Welcome To The Twenty-Third Edition Of Clyde & Co's (Re)Insurance And Litigation Caselaw Weekly Updates For 2011

Author:Mr Nigel Brook
Profession:Clyde & Co
 
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This Week's Caselaw

Beazley v Travelers

Whether insured was liable to brokers under a Deed of Indemnity and whether claim covered under PI policy/effect of subjectivities

http://www.bailii.org/recent-decisions.html#ew/cases/EWHC/Comm

Clyde & Co for claimants

Weekly Update 07/08 reported the decision in Standard Life v Oak Dedicated, in which it was held that a broker (Aon) had been negligent in failing to ensure that a policy (for the period 1998-2001) met its client's needs. Aon sought to claim against Travelers under a Deed of Indemnity. Under the Deed, Travelers had agreed to indemnify Aon for losses arising out of any event occurring before the completion of the sale by Travelers to Aon of the Minet Group of broking companies in 1997. Aon argued, in essence, that since the wording (for which it was held negligent in Standard Life) had first been inserted in 1995 when the Minet Group was the broker (and had continued to be used in subsequent years up to 1998), it was entitled to an indemnity for Minet's alleged negligence under the Deed. This argument was rejected by Clarke J. He held that liability arose "solely from and was attributable to Aon's negligence". The deed indemnified against liability "arising out of " events and this required a degree of causal connection (this was not, in the context of the deed, a proximate cause test but a "relatively strong degree of causal connection" was still required. The prior broker's "blind spot" was without causative effect until the 1998 renewal date. It was Aon's negligence (and Aon's alone) which resulted in the 1998-2001 policy not meeting the client's needs. Furthermore, earlier failures did not constitute "a continuing series of related events" as required in the Deed.

Although not required to do so, Clarke J also found that Travelers (even if it had have been held liable to Aon under the Deed) would not have been entitled to claim under its own PI cover (which had been provided by the claimants in this action). That was because the policy covered liability for claims made against Minet for breaches committed by a Minet company or employee. An argument by Travelers that the literal meaning of the words should not be permitted to prevail in order to defeat the purpose of the cover did not succeed either. The Deed and the PI policy were intended to "fit together": "Under the Deed Travelers is not liable to indemnify Aon in respect of its liabilities to Standard Life and is not insured for that purpose".

Of general interest in this decision, though, are Clarke J's comments regarding the effect of subjectivities imposed on the slip when cover was being sought for Standard Life in 1998 (and therefore whether Standard Life was in any event uninsured by the time the Deed expired). Traditionally, the courts have construed subjectivities as pre-conditions to any binding contract coming into existence. In this case, scratches were made subject to (a) reinsurance; (b) satisfactory proposal form; and (c) Y2K questionnaire. Clarke J described these as "classic qualifications of acceptance", indicating that the underwriters would not go on risk until they were met (and information had to be accurate when the proposal form/Y2K questionnaire were signed).

The judge rejected an argument...

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