Cox v Bankside Members Agency Ltd

JurisdictionEngland & Wales
JudgeSir Thomas Bingham MR,Peter Gibson,Saville L JJ.
Judgment Date12 May 1995
CourtCourt of Appeal (Civil Division)
Date12 May 1995

Court of Appeal.

Sir Thomas Bingham MR, Peter Gibson and Saville L JJ.

Cox & Ors
and
Bankside Members Agency Ltd & Ors

John Martin QC and Thomas Seymour (instructed by S J Berwin & Co) for the appellant names.

Jeffrey Gruder (instructed by Manches & Co) for the appellant members' agents and names.

Geoffrey Vos QC and Jonathan Gaisman QC (instructed by Wilde Sapte) for the respondent names.

Jonathan Sumption QC and Michael Swainson (instructed by Clyde & Co) for the E & O underwriters.

The following cases were referred to in the judgments:

Allen v London Guarantee Accident Co Ltd (1912) 28 TLR 254.

Banque Financière de la Cité v Pare (Battersea) Ltd (unreported, 7 and 13 April 1992 (QBD); 20 April 1993 (CA)).

Barlow Clowes International Ltd v VaughanUNK [1992] 4 All ER 22.

Boulting v Association of Cinematograph, Television and Allied TechniciansELR [1963] 2 QB 606.

Bradley v Eagle Star Insurance Co LtdELR [1989] AC 957.

Groom v CrockerELR [1939] 1 KB 194.

Harrington Motor Co Ltd, ReELR [1928] 1 Ch 105.

Hood's Trustees v Southern Union General Insurance Co of Australasia LtdELR [1928] Ch 793.

Insurance Co of Africa v Scor (UK) Reinsurance. Co LtdUNK [1985] 1 Ll Rep 312.

Island Archon, TheUNK [1994] 2 Ll Rep 227.

Netherlands Insurance Co Est 1845 Ltd v Karl Ljungberg & Co ABUNK [1986] 2 Ll Rep 19.

Normid Housing Association Ltd v RalphsUNK [1989] 1 Ll Rep 265.

Post Office v Norwich Union Fire Insurance Society LtdELR [1961] 2 QB 363.

Sheffield Corp v Barclay & OrsELR [1905] AC 392.

Insurance — Professional indemnity insurance — Serious losses led to negligence claims by Lloyd's names against members' agents and managing agents — Znsuficient errors and omissions cover to provide full indemnity in respect of all claims — Whether claimants to recover according to date of determination or all claimants to share on rateable basis — Whether members' agents whose defences to names' claims under control of errors and omissions underwriters entitled to indemnity against interest and costs of unsuccessful defence irrespective of policy limit.

This was an appeal by certain groups of Lloyd's names and a group of members' agents against a decision of Phillips J in the Commercial Court (see (1995] CLC 180) that professional indemnity insurance claims were to be met in chronological order according to the date that claims were established, and another related issue.

Very heavy losses incurred by Lloyd's names since 1987 led members of many syndicates to bring actions for negligence against their members” agents and managing agents, claiming damages for their exposure to the risk of such losses. The agents (“the assured”) had professional indemnity insurance in the form of errors and omissions (“E & O”) insurance cover, either individual or group cover. The overall amount of the cover was unlikely to be adequate to provide a full indemnity in respect of all the claims. Some agents were in liquidation, and others were likely to be placed in liquidation if the claims against them were made out. Names claiming against such syndicates would seek to recover against the E & O underwriters under theThird Parties (Rights Against Insurers) Act 1930.

The first actions proceeded to judgment in 1994, and the others were at varying stages. The E & O underwriters applied to the Commercial Court to determine whether the E & O policies were to be construed so that the competing claims Were to rank according to the date of determination, the first ones being satisfied in full until the cover was exhausted, or whether the proceeds of the various E & O covers were to be shared rateably between those who made out their claims. Phillips J held that the claims were to be met by the E & O underwriters in the order that each claimant established his claim. Further issues concerning related matters were also determined. Groups of names whose actions had not yet been determined, and a group of members' agents, appealed.

Held, dismissing the appeal:

1. No justification had been shown for a departure from the basic rule of chronological priority, by which a successful plaintiff was entitled, in the absence of a stay, to enforce his judgment as soon as it was given. There was no basis in law for the imposition of a scheme of rateable allocation, nor was such a scheme, in the context of the complex litigation in question, manifestly fairer than chronological priority.

2. Costs and interest incurred as a result of underwriters' decisions, acting in the utmost good faith, to exercise their contractual right to defend claims by names against the assured agents, arose from the insured event. Accordingly there was no room for an implied indemnity, inconsistent with the express contractual terms, that the underwriters were to indemnify the assured irrespective of the limits of the cover.

JUDGMENT

Bingham MR: The huge losses suffered by some names at Lloyd's in recent years are common knowledge. Many of these names blame their losses on the negligence of their members' and managing agents. Numerous actions have been started. Some of these actions have run their course, leading to judgments for the plaintiff names. Some actions are still proceeding to trial. In other cases claims have been intimated but actions have not yet been brought.

The agents so sued have the benefit of errors and omissions (“E & O”) insurance cover, obtained either by individual agents or groups of agents. The extent of such cover is not known, but it is generally accepted that it will not be adequate to indemnify all the agents against claims which have been and may yet be established. Some agents are already in liquidation. Others will become insolvent if the claims made against them are made good. Thus the plaintiff names” best hope of effective compensation in large measure depends on their exercise, under the Third Parties (Rights against Insurers) Act 1930, of the agents” right to be indemnified by E & O underwriters. But because the E & O cover is accepted to be inadequate to meet all the claims which have been and may be established, it is of acute practical importance to the names to establish the basis upon which the funds payable by E & O underwriters should be allocated.

