Travelers Casualty and Surety Company of Canada v Sun Life Assurance Company of Canada (UK) Ltd
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE CHRISTOPHER CLARKE |
| Judgment Date | 01 November 2006 |
| Neutral Citation | [2006] EWHC 2716 (Comm) |
| Docket Number | Case No: 2004 FOLIO 198 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 01 November 2006 |
IN THE HIGH COURT OF JUSTICE
COMMERCIAL COURT
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Christopher Clarke
Mr Christopher Symons QC, Mr Robert Howe & Miss Shaheed Fatima (instructed by Robin Simon LLP) for the Claimants
Mr Gavin Kealey QC, Mr Andrew Wales & Mr Philip Edey (instructed by Clifford Chance LLP) for the Defendants
Hearing dates: 2nd November13th December 2005
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
In October 2000 Sun Life Assurance Company of Canada (UK) Limited ("Sun Life"), the first defendant, was required by the Financial Services Authority ("FSA"), acting on behalf of the Personal Investment Authority ("PIA") to conduct a review of past business. As a result it ultimately incurred very large costs and expenses, in respect of which it seeks to recover an indemnity under a Financial Institution Professional Liability Policy ("the policy") from the claimants, its insurers. The claimants seek a declaration that they are not bound to provide any such indemnity.
The parties
Sun Life is a subsidiary of Sun Life Financial Inc ("Sun Life Financial"), the second defendant 1. The brokers for the policy were Marsh Canada Limited ("Marsh"). Mr Robert Farquharson, a senior Vice President of Marsh, had the management of the placement.
Until March 2000 Sun Life Assurance Company of Canada ("Sun Life of Canada"), which was incorporated in Canada as a mutual insurance company in 1865, operated in the UK through a branch. Sun Life, the UK company, was established in 1969 to run unit linked business. It was a subsidiary of Sun Life of Canada UK Holdings Plc, itself a subsidiary of Sun Life of Canada. In March 2000 Sun Life of Canada demutualised. Sun Life Financial became its holding company and the holding company of Sun Life, to which the UK branch business was transferred. Sun Life had a direct sales force of about 800. They sold individual life insurance and unit trust and personal equity plans. Sun Life also transacted group business, such as life and permanent health insurance, sold through independent financial advisers. From the mid 1990s onwards Sun Life was not making profits on its new business.
The five claimants (hereafter "the insurers") are:
i) Travelers Casualty and Surety Company of Canada ("Travelers");
ii) Oak Dedicated Limited, on behalf of the members of Lloyd's Syndicate 839 ("Syndicate 839");
iii) American Home Assurance Company ("American Home");
iv) Chubb Insurance Company of Canada ("Chubb"); and
v) Liberty Mutual Insurance Company ("Liberty Mutual").
They are the insurers on the primary layer of the policy (US $ 50,000,000 US $ 25,000,000), in the following proportions:
Travelers 20 %
Syndicate 839 40 %
American Home 15 %
Chubb 15 %
Liberty Mutual 10 %
The original Leading Underwriter and 20% participant in the primary layer of $50,000,000 was Gulf Insurance Company UK Ltd ("Gulf UK"). The original participants on the primary layer also participated in the same proportions on the first excess layer ($50,000,000) and in different proportions, together with New Hampshire Insurance Co on the second excess layer ($100,000,000). American Home, Chubb and Liberty Mutual participated, in different proportions and with others, on the third excess layer ($100,000,000). Hereafter "$" means US $ unless the contrary appears.
The making of the policy
In July 1999 Marsh sent to prospective insurers an underwriting submission, entitled "Corporate Errors and Omission Submission 1999 – 2001" in respect of the policy which Sun Life was then seeking to place. That submission, which was eventually agreed by Sun Life and the insurers to be part of the contract between them, gave an overview of Sun Life of Canada's global operations and identified its new senior management team: Donald A. Stewart, Chairman and Chief Executive, C. James Prieur, President and Chief Operating Officer, and Gregory W. Gee, Vice-Chairman. It also gave details of its "Risk Management and Company Profile", in which it referred to the Corporate Insurance & Risk Management Department. It explained that that department, which was based in Sun Life of Canada's offices in Toronto, reported directly to the Senior Vice-President, Strategic Development, and was headed by an Assistant Vice-President – Ms Susan Meltzer. It also described how the compliance function at Sun Life resided in the individual business units.
