1998 Aon succeeded in placing 100 per cent of the Open Cover except that the Copping Syndicate and the Cox Syndicate only accepted a line on the offshore section for 12 months. Well over half the risk had been placed by Aon London on the London and European Markets. The placing of the 20 per cent line with AIG as leader of the American Market was managed by Mr Cahill of Aon Connecticut. Mr Tentinger of Aon Texas was working in parallel with him in liaising with Amoco with regard to the placement exercise.

9

In the meantime two developments were in progress which were to have an important bearing on the issues in this case.

10

On 11 August 1998 an official announcement was made of a proposed merger between Amoco and BP, the new company to be known as BP Amoco plc and to have its head office in London. On 8 November 1998 it was formally announced that the merger would take effect on 31 December 1998. Whereas hitherto Mr Siebenaler of Amoco based in Chicago had alone been in charge of the management of the Open Cover placement for Amoco, the centre of gravity of corporate management, including that relating to insurance services, began to shift to London and in particular to BP's Insurance Department where Mr Colin Wannell had overall management responsibility for integration of insurance and risk management following the merger. Immediately following the merger the question arose whether the merged company should utilise the Open Cover to provide insurance relating to projects which were operated or to be operated by BP, its affiliates or joint venturers but as to which Amoco had previously had no interest. By 14 January 1999 in the course of discussions between the insurance offices of the former Amoco in Chicago and the former BP in London it was decided that the Open Cover should be utilised if possible for BP "heritage" projects and that it would be necessary to approach underwriters to obtain their consent. Mr Wannell, however, made it clear that for this purpose BP wished to deal with the underwriters through Aon London as they already had a good working relationship with Aon London personnel, including in particular with Mr Mike Wilks who had for some time been BP's designated account executive at Aon London. Aon Texas indicated its willingness to accept this request. BP was anxious to proceed as quickly as possible with application of the Open Cover. They had in mind to obtain cover for three projects – the Schiehallion Heat Exchanger project and, less urgently, the West Delta and Bruce Booster Compression projects. Mr Siebenaler approached Aon Texas to obtain underwriters' consent to extend the Open Cover to BP heritage projects. By 22 January 1999 Aon New York had obtained AIG's agreement. In the meantime, Aon London were in the process of obtaining the consent of the London and European underwriters. By 2 February 1999 Swiss Re and the following market had formally accepted that BP heritage projects could be declared to the Open Cover and on 29 January 1999 Aon London sent the first declaration for Schiehallion to Swiss Re.

11

The manner in which the operation of the Open Cover was to be undertaken by Aon had been the subject of...

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