MDIS Ltd v Swinbank
| Jurisdiction | England & Wales |
| Judge | Peter Gibson,Judge,Clarke L JJ. |
| Judgment Date | 19 July 1999 |
| Court | Court of Appeal (Civil Division) |
| Date | 19 July 1999 |
Court of Appeal (Civil Division).
Peter Gibson, Judge and Clarke L JJ.
Jonathan Gaisman QC and Robert Bright (instructed by Wilde Sapte) for the appellant.
Daniel Serota QC (instructed by Williams Davies Meltzer) for the respondent.
The following cases were referred to in the judgment of Clarke LJ:
Bradley v Eagle Star Insurance Co LtdELR[1989] AC 957.
Goddard & Smith v FrewUNK[1939] 4 All ER 358.
Investors Compensation Scheme Ltd v West Bromwich Building Society[1997] CLC 1243; [1998] 1 WLR 896.
Post Office v Norwich Union Fire Insurance Society LtdELR[1967] 2 QB 363.
Wayne Tank & Pump Co Ltd v Employers' Liability Assurance Corp LtdELR[1974] QB 57.
West Wake Price & Co v ChingWLR[1957] 1 WLR 45.
Insurance Meaning of operative clause in professional indemnity insurance Whether insured had to show that loss was proximately cause by neglect etc.
This was an appeal from an order of Mance J in which he made a declaration under RSC, O. 14A as to the true meaning of a provision in a contract of insurance.
The claimant, MDIS, was a software supplier which agreed to supply certain software and hardware to a paint manufacturer, as a process control system. The manufacturer took proceedings against MDIS alleging misrepresentation and breach of contract in failing to deliver the system within a reasonable time or at all. MDIS settled the claim and sought to recover from its professional indemnity insurers under a policy which provided by cl. 2 cover for claims alleging (a) neglect or omission including breach of contract, (b) any dishonesty or fraud by employees, unless the insured should have discovered or suspected the employee's conduct, (c) unintentional breach of intellectual property rights, and (d) libel or slander. MDIS claimed on the basis that the manufacturer's claim was one covered by para. (a) since it alleged neglect or omission including breach of duty. The insurers declined liability arguing that to recover under para. (a) MDIS had to prove that neglect, etc. was the proximate cause of the loss established by the settlement payment, and that the claim was in fact one arising out of the fraudulent misrepresentations of MDIS's employees after MDIS should have discovered or suspected their improper conduct so that the underwriters were not liable by virtue of the proviso to para. (b). Mance J agreed with the underwriters that cl. 2(a) only imposed liability on them where the neglect, etc. was the proximate cause of the claimant's loss. MDIS appealed.
Helddismissing the appeal:
The contract was one of indemnity and the judge was right that a consideration of cl. 2 as a whole led to the conclusion that alleging was to be read as meaning in respect of and that the underwriters were only to be liable where the proximate cause of the loss ascertained by judgment, award or agreement was one of the perils set out in cl. 2(a)(d). Otherwise underwriters could be liable for a claim put forward and settled as one of neglect under cl. 2(a) even where it could be shown that the proximate cause of the liability was the dishonest and fraudulent act of an employee perpetrated after the insured could reasonably have discovered or suspected such improper conduct within the proviso to cl. 2(b). The parties could not have intended such a result. (West Wake Price & Co v ChingWLR[1957] 1 WLR 45applied.)
(Per Peter Gibson LJ) The word alleging could not be read as meaning in respect of; that would involve rewriting the policy. However the judge's decision could be upheld on the basis that the proviso to para. (b) excluding liability for dishonesty and fraud extended to para. (a) as well.
Clarke LJ: 1. This is an appeal from an order of Mance J dated 31 July 1998 in which he made a declaration under RSC, O. 14A as to the true meaning of a provision in a contract of insurance.
2. I take the facts largely from the judgment. The plaintiff (MDIS) is a software house. Silkolene Lubricants plc (Silkolene) is or was a manufacturer of paints, oil and lubricants. On 1 August 1991 MDIS concluded an agreement with Silkolene for the development and supply of software and the supply of certain computer hardware, intended to constitute a process control system (the MD process), which would interface with the financial processing system (Griffin) produced by another company and to be supplied under a separate contract with MDIS. By letter dated 6 June 1995 Silkolene treated MDIS as in repudiation of that contract and on 20 September 1995 it commenced proceedings for damages.
