The Taylor Wessing Insurance And Reinsurance Review Of 2009 (PART 2)

PROCEDURE

Joinder of insurers to proceedings between insured and brokers

Dunlop Haywards (DHL) Ltd & Ors v. Erinaceous Services Ltd & Ors [2009]21

Court of Appeal, 28 April 2009

Commercial Court, 19 November 2009

The situation is not at all uncommon. An insured's policy claim is rejected, on the grounds that it falls outside the coverage terms arranged by the broker, in response to which the insured sues the broker for having failed to procure insurance on suitable terms. Frequently the broker will respond in its defence that the policy claim is in fact recoverable under the relevant terms, and that insurers' declinature is invalid. The result is that the insured may find himself litigating the merits of the policy claim with his own broker.

In this situation, the normal approach is to make the insurers a party to the litigation, either at the instigation of the insured or (less commonly) the broker, and thus all issues will be resolved between the interested parties in one set of proceedings. Furthermore, the loser in the litigation will usually be ordered to pay the costs of both of the other parties.

In the present case the insured (DH) carried on business as a property consultant, in which it undertook commercial property management, surveying and valuations. The brokers procured on behalf of DH a primary professional liability policy with a limit of £10m covering all of DH's activities, together with an excess policy providing coverage of £10m excess of £10m. The latter policy, however, was expressed to be limited to the "assured's commercial property management activities only".

DH faced a number of claims from clients alleging negligent and/or fraudulent valuations by an employee, which were duly notified to the primary and excess policies. The excess insurers denied liability on the grounds that the claims arose out of valuation work, not commercial property management. In response, DH sued its brokers for having failed to procure excess insurance on terms suitable to its business.

In this case, it was the defendant broker who wished to have excess insurers joined to the proceedings, but this could not be achieved by means of a Part 20 Notice because the brokers had no claim in their own right against the insurers. Instead, the brokers sought to have the excess insurers added under CPR 19.2(2), which permits any party to be added to litigation "if it is desirable to add the new party so that the court can resolve all the matters in dispute in the proceedings".

In the Commercial Court, Mr Justice Field rejected the broker's application under CPR 19.2(2) in a judgment delivered In April 2008. On the basis of the clear policy terms, he concluded that the merits of any claim against excess insurers were "so weak" that the insurers ought not to be put to the inconvenience and expense of becoming parties to the litigation at all. It was, in other words, not "desirable" to add the excess insurers as a party to this litigation, and if the holder of the right to those claims wished to do so, it could pursue them by way of separate proceedings.

In a decision handed down on 28 April 2009, the decision of the Commercial Court was overturned by the Court of Appeal. The Court of Appeal said the Judge was wrong to dismiss the merits of the policy claim on a summary basis, as he had done. There was at least a good arguable case that the policy terms were a mistake; that in fact the market had not intended to restrict coverage in the manner expressed in the excess policy, and that the wording required rectification. Even where one agreement, such as is expressed in a "held covered" endorsement or in the terms of a "firm order" was superseded by another, such as a slip, there could still be rectification of the later slip and policy to reflect the earlier agreement if in fact that remained the intention of the parties. In the present case, the Court of Appeal held that the case for rectification was not so weak as to render it not "desirable" to join the excess insurers under CPR 19.2(2). Accordingly, the excess insurers were to be joined.

The proceedings then returned to the Commercial Court for trial on the merits, upon which judgment was handed down on 19 November 2009. In the event, the Commercial Court rejected the rectification claim, finding that there was indeed no claim against the excess insurers under the terms of the policy. Accordingly, the brokers were at fault in having failed to procure cover in accordance with their principals' requirements, and for which the court apportioned liability between the producing and placing brokers in the respective amounts of 80:20.

Result: Judgment for the insured against the brokers, and for the excess insurers on the policy claim.

Under article 31(1) of the Convention on the Contract for the International Carriage of Goods by Road (aka the "CMR") any legal proceedings arising out of a contract of carriage under the Convention may be brought in the courts of any contracting country by agreement between the parties or "in the courts or tribunals of a country within whose territory the defendant is ordinarily resident, or has his principal place of business".