One view is that names are entitled to enforce claims, against agents when they are solvent or directly against E & O underwriters when they are not, as and when their claims are fully proved. This view, colloquially known as “first past the post” or “first come, first served”, rests on a simple principle of chronological priority.

The competing view is that funds available from underwriters to meet claims by names against insured agents should be rateably distributed among names who have established or hereafter establish claims against each agent or (in the case of a group policy) those agents. The underlying rationale of this view is that chronological priority, particularly where this is not under the sole control of the litigant, should not determine the right to substantial recovery.

In order to seek an authoritative ruling on this issue (and also other issues, of which one is considered below), E & O underwriters issued an originating summons joining as defendants all those agents and names whom they wished to bind by the decision of the court. The underwriters' objective, obviously legitimate, was to protect themselves against the risk of being ordered to pay twice.

The names whose actions had proceeded furthest (notably the Gooda Walker and Feltrim names), supported by E & O underwriters and some members' agents, contended for chronological priority. The case for rateable allocation was advanced on behalf of names whose actions were less far advanced.

The summons was heard by Phillips J in the Commercial Court, and he handed down judgment on 16 January 1995. In his judgment he acknowledged the strength of the argument for rateable allocation. He said ([1995] CLC 180 at p. 186B):

“The merits

If claims against E & O cover are to be settled on a first past the post basis, those who first establish their claims may make a full recovery whereas those who lag behind may recover nothing. If this result were to reflect the relative degree of diligence demonstrated by names in pursuing their claims, there might be some justification for this result, albeit that the reward for expedition might appear disproportionate. In the event, however, the order in which the various stages of the Lloyd's actions will be progressed will not necessarily reflect the diligence of those responsible for their conduct. To a degree the order of passing the post will be fortuitous. It does not seem to me fair that the timetabling of cases by the Commercial Court with the object of efficient case management should have a decisive effect on the extent to which litigants obtain compensation for wrongs done to them. I have approached this issue in the hope that the ingenuity of counsel would demonstrate an approach respectable in law and viable in practice that would effect an equitable distribution of the E & O recoveries. The ingenuity has not been lacking, but I fear that it has failed to persuade me that either in law or in practice it is possible to reach the end that I would wish to achieve. I propose first to set out my conclusions as to the approach that the law requires in respect of the unprecedented problems posed by the Lloyd's litigation and then to explain why J have felt constrained to reject the solutions proposed by Mr Nugee and Mr Bompas.”

The judge's reasons for rejecting the suggested schemes for rateable allocation were clear. He held that if any scheme were to be upheld there must first be a juridical basis for it, and secondly such scheme must be shown to be workable in practice. He concluded that the schemes adumbrated in argument before him failed both tests.

It was inherent in the judge's approach that he considered chronological priority to be the basic rule, from...

To continue reading

Request your trial
8 cases
  • Centre Reinsurance International Company v Freakley
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 11 Febrero 2005
    ...plc, ReELR [1992] Ch 505. Bradley v Eagle Star Insurance Co LtdELR [1989] AC 957. Cox v Bankside Members Agency Ltd [1995] CLC 180; [1995] CLC 671 (CA). Davies v Taylor (No. 2)ELR [1974] AC 225. Firma C-Trade SA v Newcastle Protection and Indemnity Association (The Fanti)UNK [1987] 2 Ll Rep......
  • Re Millstream Recycling Ltd
    • Ireland
    • High Court
    • 9 Marzo 2010
    ...ACT 1963 S202 JOHN POWER & SON LTD, IN RE 1934 IR 412 COMPANIES ACT 1963 S222 COX v BANKSIDE MEMBERS AGENCY LTD 1995 2 LLOYDS 437 1995 CLC 671 THIRD PARTIES (RIGHTS AGAINST INSURERS) ACT 1930 SOVEREIGN LIFE ASSURANCE CO (IN LIQUIDATION) v DODD 1892 2 QB 573 OSIRIS INSURANCE LTD, IN RE 1999......
  • Centre Reinsurance International Company and Another v Curzon Insurance Ltd
    • United Kingdom
    • Chancery Division
    • 21 Diciembre 2005
    ...Star Insurance Co LtdELR [1989] AC 957. Burns v Shuttlehurst LtdWLR [1999] 1 WLR 1449. Cox v Bankside Members Agency Ltd [1995] CLC 180; [1995] CLC 671 (CA). Firma C-Trade SA v Newcastle Protection and Indemnity Association (The Fanti and Padre Island)UNK [1989] 1 Ll Rep 239 (CA); [1991] 2 ......
  • Teal Assurance Company Ltd v W.R Berkley Insurance (Europe) Ltd and Another
    • United Kingdom
    • Supreme Court
    • 2 Septiembre 2013
    ...LtdELR [1989] AC 957. Charter Reinsurance Co Ltd v Fagan [1996] CLC 977; [1997] AC 313. Cox v Bankside Members Agency Ltd [1995] CLC 180; [1995] CLC 671 (CA). North River Ins Co v American Home Assurance Co (1989) 210 Cal App 3d 108. Post Office v Norwich Union Fire Insurance Society LtdELR......
  • Request a trial to view additional results
1 firm's commentaries
  • Is the payment of a sum into an escrow account sufficient to ascertain an insured loss?
    • United Kingdom
    • JD Supra United Kingdom
    • 9 Marzo 2017
    ...arose, not the later date that Ajman took the benefit of that money. Reinsurers relied on the decision of Phillips J in Cox v Bankside [1995] C.L.C. 671, which held that a court order for an interim payment was sufficient to establish an insured loss in the sum ordered to be The Court of Ap......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT