Companhia de Seguros Imperio v Heath (REBX) Ltd [QBD (Comm)]

This was a trial of preliminary issues in an action by the plaintiff insurer, Imperio, against a broker, Heaths, for damages for breach of contract, negligence and breach of fiduciary duty in relation to the operation of certain binding authorities.

Imperio entered into four binding authority agreements with Heaths between 1977 and 1979 in connection with reinsurance underwriting pools run by Heaths. Imperio agreed to take a line of between four and five per cent on any one risk. The first authority contained a fronting agreement which allowed Heaths to use any member of the pool to front for all or any other companies whose names could not appear on the risks, subject to arranging 100 per cent reinsurance with the pool. Heaths used Imperio to front for the rest of the pool on 117 occasions and in 53 cases Imperio was sent a policy showing the fronted line and/or a cover note recording the reinsurance. The period of cover of all the risks fronted by Imperio had terminated by April 1983. From 1984 onwards Heaths sought to recover from Imperio when other pool members were unable to meet claims. Imperio claimed to be liable only for its net lines and refused to pay for defaulting reinsurers on the ground that Heaths had been in breach of duty in operating the fronting provision because in none of the 117 instances were other pool members unable to appear on the documentation. Imperio in 1986 took legal advice and in 1987 and 1988 solicitors investigated the operation of the authorities. New solicitors were instructed in 1994 and Imperio issued a writ in 1995 complaining of breach of contract, negligence and breach of duty by Heaths in failing to act in what it honestly believed were the best interests of Imperio, and misstatement and/or misrepresentation in relation to the binding authority agreements.

Heaths argued that Imperio's claims were statute-barred and preliminary issues were ordered to be tried. Imperio argued that no limitation period applied to its claim for breach of fiduciary duty and that otherwise the limitation period was extended by s. 32 of the Limitation Act 1980 by reason of Heaths' concealment of relevant facts. Imperio sought leave to amend its points of claim to claim an implied indemnity against Heaths for any liabilities arising in the 53 cases where Imperio was expressly requested to front for the pool.

Held, ruling accordingly:

1. Imperio's causes of action in tort arose, as did the causes of action in contract, when Heaths committed Imperio to front a particular risk, thereby exposing Imperio to a greater liability or potential liability than the agreed net liability. That principle applied to all the claims relating to fronting, which were accordingly barred by s. 2 and 5 of the Limitation Act 1980 subject to the operation of s. 32. In relation to the use of Imperio to front for the pool, Imperio had never been given a satisfactory answer and knew there was no good reason for it before 1988. The facts, and inferences from them, on which the allegations of breach of contract and duty rested were known and capable of being drawn before the cut-off date in September 1989, six years before the writ was issued. Nothing changed in relation to Imperio's knowledge between 1988 and 1995. The fact which underlay any claim by Imperio of fraud within s. 32(1)(a) was likewise that Heaths had failed to provide any justification for using Imperio to front. Imperio was aware before the cut-off date of all the factssufficient to make the claims in the points of claim or alleged to have been concealed under s. 32(1)(b). Accordingly the limitation period was not extended under s. 32.

2. The six-year limit applicable to the tort and contract claims applied to the claim for breach of fiduciary duty by analogy under s. 36 of the Limitation Act 1980. That was consistent authority which showed that equity acted by analogy with the statute of limitations, and that where the breach was concealed time ran from when it could have been discovered, the principle contained in s. 32. In this case the claim for breach of fiduciary duty was based on the same facts as the claims in contract and tort and was subject to the same limitation period by analogy. Section 32 also applied by analogy but the limitation period was not extended under it. (Knox v GyeELR(1872) LR 5 HL 656; Bulli Coal Mining Co v OsborneELR[1899] AC 351andParagon Finance plc v D B Thakerar & Co (a firm)UNK[1999] 1 All ER 400applied.)

3. The claim by Imperio for an indemnity against Heaths was unsustainable in law and in the circumstances of the case. The relationships between insurers and brokers were well known and the binding authorities provided a sufficient basis for any claim for breach without seeking to imply indemnities for which there was no warrant in authority or principle.