BP Plc v Aon Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Colman J |
| Judgment Date | 13 March 2006 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 13 March 2006 |
Queen's Bench Division (Commercial Court).
Colman J.
A Popplewell QC, R Masefield and F Pilbrow (instructed by Herbert Smith) for the claimant.
George Leggatt QC, T Weitzman QC and P Ratcliffe (instructed by Simmons & Simmons) for the defendants.
The following cases were referred to in the judgment:
Allendale v Bull Data Systems Inc(1994) WL 687579.
Amalgamated Property & Investment Co v Texas Commerce BankELR[1982] QB 84.
AYH Holdings Inc v Avreco Inc(2005) 357 Ill App 3d 17.
Azov Shipping Co v Baltic Shipping Co[1999] CLC 1425.
Baird Textile Holdings Ltd v Marks & Spencer plc[2001] CLC 999.
Banco de Portugal v WaterlowELR[1932] AC 452.
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Berwind Corp v Litton Industries IncECAS(1976) 532 F 2d 1.
Biggin & Co Ltd v Permanite LtdELR[1951] 2 KB 314.
Bilbie v LumleyENR(1802) 2 East 469; 102 ER 448.
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Comyn Ching & Co (London) Ltd v Oriental Tube Co LtdUNK(1979) 17 BLR 56.
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Coolee Ltd v Wing Heath & CoUNK(1930) 38 Ll L Rep 188.
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Insurance Insurance brokers Duty of care Placement and operation of global construction all risks open cover agreement Open cover in respect of offshore projects for claimant and its affiliates or co-venturers Claims settled by insurers after court ruled that declarations under open cover had to be made to particular insurer and not just to lead underwriters -Claim against London broker for breach of duty Agreement with broker in US contained indemnity against third party claims but limited indemnity to amount of broker's remuneration except in case of negligence or fault of broker London broker's conduct amounted to sufficient undertaking of responsibility with regard to proper conduct of broking services Duty of care not displaced by agreement Contractual cap on damages did not derogate from scope of original indemnity Whether insured had wrongly conceded in settlement negotiations that particular insurer was not bound Insured not contributorily negligent Failure to take out replacement insurance did not break chain of causation.
This was a claim for damages in tort against the first defendant brokers, Aon London, 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 co-insureds were affiliates of BP, international oil and gas companies which were co-venturers with BP or its affiliates, and project contractors. The open cover insured on an all risks basis physical loss and damage to the property of BP and/or its co-assured involved in oil and gas construction projects throughout the world. In order to obtain cover in respect of any such project that project had to be declared to the underwriters under the open cover.
The open cover had been negotiated by BP's predecessor, Amoco. Amoco appointed Aon Risk Services as the placing broker but that was not a corporation but a trading name. The early stages of the negotiations were handled in Aon's US offices. A service agreement was concluded between Amoco and Aon's Texas office. After BP took over Amoco, management of the open cover was transferred to Aon's London office.
A large number of declarations were made to the open cover just before it expired. Some of the underwriters queried the declarations on the grounds that no property was on risk prior to the expiry of the open cover. By a settlement agreement between BP and the market leaders, Swiss Re and AIG, those leaders agreed to accept a number of the declarations. Some participants in the following market declined to enter the settlement agreement and took the point that the declarations were invalid because they had not been made to the particular underwriters. The court held as a preliminary issue that for there to be a valid declaration to a particular insurer it had to be made specifically to that insurer, as distinct from the leading underwriter, and it had to be made within the period of the open cover. BP afterwards settled with the insurers and then claimed against Aon in tort complaining of the failure to declare projects to each of the underwriters.
BP alleged that having regard to the circumstances in which Aon London came to act as brokers or sub-brokers for BP, Aon London assumed a responsibility to BP to exercise reasonable skill and care in performing the services which it undertook to carry out as brokers or sub-brokers, in particular in performing BP's instructions.
Aon London denied that it owed any duty of care to BP with regard to the performance of brokerage services. The service agreement with Aon Texas was intended by both parties to cover all relevant aspects of Aon's broking operations wherever conducted and by whichever Aon company. That agreement imposed on Aon Texas a standard of care higher than the ordinary common law standard but provided for the indemnity to be capped at the maximum amount of Aon Risk Services' remuneration. It further included an Illinois choice of law and exclusive jurisdiction clause. Aon submitted that there was no assumption of responsibility by Aon London to BP or any of its subsidiaries, because all its activities were carried out pursuant to the contractual framework of the service agreement.
Held, ruling accordingly:
1. Aon London did owe a duty of care in tort to BP to make effective declarations to the individual underwriters under the open cover in respect of projects notified to it before the cover expired. In the context of a commercial relationship between all relevant parties, involving agency and sub-agency and both the provision of advice and the carrying out of services by the sub-agent the applicable test was whether there had been an assumption of responsibility. The characterisation of the relationship between Aon London and the claimants as that of fiduciaries added nothing to the process of analysis required to identify a duty of care. The conduct of Aon London judged objectively amounted to a sufficient undertaking of responsibility. There was such a close relationship between Aon London and BP involving repeated direct contact between them that BP was entitled to infer from what was said and done that Aon London was to provide its professional services with regard to declarations and that, independently of Aon Texas or any other Aon entity, it could be relied upon by BP as undertaking responsibility to provide those services. That conclusion was not displaced by the existence of the contractual relationship between the parties. The correct construction of that contract was that the cap on recoverable losses did not derogate from BP's right to be indemnified in respect of any third party claim so that where BP sued to recover in respect of losses suffered by affiliates, co-venturers or contractors the cap did not apply. The contractual structure did not preclude Aon London's conduct from amounting to an undertaking of responsibility in tort. There had been an undertaking of responsibility by Aon London to the affiliates, co-venturers or contractors concerned and they had relied on that undertaking. (Williams v Natural Life Health FoodsWLR[1998] 1 WLR 830applied.)
2. Aon London was in breach of that duty as and when it failed to make such timely declaration to each of the underwriters.
3. BP's failure to take out replacement insurance as a substitute for the open cover was not conduct which broke the chain of causation between Aon London's negligent failure to make declarations and the loss suffered by BP. Nor did it represent a failure by BP to mitigate its loss. The measure of damages was accordingly to be based on the amounts that would have been recovered from the...
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