Deeny v Gooda Walker Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Phillips J |
| Judgment Date | 04 October 1994 |
| Date | 04 October 1994 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court).
Phillips J.
Geoffrey Vos QC, Jonathan Gaisman and David Lord (instructed by Wilde Sapte) for the plaintiffs.
Bernard Eder QC, Mark Templeman, Sara Cockerill and Simon Bryan (instructed by Elborne Mitchell) for the defendants.
The following cases were referred to in the judgment:
Albazero, TheELR [1977] AC 774.
Arbuthnott & Ors v Fagan and Feltrim Underwriting Agencies Ltd & Ors [1994] CLC 918.
Bradburn v Great Western RailwayELR (1874) LR 10 Ex 1.
Brown v KMR Services Ltd; Sword-Daniels v Pitel & Ors[1994] CLC 492.
Eley v King & ChasemoreUNK [1989] 22 EG 109.
Napier & Ettrick v Kershaw LtdELR [1993] AC 713.
Parry v CleaverELR [1970] AC 1.
Saif Ali v Sidney MitchellELR [1980] AC 198.
Toomey v Eagle StarUNK [1994] 1 Ll Rep 516.
Lloyd's names — Syndicates — Managing agents — Members' agents — Names allegedly exposed to series of catastrophes — Substantial losses incurred by names — Claims of mismanagement of syndicates — Whether managing agents and members' agents liable in damages for losses suffered.
This was an action brought by 3,095 Lloyd's names in syndicates 164,290,298 and 299 against 71 defendants who managed the syndicates and the individual members' agents. The plaintiffs claimed to have lost some £630m as a result of the defendants' negligence and breach of duty.
In each of the years 1988,1989 and 1990 the Lloyd's market as a whole made a loss but those losses were not borne evenly by the names. The first and second defendants (“Gooda Walker”) managed between them four syndicates which fared particularly badly. The plaintiffs were the majority of the names on those syndicates. They contended that their losses had been suffered because the underwriting had been conducted by the active underwriters on those syndicates in an incompetent manner. If that was correct the plaintiffs would have established breaches of the duty of care owed to them not only by the first and second defendants but also by the individual members' agents who made up the other 69 defendants.
It was common ground that the losses made by the plaintiffs were attributable largely to their exposure to a series of catastrophes. The plaintiffs contended that the underwriters were negligent in leaving their syndicates exposed to those catastrophes. The defendants argued that the sequence of catastrophes was unprecedented and unforeseeable and that no blame was to be attached to the defendants for the fact that the plaintiffs were not protected from their consequences.
The plaintiffs relied on seven catastrophes. They contended that the first two (Hurricane Alicia and UK windstorms in October 1987) were significant in that their impact should have alerted the underwriters to the risk which they were exposing their names. The other five (the loss of the Piper Alpha, Exxon Valdez, Hurricane Hugo, Phillips Petroleum and Windstorm Daria) were relied upon as evidence of the defendants' breaches of duty for which they were liable in damages.
Held, giving judgment for the plaintiffs:
1. The fact that a name who joined Lloyd's deliberately agreed to expose himself to unlimited liability did not mean that he anticipated or accepted that when he joined a syndicate the active underwriter would deliberately expose him to the risk of such liability.
2. There was no reason in principle why an underwriter should not write business on the basis that net losses would be made in some years that were balanced by generous profits made in other years. If however an underwriter was deliberately to expose his names to suffering losses from time to time, he must make sure that the names were aware of that and of the scale of loss to which they would be exposed.
3. It was not possible to condemn inter-syndicate reinsurance as constituting, per se, a practice which breached the duty to exercise reasonable skill and care in conducting the business of underwriting. It had to be considered having regard to all relevant individual circumstances, not least its potential consequences for the names involved. Those consequences were difficult to assess where the inter-syndicate reinsurance formed part of the complex web of reinsurance transactions that created the spiral by which the underwriters agreed to cover others against excessive losses from catastrophes.
4. The growth of spiral business raised special problems in relation to the assessment of risk, exposure and rating, that called for special consideration. The Gooda Walker underwriters had not given it that consideration.
5. The plaintiffs were restricted to recovering damages flowing from incompetence in relation to the writing of excess of loss business but that was not restricted to claiming the losses flowing from the five central catastrophes.
6. Accordingly the plaintiffs were entitled to that award of damages which would place them in the same position as if the underwriting carried on on their behalf by each syndicate had been competently performed.
Phillips J: Introduction
1988, 1989 and 1990 were bad years for Lloyd's. In each of those years the market as a whole made a loss. The loss for 1988 was calculated by Chatset Ltd, who publish a Lloyd's “league table”, at £510m, or 13.7 per cent of the net premium income. In 1989 these figures were £2,063m or 52 per cent of net premium income and in 1990 they were £2,915m or 55.2 per cent of net premium income. These losses were not born evenly by the names at Lloyd's. The first and second defendants, to whom I shall refer collectively as “Gooda Walker”, managed between them four syndicates which fared particularly badly: 164 and 290, managed by the first defendant and 298 and 299 managed by the second defendant. The plaintiffs in this action were the majority of the names on those syndicates. They number 3,095. Between them they claim to have lost sums totalling some £630m. They contend that these losses have been inflicted upon them because the manner in which the underwriting was conducted by the active underwriters for these syndicates was incompetent.
Whether that contention is well founded is the principal issue in this action. If it is, the plaintiffs' will have established breach of a duty of care owed to them not only by the first and second defendants, who managed the syndicates, but by the plaintiffs' individual members' agents, who make up the other 69 defendants in this action. That this consequence will follow has been made clear by the decisions on preliminary points of law reached in this and parallel actions by Saville J, the Court of Appeal and the House of Lords. I propose to summarise at the outset the effect of those decisions, incorporating the summary relating to the structure of Lloyd's with which Lord Goff introduced his speech in this case on 25 July 1994 (see [1994] CLC 918 at p. 920H):
“Every person who wishes to become a name at Lloyd's and who is not himself or herself an underwriting agent must appoint an underwriting agent to act on his or her behalf, pursuant to an underwriting agency agreement. Underwriting agents may act in one of three different capacities:
(1) They may be members' agents, who (broadly speaking) advise names on their choice of syndicates, place names on the syndicates chosen by them, and give general advice to them.
(2) They may be managing agents, who underwrite contracts of insurance at Lloyd's on behalf of the names who are members of the syndicates under their management, and who reinsure contracts of insurance and pay claims.
(3) They may be combined agents, who perform both the role of members' agents, and the role of managing agents in respect of the syndicates under their management.
Until 1990, the practical position was as follows. Each name entered into one or more underwriting agency agreements with an underwriting agent, which was either a members' agent or a combined agent. Each underwriting agency agreement governed the relationship between the name and the members' agent or between the name and the combined agent in so far as it acted as a members' agent. If however the name became a member of a syndicate which was managed by the combined agent, the agreement also governed the relationship between the name and the combined agent acting in its capacity of managing agent. In such a case the name was known as a ‘direct name’. If however the name became a member of a syndicate which was managed by some other managing agent, the name's underwriting agent (whether or not it was a combined agent) entered into a sub-agency agreement under which it appointed the managing agent its sub-agent to act as such in relation to the name. In such a case the name was known as an ‘indirect name’.”
Gooda Walker acted as combined members' and managing agents for 230 of the plaintiffs. In respect of the remaining plaintiffs, their role was simply that of managing agents, acting on behalf of the names who had joined their syndicates. The plaintiffs who are indirect names claim against Gooda Walker in tort and against their individual members' agents in contract. The plaintiffs who are direct names claim against Gooda Walker in contract and in tort. Whether in contract or in tort the nature of the claim is identical. It is for damages for a failure to exercise reasonable skill and care in conducting the business of underwriting on behalf of the names. The claims relate to losses suffered by members of syndicate 298 in the underwriting years 1988 and 1989, by members of syndicate 299 in the same years, by members of syndicate 290 in 1989 and 1990 and by members of syndicate 164 in 1989.
Two preliminary issues have been determined in this action in respect of the 1988 and 1989 years.
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(1) Did Gooda Walker owe a duty of care in negligence to all the names on their syndicates, whether or not they were in contractual relationship with them?
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(2) Are...
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