3. In its statement of claim Silkolene asserted that MDIS had misrepresented the compatibility of the Griffin and the MD process software, that it was in breach of contract by failing to deliver the MD process software by March 1992 or within a reasonable time and failing to complete delivery of it, by failing to provide proper maintenance and enhancements to the Griffin software and by supplying a defective MD process software. There were also allegations that the computer hardware supplied was inadequate, due to slowness, to run even the software which had been supplied, and that MDIS was in breach of another agreement dated 6 April 1994 for a Matrix Purchase Order Processing system, by failing to supply that system by 13 June 1994 or within a reasonable time or in part at all. The statement of claim did not however make any allegations of fraud.
4. On 9 April 1997 Silkolene's claim was compromised before discovery by MDIS paying 863,178.58 together with Silkolene's costs. In this action MDIS claims an indemnity in respect of that liability subject to the policy excess of 143,000.
5. The policy of insurance is described as professional indemnity insurance. It is contained in the certificate which provides so far as relevant as follows:
2. Operative Clause
The Underwriters will indemnify the Assured to the extent and in the manner detailed herein against any claim for which the Assured may become legally liable, first made against the Assured and notified to the Underwriters during the period of the Certificate arising out of the professional conduct of the Assured's business as stated in the Schedule alleging:
(a) Neglect Error or Omission
any neglect or omission including breach of contract occasioned by same.
(b) Dishonesty of Employees
any dishonest, fraudulent, criminal or malicious act(s) or omission(s) of any person employed at any time by the Assured. The Assured will not be indemnified against any claim or loss, resulting from the dishonest, fraudulent, criminal or malicious act(s) or omission(s) perpetrated after the Assured could reasonably have discovered or suspected the improper conduct of the employee(s).
No indemnity shall be provided to any person committing any dishonest, fraudulent, criminal or malicious act(s) or omission(s).
(c) Intellectual Property Rights
any claim arising from unintentional breach or infringement of or unauthorised use of confidential information, trade secrets, patents, copyrights, or the systems or programs of others.
(d) Libel and Slander
any claim arising from the publication or utterance of a libel or slander.
3. Loss of Documents
Underwriters will indemnify the Assured up to the Limit of Indemnity as specified in the Schedule against:
(i) legal liability which the Assured may incur by reason of any claim first made against the Assured and notified to the Underwriters during the period of the Certificate in consequence of documents having been lost, damaged, destroyed, mislaid, distorted or erased;
8. Exclusions
Underwriters will not provide indemnity against:
(a) Any claim or loss alleging death or bodily injury to any person or physical loss or damage to property (except in so far as indemnified by the Loss of Documents Extension), unless such claim or loss arises out of advice, design, specification or formula.
(b) Any claim or circumstance known to the Assured prior to the inception of this Certificate and which the Assured at such time knew or should have reasonably assumed might result in a claim against the Assured.
13. Claims Procedures
Assured's duties
It is a condition precedent to the Underwriters' liability under this Certificate that:
(a) upon receipt by or on behalf of the Assured of notice whether written or oral of any intention to make a claim against the Assured which may be the subject of indemnity hereunder or of any allegation which might give rise to such a claim, or upon the discovery of a circumstance which may become the subject of indemnity hereunder the Assured shall notify the Underwriters in writing of such receipt, allegation or discovery as soon as practicable and shall provide full information in respect thereof so far as such information is in their possession or control.
If during the period hereof the Assured shall become aware of any circumstances which may subsequently be the subject of a claim under this Certificate and shall, as soon as practicable during the period hereof, give written notice to Underwriters of such circumstances then such subsequent claim hereunder shall be deemed for the purposes of this Certificate to have been made during the period hereof.
The Assured shall not admit liability for or settle or make or promise any payment in respect of any claim which may be the subject of indemnity hereunder or incur any costs or expenses in connection therewith without the written consent of the Underwriters who, if they so wish, shall be entitled to take over and conduct in the name of the Assured the defence and/or settlement of any such claim for which purpose the Assured shall give all information and assistance as the Underwriters may reasonably require.
SCHEDULE
5. Business:
The development and supply of computer solutions comprising application specific software, the provision and installation of hardware, where appropriate, together with the necessary related services to complete the solution...
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