HFW Insurance & Reinsurance Bulletin - December 2009

Placing The Blame By Geoffrey Conlin

Dunlop Haywards Ltd ("DHL") (formerly Dunlop Heywood Lorenz) & Ors v Barbon Insurance Group Ltd (formerly Erinaceous Insurance Services Ltd formerly known as Hanover Park Commercial Ltd ("HPC")) & Ors v Lockton Companies International (formerly Alexander Forbes Risk Services UK Limited ("Forbes")) [2009] EWHC 2900].

The insured, DHL, sued the producing broker, HPC, for failure to obtain professional indemnity insurance for £10m excess £10m to cover its valuation activities. HPC sued insurers claiming the excess of loss insurance covered the relevant risk as a matter of construction or should be rectified so as to provide cover. HPC also joined the placing broker, Forbes, as Part 20 Defendant.

The Judge rejected the construction and rectification claims against insurers. To succeed on a claim for rectification, the party seeking rectification must show that:

The parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the slip and there was an outward expression of accord; and The common intention continued at the time of the execution of the slip; and By mistake the slip as executed did not reflect the common intention. The Judge accepted that it had been the contracting parties' intention at the time of the initial quotations to provide insurance for all activities of DHL. However, he found that there was a re-broke of the risk on the basis subsequently set out in the slip. The slip, therefore, properly reflected the parties' intention and HPC could not establish the necessary prior agreement.

The Judge would have been inclined to accept that DHL's failure to read the terms and conditions of the excess cover or renewal report did constitute contributory negligence, were it not for HPC's covering email, which referred to a summary of the renewal report and stated that the broker was "very confident that it covered all bases". There was no reference to the limited cover and DHL's reliance on its professional brokers was reasonable.

The Judge found HPC negligent in failing to obtain the insurance required by DHL. As between HPC and Forbes, the Judge held that Forbes had been instructed to obtain the cover shown in the slip but ought to have queried, clarified or confirmed the instructions given, especially where it was clear that the new cover would be more restrictive than the expiring cover. Assessing their relative blameworthiness, the Judge apportioned liability 80% to HPC and 20% to Forbes.


This case is another reminder of the care that should be taken by brokers when producing, placing or renewing insurance, even where the client is a sophisticated commercial entity.

Practical Justice? By Andrew Bandurka, Luke Hacker and Edward Rushton

Equitas v R&Q [2009] EWHC 2787 (Comm)

Our previous client briefing (http://www.hfw.com/news/ newsletters/2009/insurancereinsurancebulletin-issue15) (www.hfw.com/news/newsletters/2009/insurancereinsurancebulletin-issue15) looked at Mr Justice Gross' recent decision in Equitas v R&Q. In the wake of news that R&Q and Equitas have reached a compromise deal, thus eliminating any possibility of an appeal, we consider here what implications the judgment might have for the market.

The case concerned incorrectly aggregated Kuwait settlements and unrecoverable Exxon Valdez settlements that had entered the LMX spiral. These claims "tainted" otherwise recoverable losses which had been processed at the same time as part of the same UNLs and caused the market to "lockdown" when the Court of Appeal ruled that there had been contamination. Most spiral participants agreed a market standstill agreement pending a resolution of the problems. Also "stuck" at the bottom end of the spiral were UN compensation payments paid in respect of Kuwait.

In this case Equitas used actuarial models to prove minimum recoverable amounts due under ceded spiral contracts. R&Q argued that Equitas' ability to recover losses from its reinsurers gave rise to an issue of law - Equitas had to prove on a contract by contract basis, up through the spiral, each element of the sums claimed.

Equitas argued - successfully - that it was not a question of law, but one of fact and evidence. Equitas' actuarial models did not...

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