The submission set out, under the heading "Coverage Specifications", the coverage sought in the following terms in respect of Corporate Errors and Omissions:
| NAMED INSURED | Sun Life Assurance Company of Canada et al |
| POLICY TERMS | October 1, 1999 (3 Years Non-Cancellable) |
| POLICY LIMITS | U.S. $ 20,000,000 any one occurrence U.S. $ 20,000,000 Annual Aggregate |
| SELF INSURED RETENTION | U.S. $ 5,000,000 |
| TERRITORY | Worldwide |
| MAJOR EXTENSION | Non-Cancellation Clause |
The submission included a proposed policy wording and a Claims History. It also proposed a "Blended Excess Program" ("the Program") which would be for three years and provide cover up to $200 million excess of four underlying policies i.e. (i) the Corporate Errors & Omissions Policy; (ii) a Financial Institution Bond; (iii) an Employment Practices Liability Policy and (iv) a Fiduciary Liability Policy.
The Claims History stated that Litigation Reports for the past five years included two E & O losses both in the UK, the first totalling £870,000 and the second £ 1.6 million. It then referred to two matters:
(a) the settlement of an action by the PIA against (i) Sun Life and (ii) Confederation Life Insurance Company (UK) Ltd, its subsidiary, by a fine of £300,000 on each company plus £125,000 costs, for failing to take all reasonable steps to make compensation for pension mis-selling. and a description of what the mis-selling issue involved 2;
(b) the settlement of certain litigation in Canada and the USA known as the "Premium Offset" litigation;
There were also listed in a separate spreadsheet all losses for the past 5 years in excess, or expected to be in excess, of $2.5 million. Attention was drawn in the Claims History to two of the larger losses. The first related to some litigation entitled " Rand v Confederation Life" with an estimated maximum value of £1.3 – 1.8 million, and the second was a case involving a large group, paid up life insurance policy where there had been a mathematical error in the calculation of certain Experience Rating Refunds which were to be payable by Sun Life. The result, if uncorrected, would be that the policyholder would receive over 20 years about Can $26,000,000 in excess of the correct amount. I refer to this hereafter as "the Experience Rating Refunds matter".
The Program was principally negotiated between Marsh on behalf of the Sun Life companies on the one hand and various representatives of Gulf New York and Gulf UK on behalf of the insurers. In November 1999 Mr Simon Ashby of Gulf UK signed an indicative quote slip subject to a list of "subjectivities". These subjectivities included:
"Confirmation on the following points:
2. Final agreement on the proposed professional liability wording.
Acceptable wording relative to known circumstances which could give rise to a claim under the proposed blended program."
The policy
The policy forms part of what was described as the "Sun Life Financial Services of Canada Inc. Blended Excess Program Policy Number MMF/1460" ("the Program"). The Program consisted of:
a) Master Declarations;
b) Sections 1A, 1B, 1C, and 1D, containing individual policies; and
c) Section 2 containing Master General Conditions ("MGC").
The Master Declarations described Sun Life Financial as the Parent Organisation and provided for (a) a Limit of Liability of $300,000,000 any one loss or claim and $600,000,000 aggregate over the Policy Period; (b) a retention of $25,000,000 each and every loss or claim and (c) a Policy Period from September 30 th 2000 to October 1 2003.
Each of the individual sections, save the policy, overlay an underlying policy. Section 1 A was a Financial Institution Bond policy which was to follow all the terms and conditions of a policy issued by Columbia Casualty Company, covering a number of different risks. It had a policy period of September 1 st 2000 to September 1 st 2003 and a limit of liability of $25,000,000 per loss. Section 1 B is the policy in suit. Section 1 C was an Employment Practices Liability Insurance and it was to follow all the terms of a policy issued by American Home. It had a policy period of October 1 st 2000 to October 1 st 2003 and a limit of liability of $25,000,000 each Claim. Section 1 D was a Fiduciary Liability Insurance and was to follow all the terms and conditions of a policy issued by Liberty Mutual Insurance Company, of Canada. It had the same period and limit of liability as section 1C. In Sections 1A, C and D the named insured was Sun Life Financial.
Section 1 B contains the policy, described as a "Financial Institution Professional Liability Policy". It begins with a number of declarations as follows (the bold type is in the original):
"THIS IS A CLAIMS MADE POLICY. SUBJECT TO ITS TERMS THIS POLICY APPLIES ONLY TO ANY CLAIM FIRST MADE DURING THE POLICY PERIOD PROVIDED SUCH CLAIM IS REPORTED TO THE INSURERS AS SOON...
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