This case concerned goods sent by an Austrian consignor ("TA") to its sister company in Italy, both insured by XL. The goods were entrusted to Hatzl, an Austrian road haulage company, but were stolen whilst their driver was asleep at a roadside parking place in northern Italy.

XL paid the policy claim in the normal way, and took an assignment from TA of its rights against Hatzl. When XL sought payment from Hatzl, however, the latter responded by issuing proceedings in the English court against XL for a declaration that it was not liable for the loss. In seeking to found the jurisdiction of the English court, Hatzl relied upon the fact that XL (not TA) was the Defendant to the claim it had issued. Since XL was ordinarily resident or had its principal place of business in England, the English court had jurisdiction to hear the matter, notwithstanding that the original parties to the contract of carriage had no connection with England at all. The trial Judge agreed, a decision from which XL appealed.

The Court of Appeal issued its judgment on 19 March 2009, reversing the Judge's decision. Applying a purposive approach to the language of the Convention, the Court of Appeal agreed with XL that Article 31(1) was not intended to apply to a defendant against whom a declaration of non-liability was sought simply in its capacity as an assignee of the rights of one of the original parties to the contract of carriage. The word "Defendant" in the Article was not to be understood in simply the procedural sense. It was intended to extend to the parties to the contract and probably also to others to whom the Convention had ascribed rights and duties, but not to an assignee, even if that assignee also happened to be one of the parties' insurers.

Result: Judgment on jurisdiction for the defendant insurers.

Meaning of "Defendant" under the CMR

Emmerich Hatzl & Anor v. XL Insurance Co Ltd [2009]22

Court of Appeal, 19 March 2009

Under article 31(1) of the Convention on the Contract for the International Carriage of Goods by Road (aka the "CMR") any legal proceedings arising out of a contract of carriage under the Convention may be brought in the courts of any contracting country by agreement between the parties or "in the courts or tribunals of a country within whose territory the defendant is ordinarily resident, or has his principal place of business".

This case concerned goods sent by an Austrian consignor ("TA") to its sister company in Italy, both insured by XL. The goods were entrusted to Hatzl, an Austrian road haulage company, but were stolen whilst their driver was asleep at a roadside parking place in northern Italy.

XL paid the policy claim in the normal way, and took an assignment from TA of its rights against Hatzl. When XL sought payment from Hatzl, however, the latter responded by issuing proceedings in the English court against XL for a declaration that it was not liable for the loss. In seeking to found the jurisdiction of the English court, Hatzl relied upon the fact that XL (not TA) was the Defendant to the claim it had issued. Since XL was ordinarily resident or had its principal place of business in England, the English court had jurisdiction to hear the matter, notwithstanding that the original parties to the contract of carriage had no connection with England at all. The trial Judge agreed, a decision from which XL appealed.

The Court of Appeal issued its judgment on 19 March 2009, reversing the Judge's decision. Applying a purposive approach to the language of the Convention, the Court of Appeal agreed with XL that Article 31(1) was not intended to apply to a defendant against whom a declaration of non-liability was sought simply in its capacity as an assignee of the rights of one of the original parties to the contract of carriage. The word "Defendant" in the Article was not to be understood in simply the procedural sense. It was intended to extend to the parties to the contract and probably also to others to whom the Convention had ascribed rights and duties, but not to an assignee, even if that assignee also happened to be one of the parties' insurers.

Result: Judgment on jurisdiction for the defendant insurers.

LAW AND JURISDICTION

Governing Law and Jurisdiction in reinsurance – revisited

Gard Marine & Energy v. (1) Lloyd Tunnicliffe; (2) Glacier Re & Anor [2009]23

Commercial Court, 9 October 2009

The Background This was a case giving rise to issues of both jurisdiction and governing law under a contract (or contracts) of excess of loss reinsurance issued by the Defendants, to the Claimant ("Gard"), a reinsured domiciled in Bermuda.

The reinsurance was...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT