General Accident Fire and Life Assurance Corporation Ltd v Tanter (Zephyr)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MUSTILL,LORD JUSTICE STEPHEN BROWN,LORD JUSTICE OLIVER |
| Judgment Date | 25 July 1985 |
| Judgment citation (vLex) | [1985] EWCA Civ J0725-5 |
| Docket Number | 85/0479 |
| Court | Court of Appeal (Civil Division) |
| Date | 25 July 1985 |
[1985] EWCA Civ J0725-5
Lord Justice Oliver
Lord Justice Stephen Brown
and
Lord Justice Mustill
85/0479
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(MR JUSTICE HOBHOUSE)
Royal Courts of Justice
MR J. NANCE Q.C. and MR J. FLAUX (instructed by Messrs Hewitt Woollacott & Chown, Solicitors, London EC4N 5AR) appeared on behalf of the Fifth Defendants (Appellants).
MR M. PHILLIPS Q.C. and MR S. RUTTLE (instructed by Messrs Elborne Mitchell & Co., Solicitors, London EC3R 6DS) appeared on behalf of the First to Fourth Defendants (Respondents).
.
On 21st October 1983, Mr. Justice Hobhouse gave judgment in a complex action concerning contracts of marine insurance and reinsurance effected at Lloyds in relation to the vessel "ZEPHYR" which became a total loss during January 1981. The plaintiffs in the action were representatives of some of the underwriters who insured the hull and machinery of the vessel against marine perils. At the trial, the plaintiffs were referred to as the "all risks underwriters". The first to fourth defendants are representatives of syndicates who were alleged to have reinsured the all risks underwriters against that part of their exposure under the primary insurance as related to the risk of total loss. The fifth defendants acted as brokers in the placing of the all risks and the reinsurance cover. I shall refer to them as "the brokers". The all risks underwriters promptly settled the claim of the assured, and sought recourse against the reinsurees. The latter denied that the all risks underwriters had been liable to the assured, and also denied on a variety of grounds that they themselves were under any liability to reimburse those underwriters. By way of alternative, the all risks insurers claimed damages from the brokers, on the ground that if they had no valid claim against the reinsurers, this resulted from a failure by the brokers to procure the making of valid contracts of reinsurance. For their part, the reinsurers also claimed damages from the brokers, on grounds which I shall later describe.
The learned judge arrived at the following broad conclusions. First, that the all risks underwriters were indeed liable to the assured under the all risks policies. Second, that the reinsurers were liable to the full extent of their written line, to indemnify the all risks insurers in respect of their liability to the assured. Third, that the reinsurers were entitled to recover damages from the brokers on the ground that they were in breach of duty.
The present appeal is concerned with issues which are much less extensive than those which were canvassed before the learned judge. Thus, there is no appeal against his conclusions that the plaintiffs were liable to the assured; that the reinsurers are liable to indemnify the all risks insurers; and that the first and fourth defendants and the reinsurers whom they represent are entitled to recover damages from the brokers. In view of the decision that the all risks insurers are entitled to an indemnity from the reinsurers, the question whether they would in the alternative have a remedy against the brokers does not arise. All that remains in contention is the question whether the second and third defendants, and those whom they represent, are entitled to recover from the brokers, and if so in what amount.
The learned judge necessarily dealt with these matters at considerable length. His judgment sets out a clear and meticulous history of the entire transaction, and contains an account of the relevant practices which may be read with profit by anyone concerned to know how marine reinsurance business is actually written in the London market. The narrowing of the issues in this appeal has made it unnecessary to enter into such detail again, and I shall summarise only such of the learned judge's findings as are necessary to make the remaining disputes intelligible.
First, as to the practice in the London market. As in the case of direct insurance, the business is offered to the reinsurer in the form of a slip, tendered by the broker to the underwriter. If the underwriter decides to accept the whole or part of the risk, he signifies this by placing his initials on the slip, against a statement of the amount which he is prepared to accept. This statement may be expressed in various ways. In the case of this particular reinsurance, which was concerned with total loss only, the underwriters wrote their lines as percentages of the value of the ship. Naturally, the broker sets out to obtain from the underwriters a series of lines totalling the whole amount of the risk. He will not, however, necessarily be content with this. He is entitled, according to the practice in the London market, to continue with the collection of subsciptions, to the extent that, on the face of it, the slip will reflect a series of contracts which provide the assured or re-assured with a greater amount of cover than he has instructed the broker to obtain. This anomaly is dealt with by an automatic implied adjustment of the individual contracts of reinsurance—the precise juridical basis of which need not be explored—whereby each line is proportionally reduced so as to ensure that the subscriptions add up to one hundred per cent and no more. A slip which undergoes this process is said to be "signed down". When each line is automatically adjusted in this way to a particular pecentage of the amount originally initialled it is said to have signed down to that percentage. Since English law recognises that risks may be written retrospectively, the broker may legitimately continue to obtain further subscriptions, and hence to increase the degree of signing down, after the risk has attached. On the other hand, if the vessel suffers a casualty whilst the slip is being taken round the market, the extent of signing down is to be determined at the moment when the loss is known to the assured or the broker, since thereafter the risk can no longer properly be offered to further underwriters.
A large part of the art of underwriting consists of choosing the size of the line which is written. An underwriter will incline towards writing a line on any slip tendered to him, in order not to discourage the broker from offering him more interesting business in the future. If the risk is unattractive, he will try to make the line as small as possible. If the broker offers a series of risks at the same time, in the shape of a package, some attractive and others not, the underwriter will often write a line on an unattractive risk, as small as he is allowed, in exchange for the chance to write a larger line on the others. Since the magnitude of the risk ultimately borne by the underwriter will be determined, not only by the percentage which he writes against his initials, but also by the degree to which the slip is signed down—a matter not within the underwriter's control—any underwriter who is interested in the effect of writing the risk on his total exposure or on his premium income will necessarily be interested in the extent to which the slip will be signed down. He can, if he wishes, protect himself by inscribing one of various formulae against the stated percentage, to indicate that this percentage is to represent his firm exposure. This solution is not much used in the particular type of insurance with which this appeal is concerned. In its absence, the underwriter may obtain a degree of safeguard by obtaining from the broker a signing down indication—namely a statement by the broker as to the percentage of the written line which he believes the underwriter will actually have to bear when the process of signing down is completed. On some occasions the broker will volunteer this information; on others, he will give it in response to a direct question; on others still, it is not given at all. There is no invariable form of words for such an indication. The broker may say "It will sign down to 40 per cent", or "I think it will sign down to about 40 per cent;" or "It will sign down to 40 per cent at most;" or he may use some other formula.
Although in many respects the writing of reinsurance business takes the same shape as in the case of direct insurance, it has one special feature which has led to many of the problems debated at the trial and on this appeal. When a primary insurer is deciding whether or not to take a line on a particular risk, and if so in what amount, he may decide to participate only if he can obtain reinsurance. In such a case the broker will have a better prospect of persuading the underwriter to participate in the primary insurance if he is able to offer him reinsurance at the same time. Accordingly, a practice has developed whereby a broker instructed to obtain a primary cover will on his own initiative approach potential reinsurers to obtain from them in advance a binding promise to provide reinsurance for whatever...
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