Current Law Cases

 

Scope

Lloyds; premium trust deeds; damages awarded to Names for negligent underwriting and syndicate selection payable to trust fund; validity of amendment to premium trust deed

Case

Lord Napier and Ettrick v RF Kershaw Ltd (No.2)

Court

(HL) House of Lords

Judgment

March 25, 1999

Judges

Lord Steyn

Legislation

 

Reported

[1999] 1 W.L.R. 756; [1999] 1 All E.R. (Comm) 545; [1999] C.L.C. 987; [1999] Lloyd's Rep. I.R. 329; (1999) 96(22) L.S.G. 34; (1999) 143 S.J.L.B. 150

Reference

Times, March 29, 1999

Abstract

A premium trust deed, PTD, entered into by all underwriting members of Lloyd's, provided under cl.2(a)(i) that all monies becoming payable to Names "in connection with the underwriting" were to be paid to a trust fund established to facilitate the payment of Names' liabilities. However, following a decision in Lord Napier and Ettrick v RF Kershaw Ltd (No.1) (Unreported, May 14, 1992) that damages awarded to Names for negligent underwriting by managing underwriters fell outside the ambit of cl.2(a)(i), Lloyd's amended the clause to provide that all damages awarded to Names for negligent underwriting by managing agents, or negligence by members' agents in advising on the taking out of personal stop loss insurance or syndicate selection, were to be paid into the trust fund. R, an underwriter against whom Lloyd's had brought a representative action to test the validity of the amendment, appealed against a decision ([1997] L.R.L.R. 1, [1996] C.L.Y. 3591) that damages awarded to Names for negligent underwriting were payable to the trust fund. Lloyd's cross appealed, arguing that amendments to cl.2(a)(i) made under cl.22 of the PTD were valid and that damages in respect of stop loss insurance and syndicate selection were within cl.2(a)(i).

 

Held, dismissing the appeal and allowing the cross appeal, that (1) damages awarded to Names for negligent underwriting fell within the ambit of cl.2(a)(i). To hold otherwise would both weaken the protection afforded to policyholders by cl.2(a)(i) and would be commercially unacceptable; (2) damages for negligent advice on personal stop loss insurance and syndicate selection did not fall within the ambit of cl.2(a)(i) in its original form, Society of Lloyds v Morris [1993] 2 Re L.R. 217 approved and Deeny v Gooda Walker Ltd (No.2) [1996] 1 W.L.R. 426, [1996] C.L.Y. 3377 considered. Receipts of personal stop loss cover taken out by a Name did not fall within the trust, and issues as to the selection of syndicates were distinct from matters relating to underwriting through that business, and (3) whilst a power of amendment was not to be exercised beyond the reasonable contemplation of the parties, the amendments to cl.2(a)(i), which imposed no new liabilities on the Names, provided for additional security for existing obligations and could not be considered invalid. Accordingly, the damages for negligent advice on personal stop loss insurance and syndicate selection, as well as the damages awarded to Names for negligent underwriting, were subject to cl.2(a)(i) as a result of the amendments.

Subject

Insurance

Keywords

Damages, Lloyds Names, Negligence, Trust funds, Underwriting

Counsel

For R: Nicholas Underhill Q.C. and Adam Tolley. For Lloyd's: Jules Sher Q.C., John Child and Joanne Wicks

Solicitors

For R: Grower Freeman & Goldberg. For Lloyd's: Simmons & Simmons

Transcript

1998-SD-688, 1998-SD-9580

Sub nom

Society of Lloyd's v Robinson

Joined cases

Society of Lloyd's v Woodard

Cases cited

Deeny v Gooda Walker Ltd (No.2) [1996] 1 W.L.R. 426, [1996] C.L.Y. 3377

Society of Lloyd's v Morris [1993] 2 Re L.R. 217

Lord Napier and Ettrick v RF Kershaw Ltd (No.1) (Unreported, May 14, 1992)