When Not To Follow The Leader

Unum Life Insurance Company of America v. The Israel Phoenix Assurance Co. Ltd. (Commercial Court - Andrew Smith J., 16 March 2001)

Policy wordings are often not produced and agreed until some time after the slip is completed and the insurers or reinsurers go on risk. Indeed, it is often the case that the policy wordings are only produced and agreed after a dispute has arisen (as here). Phillips J. held in Youell v. Bland Welch [1990] 2 Lloyd's Rep. 423 that: "An insurance slip customarily sets out a shorthand version of the contract of insurance, in terms which may be neither clear nor complete. Where, as here, the slip provides for the formal wording to be agreed by the leading underwriter, the other subscribers to the risk anticipate and agree that the leading underwriter will, on their behalf, agree the final wording that will spell out their rights and obligations." In Unum v. Israel Phoenix, the court had to decide whether such agreement extended to permit the leading underwriter to bind the other subscribers to an arbitration agreement, and whether and, if so, in what circumstances, the authority given to the leading underwriter by the slip, could be revoked.

Background

Unum participated in the reinsurance of the Defendant's ("IPA") personal accident business through a quota share reinsurance placed by London brokers. Unum sought to avoid the policy and issued proceedings in London for a declaration to that effect. IPA sought to stay the proceedings on the basis that the reinsurance wording included an arbitration clause. The wording had been agreed some considerable time after the slip was signed, and after the proceedings had been commenced by Unum, by Liberty Mutual as "leading underwriter", pursuant to the terms of the slip, which provided that the wording was to be agreed by leading underwriter only (a standard provision).

Issues

Unum's position was that it was not bound by the arbitration clause because:

Liberty Mutual was not the "leading underwriter" within the meaning of the reinsurance slip, or if it was, it could only bind members of LIRMA, which did not include Unum;

If Liberty Mutual was the leading underwriter, it could not bind Unum to the arbitration clause;

If Liberty Mutual was the leading underwriter and had at the outset the authority to bind Unum to the arbitration clause, such authority ended before the wording was agreed, either by (a) effluxion of time; (b) revocation by Unum; (c) the avoidance of the...