Society of Lloyds v Morris and Others
Queens Bench Division (Commercial Court)
HEARING-DATES: 15 March 1993
15 March 1993
COUNSEL: E Gloster QC and A Havelock-Allan for the Plaintiffs; T Seymour for the Defendants
PANEL: Tuckey J
JUDGMENTBY-1: TUCKEY J
TUCKEY J: INTRODUCTION
This case raises the question of whether recoveries under Personal Stop Loss Policies (PSL) taken out by names at Lloyds are subject to their Lloyds Premium Trust Deed (LPTD). It comes before the court by originating summons taken out by the Council of Lloyds following attempts during 1982 by a group of names, who face serious losses from their underwriting, to have such recoveries paid to them directly. The first and third Defendants (Mr Morris and Mr Kimpton) are two such names. Their members agents, the second Defendants, and the fourth Defendant, one of its Directors, who is also a Trustee of the LPTD of both Mr Morris and Mr Kimpton, have taken no part in the proceedings. Lloyds contend that PSL recoveries are or became subject to the LPTD as a result of one or more of the following:
(1) as a matter of construction of the LPTD;
(2) by assignment where a letter of authority has been signed by the name containing his irrevocable agreement to the payment of PSL recoveries to the trustees of his LPTD;
(3) by estoppel, where it has been represented to Lloyds by or on behalf of a name that PSL recoveries under a particular PSL policy are eligible assets for Lloyds solvency purposes;
(4) as a matter of construction of the Assignment of Premium Deed which, until 1985, was entered into by all names on joining Lloyds; or
(5) by reason of a Direction given by the Chairman of Lloyds on 21.2.92 pursuant to the powers of the Council of Lloyds under s 6 of the Lloyds Act 1982.
This is disputed by Mr Morris and Mr Kimpton and over a hundred more names for whom their Solicitors also act and there may be other names who have taken the same position. My decision is intended to provide guidance for the Lloyds market on the questions raised even though these are not representative proceedings.
THE LEGISLATIVE AND CONTRACTUAL BACKGROUND
By Section 15(4) of the Insurance Companies Act 1982 a name does not have to comply with the solvency provisions in Part II of the Act provided he complies with Section 83. Section 83 states:
(2) Every underwriter shall, in accordance with the provisions of a trust deed approved by the Secretary of State, carry to a trust fund all premiums received by him or on his behalf in respect of any insurance business.
(The LPTD is a deed approved by the Secretary of State under Section 83(2).)
(4) The accounts of every underwriter shall be audited annually by an accountant approved by the Committee of Lloyds and the auditor shall furnish a certificate in the prescribed form to the Committee and the Secretary of State.
(5) The said certificate shall in particular state whether in the opinion of the auditor the value of the assets available to meet the underwriters liability in respect of insurance business is correctly shown in the accounts and whether or not that value is sufficient to meet the liabilities
Under the Lloyds Act 1982 a name can only be a party to a contract of insurance if it is written with several liability with each name accepting liability solely for his own account. He must underwrite through a managing agent as a member of that agents syndicate. His business at Lloyds will be conducted through a members agent. The current agreements between name and members agent and name and managing agent are very comprehensive.
The members agents agreement appoints the agent to act in respect of the Business and the names affairs at Lloyds. The business means the business of underwriting and related activities carried on by the name at Lloyds as a member of the contracted syndicates. Members agents duties include administering and assisting the name with the procedures for complying with the annual solvency test and carrying out functions in relation to taxation matters connected with the business. The name must ensure that at all times there are available sufficient funds subject to the trusts of the (LPTD) and held by or under the control of the trustees to enable them to pay all claims and all necessary and reasonable expenses and outgoings made or incurred in connection with the business .
As part of his General Undertaking when he joins Lloyds the name agrees with Lloyds that he will comply with the Lloyds Acts and the byelaws which Lloyds is empowered to make in order to regulate the market. The Solvency and Reporting Byelaw (No l3 of 1990) requires members agents to prepare an asset return for each name for each year stating the value of all monies and assets of that name held by it or under its control (eligible assets). He is to procure that every such asset return is audited. Lloyds may prescribe from time to time what are eligible assets. In practice this is done by a market bulletin which at the material time provided that anticipated recoveries under PSLs were eligible if a number of conditions were met. These included:
5.2 The contract must contain an assignment of any recovery to the Trustees of the members premium trust fund or
5.3 The rights to the recovery have been assigned to the trustees of the members premium trust fund.
I shall refer in more detail to the solvency procedures when considering Question 3 (estoppel).
The Deed is made between the Name, the Members Agent and Lloyds.
After its recitals, the following terms are AGREED
The Underwriting business (whether current or past or future) of the name at Lloyds carried on through the agency of the members Agent or under arrangements made by or through the members Agent but excluding any long term business of the name.
2(a) Subject as hereinafter provided the Trust Fund shall consist of
(i) all premiums and other monies whatsoever (except as provided in sub-clause (b) of this Clause) now belonging or payable or hereafter at any time belonging or becoming payable to the name in connection with the Underwriting.
(ii) if the Members Agent is for the time being a Co-ordinating Agent all such monies or other assets vested in or under the control of the Members Agent (or any of the Members Agents Trustees) as represent
(1) profits from any current or past underwriting business in the Name at Lloyds carried on through the agency of or under arrangements made by or through a members agent other than the Members Agent or
(2) payments on account or in respect of United Kingdom income tax (and any interest thereon) on such profits and
(iii) so much of any deposits funds income and assets as is excepted in paragraphs (i) and (ii) of sub-clause (b) of this Clause and
(iv) all investments and other assets now or hereafter for the time being representing any such premiums or other monies (except as aforesaid) or representing any such monies or other assets referred to in paragraph (ii) of this sub-clause or representing so much of any deposits funds income and assets as aforesaid or representing the income next mentioned and
(iv) all income from time to time arising from any such investments deposits funds or other assets comprised in the Trust Fund
(There then follow in sub clause (b) four carefully defined classes of asset which are not to be treated as comprised in the Trust Fund.)
3 The Trust Fund and the income thereof shall be held (by whomsoever and in whatever names the monies and assets comprised therein are respectively now held or stand or shall hereafter at any time be held or stand) upon the following trusts subject as hereinafter provided
(a) In trust for the payment or discharge as provided in Clause 7(a) hereof
(i) Of any losses claims returns of premiums reinsurance premiums and other outgoings now payable or at any time hereafter to become payable in connection with the Underwriting (hereinafter collectively referred to as Underwriting payments) and
(ii) of any expenses whatsoever from time to time incurred in connection with or arising out of the Underwriting (references to such expenses including throughout this Deed any annual fee commission other remuneration and reimbursement of outlays payable by the name to any of the names Agents or to any other person in connection with the conduct or winding-up of the Underwriting and including also any fiscal liabilities incurred in or by reason of the Underwriting or in respect of the Trust Fund or its income)
6(a) All premiums monies and other assets whatsoever constituting or becoming part of the Trust Fund and received by the name or on behalf of the name by the members Agent or any Managing Agent or any other person shall forthwith after receipt (if not already vested as hereinafter provided) be paid or transferred to or otherwise vested in
(i) Lloyds (if Lloyds is then the sole members Agents Trustee) or at least two of the members Agents Trustees
7(d) The Members Agent may at any time or times direct that there shall be paid or transferred to or otherwise vested in or placed under the direct control of the name (freed and discharged from all the trusts powers and provisions of this Deed) the whole or any part of so much of the Trust Fund as
(i) is for the time being held by or under the control of all or any of the members Agents Trustees
(ii) is considered by the members Agent to represent the assets in the following list:
(1) Profits from the Underwriting of any years
(2) Such monies and other assets as became comprised in the Trust Fund but were not premiums from or other receipts of the Underwriting.
22 the Council may from time to time revoke and determine the trusts hereby constituted or (subject always to the prior approval of the Secretary of State) vary or amend all or any of them or any of the provisions hereof in such manner as the Council think fit and the Council shall notify the members Agent (and the members Agent in turn shall notify the name) of any exercise of the powers conferred upon the Council under this Clause.
PSLs and the Letters of Authority
A name does not have to take out a PSL. It is, as its description implies, an insurance protection personal to him and voluntary. It may cover his annual loss on a particular syndicate or his aggregate loss over a number of years on a number of syndicates. In this case both Mr Morris and Mr Kimpton wrote on a number of syndicates and each had aggregate policies covering the underwriting years 1987, 1988 and 1989 and separate annual policies for the 1990 year. Many PSLs were placed through specialist brokers, Holman Wade Limited. The terms of the policies do not matter except as to the destination/payment of recoveries. Six types of wording have been found. They are:
l Those which expressly provide for recoveries to be paid to the name unless other instructions for payment are received.
2 Those which are silent as to the destination of payment/treatment of recoveries.
3 Those which expressly provide that recoveries will be paid directly to the name save that if the name is required to utilise any anticipated recoveries for solvency test purposes, the claims must be paid to the Trustees of the names Premium Trust Fund.
4 Those which expressly provide for recoveries to be paid directly to the Trustees of the reinsureds Premium Trust Fund or to Lloyds as Trustees of a special Deposit Trust Deed.
5 Those which specify the purpose for which the recoveries may be used without specifying to whom they shall be paid eg by providing that recoveries shall only go to meet the names obligation as a Member of Lloyds.
6 Those which combine the features of 3 and 5 ie which specify that recoveries shall only go to meet the names obligation as Member of Lloyds and which provide that recoveries are to be paid into his Premiums Trust Fund.
The names accept that recoveries under types 4 and 6 do become subject to the LPTD because that is what the contract of insurance provides. Moreover if recoveries under such policies are eligible assets for the purposes of solvency they fall within 5.2 of the market bulletin and so once declared for solvency the name cannot insist on payment to him. Lloyds contend that the wording is irrelevant since by the terms of the LPTD recoveries under all types of policy become part of the trust fund.
Mr Morris had a type 5 and Mr Kimpton a type 2 policy for the years 1987, 1988 and 1989. They either had type 4 or type 6 policies for 1990.
For the purpose of solvency and purporting to effect assignments of PSL recoveries pursuant to 5.3 of the market bulletin (or its predecessors which were in similar terms) names signed letters of authority. The first of these, (Old Form 1), was addressed to the broker and says:
Personal Stop Loss Insurance
I hereby give my irrevocable agreement that any recoveries made under my Stop Loss Insurance Policies shall be paid to the Trustees of my Premiums Trust Fund and held on this Account until all of my obligations following the Annual Solvency Audit at the 31st December 19 and subsequent Annual Solvency Audits have been satisfied.
The second (Old Form 2) was also addressed to the broker and was in the following terms:
Personal Stop Loss Insurance Policy No
We, the undersigned, give our irrevocable agreement that any recoveries made under the above mentioned Stop Loss Insurance Policy shall be paid to the Trustees of the Premiums Trust Fund and held on this Account until all the Assureds obligations following the Annual Solvency Audit at the 31st December 19 and subsequent Annual Solvency Audits have been satisfied.
Furthermore, if Stop Loss Insurers advance any monies as an on-account payment under the Policy, we give our irrevocable agreement that such amounts subsequently shown to be an over-payment by
either: the production of a subsequent Personal Account statement showing a loss less than the amount previously notified
or: the production of a tax form LL9 showing a loss less than the amount previously notified
shall be refunded to the Underwriters of the above Policy within 30 days of written notice being given by (Brokers) that such refund is due. Subject always to the Terms and Conditions of the Policy.
Trustees of the Assureds
Premium Trust Fund
The PSL number was inserted at the top of the letter and the letter was signed by the name and one of the Trustees of the LPTD, ie a Director of the members agent. When this dispute arose in 1992 a further letter was created but I do not think its terms are relevant.
Question (1): Are stop loss recoveries as a matter of construction subject to the trust of the LPTD?
Yes, say Lloyds because they fall within the ambit of other monies whatsoever payable to the name in connection with the Underwriting in Clause 2 (a) (i). The words in connection with should be construed as meaning having substantial relation in a practical business sense or having something to do with. PSL recoveries are so connected because they arise under contracts of reinsurance of the underwriting business of the name and become payable solely by reason of and by reference to the performance of that business.
No, say the names, the object of the Deed is to provide a fund for the payment of claims to policy holders and for payment of such administrative expenses of the name at Lloyds as enable him to carry on his business of underwriting. The fund consists of premiums, reinsurance recoveries and the like but not PSL recoveries, since they are not payable to the name in connection with the underwriting business. These are personal monies and only become part of the fund if they are bought into it voluntarily.
In Napier v Kershaw (14/5/92) Saville J decided that damages payable to the Outhwaite names for negligent underwriting did not form part of their LPTDs. Lloyds had argued that the damages were other monies whatsoever payable to the name in connection with the Underwriting. In rejecting this argument Saville J said:
The money in question is clearly not a receipt of the underwriting business, for the business is one of underwriting at Lloyds and not one of compensating Names for mistakes allegedly made by their agents in conducting the Names business of underwriting at Lloyds. The money can hardly be described as an expense of the Names business of underwriting for it is a receipt and not an expense of the Name. As an expense, it is incurred by the Agents and not the Names, and it is the Names business with which we are concerned. The money is not a loss of the underwriting business since it represents compensation for losses and is not the losses themselves. It is not a profit of the underwriting business for the same reason, nor would it feature in the accounts of the Names Syndicate: and it should be remembered that Name is only allowed to conduct underwriting business at Lloyds through Syndicates. Thus, the money is neither a receipt, nor an expense, nor a loss, nor a profit, nor even an item in the accounts, of the underwriting business of the Name carried on at Lloyds.
What, to my mind, the money has to do with is not the Names business of underwriting at all, but the rights and obligations existing between the Name and his Members and Managing Agents: and those rights and obligations are not part of the Names business or underwriting at Lloyds either, but part of the internal arrangements made between these parties as a means of enabling the Names business of underwriting at Lloyds to be conducted. That business is business with third parties and not business between the Name and his Agents. In my judgment, the money is payable in connected with the latter and not the former business within the meaning of the Deeds.
The instant case is a fortiori say the names. The receipt of a PSL recovery is not a receipt of the underwriting business, nor is it a loss of that business since it represents an insurance indemnity against such loss rather than the loss itself. The recovery is not in connection with the underwriting business but pursuant to the terms of the PSL voluntarily entered into by the name.
Miss Gloster, Counsel for Lloyds, did not accept this. She submitted that PSL recoveries were much more closely connected to the underwriting business of the name than the damages recovered by the Outhwaite names. Indeed if one looked at the name in isolation his PSL protection was part of his underwriting business. She did not accept that a bank or benevolent uncle could look to the fund for reimbursement if they lent or gave money to help fund losses (as Saville J suggested) since such loans or gifts were not payable in connection with the underwriting but pursuant to a loan or gift.
I accept Saville Js reasoning in Napier v Kershaw. Looking at the statutory and contractual background to the deed it is clear that its primary purpose is to provide a fund for the payment of policy holders and to this end the premium which a name receives from his underwriting, which he can only do as a member of a syndicate, becomes subject to the trust. I think that the words other monies whatsoever payable in connection with the underwriting are directed to other receipts of this underwriting such as reinsurance recoveries, salvage and the like. In other words they refer to all monies received by or on behalf of the name as an underwriter on a syndicate. PSL recoveries do not fall into this category. Such recoveries are not receipts of the names underwriting business but the product of a personal voluntary arrangement which the name has affected in order to soften the blow in the event that his underwriting business goes badly. I think this case is a fortiori Napier v Kershaw where the damages at least represented the proceeds of the underwriting business which, but for the negligence, the name would have received or been credited with.
Ouestion (2): Did either of the letters of authority effect an assignment of PSL recoveries to the trustees of the names LPTD?
The first question is what do the operative words of the letters mean? Do they mean, as Lloyds contend, that any recoveries will be paid to the trustees; or do they merely confer, as the names contend, revocable authority on the broker to pay such recoveries as he makes to the trustees?
I think Lloyds are right about this. The undisputed purpose of the letters was to effect an assignment which met the terms of 5.3 of the market bulletin, ie to effect an assignment to the trustees of the rights to the recovery under the PSL. Although the letters are addressed to the brokers, they do not refer to the brokers authority at all. Words would have to be added to give it the meaning the names contend for. Furthermore the names contention renders the word irrevocable meaningless. Old Form 2 is a fortiori since it is clear that this letter is directed to underwriters because the policy number is identified and the letter contains specific provisions dealing with over-payment.
The next question is whether the letters effected a legal assignment of PSL recoveries. Section 136 of the Law of Property Act 1925 requires an
Absolute assignment (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor .
Was there an absolute assignment? The names contend there was not since the recoveries were only assigned until the assureds obligations following solvency have been satisfied. Lloyds contend that the words any recoveries shall be paid effect an absolute assignment; the word until only qualifies the word held.
I accept Lloyds construction: the direction to the underwriter to pay any recoveries is and has to be unqualified since he will have no idea whether and if so when the name has satisfied his obligations following solvency. The held until part must be directed to the trustees, who as the names members agent, will know when such obligations have been satisfied.
On the basis that the assignment is absolute it is common ground that the fact that it is subject to a proviso for repayment in the event of the debt being discharged is not fatal. (See Halsburys Laws 4th Edition paragraph 16 and the cases cited in footnote 14 to that paragraph).
Was it an assignment of a debt or other legal thing in action? Here the names contend that this was an assignment of a future chose and so not within the section. Not so say Lloyds, this was the assignment of an existing contractual right to be paid at a future date and as such it is a present chose. In support of this contention they relied on passages in Halsbury (Ibid paragraphs 14, 32 and 33) and the cases there cited, in particular the judgment of Kitto J in Shepherd v Federal Commissioner of Taxation  ALR 969 at page 976 where he said of a right to receive royalties under a three year contract:
The tree though not the fruit existed at the date of the assignment as a proprietary right of the appellant of which he was competent to dispose .
Such was the case here, in my judgment. The PSL existed although its fruit was uncertain since that was contingent upon the names underwriting result for the year or years in question. So I conclude that the assignment was of a present chose.
Were the letters notice to underwriters? Lloyds submit that the brokers were the agents of underwriters for this purpose. A Lloyds broker is generally the agent of the insured. Whether PSLs were written by brokers holding a binding authority or under a line slip from underwriters does not emerge from the evidence before me, although I would not be surprised if that were the case in which event for some purposes obviously the brokers would be the underwriters agents. Nevertheless, there are clearly other circumstances (eg notification of claims) in which the broker may act as agent of underwriters in this market. It was clearly intended that the letters to brokers were to serve as notice to underwriters and I can see no reason why such intention should not be given effect. The second part of Old Form 2 which contains the obligations assumed by trustees in the event of overpayment must have been received by brokers in their capacity as agent for underwriters and it would therefore be wholly artificial to say that the first part was only received by them in their capacity as agent for the insured.
So I conclude that both Old Form 1 and Old Form 2 effected valid legal assignments of PSL recoveries to the LPTD trustees.
This relieves me of the task of considering whether the letters or either of them constituted a valid equitable assignment. On the basis, however, that the letters took effect as equitable assignments for want of notice to PSL underwriters, I would have concluded that Old Form 2 was such an assignment because it had been communicated to the assignee and the name had done all within his power to effect the assignment so no consideration was required for it (Halsbury Ibid paragraphs 37, 38 and 41) and Old Form 1 would have been such an assignment if communicated to the trustees.
Question (3): Are names estopped from denying that PSL recoveries are eligible assets?
I proceed to consider this (and the subsequent questions) on the basis that not all names signed letters in Old Form 1 or Old Form 2 and/or that my answer to Question 2 is wrong. The amended originating summons defines the question I have to answer as follows:
Whether Mr Morris and/or Mr Kimpton are estopped from denying that monies belonging or payable or hereafter belonging or becoming payable to them by way of recoveries under their personal stop loss reinsurance policies are monies which are subject to the trusts of their respective Lloyds Premiums Trust Deed aforesaid.
It is clear from this question and indeed the way in which Lloyds presented their case that they were relying on an estoppel by representation. What is said is that the name has represented to Lloyds that his PSL recoveries are eligible assets and therefore vested in the trustees of his LPTD. It is not alleged that the name is estopped as against the trustees and so the names contend that any estoppel which can be raised by Lloyds gets them nowhere. It would not have the effect of vesting PSL recoveries in the trustees which otherwise (on this assumption) would not be the case. In her reply Miss Gloster recognised the force of this point and sought to suggest that the estoppel should be considered as some kind of promissory estoppel. Thus, she submitted, that Lloyds as a party to the LPTD could seek to enforce the names obligation to assign PSL recoveries to the trustees and the name would be estopped from denying that he was obliged to do so. I do not think this will do. The names had no opportunity to deal with this change of case: the facts surrounding the submissions of asset returns vary in individual cases and are complicated by the fact that in 1992 attempts were made by various names to withdraw what had previously been said on their behalf by submitting negative asset returns. The ingredients necessary to found a promissory estoppel are, of course, not the same as those required to found an estoppel by representation. I do not think it would be right therefore for me to decide the case on this alternative basis.
The point which I have considered above is, in my judgment, fatal to the case of estoppel which Lloyds pleaded and initially presented before me. Lest I be wrong about this, I will deal shortly with the rest of the case as presented.
Lloyds relied on estoppel in relation to the solvency for both the years 1990 and 1991. In the course of the hearing it appeared that there was no real issue about 1990: PSL recoveries returned during 1991 relating to solvency for the year ending 31st December 1990 had already been collected and paid to trustees in accordance with the letters of authority in Old Forms 1 and 2 and no name was seeking repayment of sums so paid.
For the year ending 1991 however there was an issue: on examination of the facts however it relates to Mr Morris alone. Lloyds contended that the facts might vary from name to name so any decision which I make should be limited to the facts of his case. A decision of such limited value on a lest I am wrong basis gives me further reason for dealing with the point quite shortly.
The solvency procedure is fairly elaborate, involving the submission of prescribed forms by the members agent on behalf of his name at various stages. By June when the names underwriting result is known his solvency can be determined by comparing the result with his eligible assets. It is at this stage that the name may declare anticipated recoveries from stop loss policies as eligible assets under 5.2 or 5.3 of the market bulletin. If there is a shortfall in the names solvency Lloyds earmarks a part of its central fund to make good the deficiency. The members agent is notified of any such earmarking and is required to report further assets by the solvency clearance date, failing which the name will receive a notice of demand from Lloyds. Based on all the returns they receive Lloyds submit a certificate of solvency to the DTI pursuant to section 83(4) of the Insurance Companies Act 1982.
So far as Mr Morris is concerned, on the 12th August 1992 the second Defendants submitted a supplementary asset return showing anticipated PSL recoveries totalling £208,980 under his two policies. That asset return was audited and confirmed to Lloyds by the members agents auditors on the 2nd September 1992. Based on this information, on the same date £55,078 was earmarked by Lloyds in respect of Mr Morris deficiency. Also on the same date Lloyds filed its certificate of solvency with the DTI certifying by its auditors (inter alia) that the value of assets available to meet each underwriting members liabilities in respect of his insurance business is correctly shown in the accounts . On the 16th September 1992 Mr Morris submitted a negative asset return which purported to withdraw his anticipated PSL recoveries from solvency. The solvency clearance date was the 30th September 1992.
In these circumstances Lloyds contend that:
1 Mr Morris supplementary asset return was a clear and unequivocal representation that his anticipated PSL recoveries were eligible assets;
2 They relied on this return in fixing the amount earmarked for Mr Morris deficiency and submitting their certificate of solvency to the DTI; and
3 They suffered prejudice because they underestimated the amounts which should have been earmarked and submitted a false certificate to the DTI.
On behalf of Mr Morris it is contended that the representation, if there was one, was withdrawn on the 16th September, that Lloyds had not relied on it before that date and that they suffered no prejudice because the solvency clearance date was after the 16th September and the DTI certificate was not false in any real sense.
I am in no doubt that the supplementary asset return was a clear and unequivocal representation by Mr Morris that his anticipated PSL recoveries were eligible assets and that Lloyds relied on this representation in the way they contend.
I am not persuaded, however, that Lloyds suffered prejudice as a result of Mr Morris false representation. The solvency clearance date was the important date for fixing a names deficiency. Between the 2nd September and that date Mr Morris could have added further assets to reduce or eliminate his deficiency. By the same token it seems to me that he was entitled to increase that deficiency by saying that assets which had been returned were no longer eligible assets. Although for a short period less of the central fund was earmarked than should have been the matter was not finalised until 30th September 1992. Although the certificate to the DTI was or rather became inaccurate I would not describe it as false. No revised certificate had to be submitted, although it is clear that between the 2nd and 30th September there might have been quite substantial changes of a legitimate nature to the value of the assets certified. No actual prejudice to Lloyds as a result of the issue of the certificate was alleged.
It follows that I do not think that a case of estoppel by representation is made out on the facts.
Question (4): Are stop loss recoveries as a matter of construction subject to the Assignment of Premium Deed?
This Deed which is no longer signed by new names joining Lloyds is made between Lloyds, the Society, and the name, the Candidate, and provides as follows:
1 The Candidate hereby assigns to the Society all moneys which may at any time or times become owing to the Candidate in respect of premiums upon any policies of whatsoever description underwritten by or on account of the Candidate at Lloyds or in respect of salvages upon any such policies or in respect of general average refunds or in respect of claims under any Reinsurance Policies effected by or on account of the Candidate and all other moneys whatsoever at any time during the continuance of the trusts hereby constituted to become payable to the Candidate in connection with the Candidates underwriting business at Lloyds.
3 The Society shall hold any moneys so received (hereinafter called the Trust Fund) upon trust that when and so soon as the Council of Lloyds shall have received notice in writing that the Candidate has made default in paying the Candidates just claims on any Policy the Society shall apply the Trust Fund or so much thereof as shall from time to time be necessary in or towards paying such claims upon such policies of any description underwritten by or on account of the Candidate at Lloyds as the Society shall be directed by the Council to pay
Lloyds argue that PSL recoveries are claims under any reinsurance policies or all other monies whatsoever in connection with the Candidates underwriting business and are therefore subject to the Trust created by this Deed which enables them to direct that the recoveries should be used in payment of the names underwriting losses.
I do not accept this argument for the same reasons as I have given when dealing with Question 1. It would be surprising if by this Deed the name had assigned a wider class of assets than those made the subject of the LPTD. The language of the Deeds is similar although the specific references in this Deed to salvage and general average refunds emphasise, in my judgment, the fact that the underwriting business referred to is the names participation in a syndicate or syndicates. The reinsurance claims referred to are claims on the syndicates reinsurances. PSL recoveries do not fall within the words all monies whatsoever in my judgment.
Question (5): Did the Chairman of Lloyds direction on the 21st February 1992 effect a transfer of PSL recoveries to the trustees of the LPTD?
The direction was as follows:
In exercise of the powers delegated to me on 8 January 1992 pursuant to section 6(6)(b) of Lloyds Act 1982, I, the Chairman of Lloyds and of the Committee of Lloyds, being of the opinion that it is necessary as a matter of urgency that such direction be made, hereby direct Holman Wade Insurance Brokers Limited, a Lloyds broker, to pay all recoveries received by it under any personal stop loss policy placed or managed by it not to the member of Lloyds assured under such policy but to the members agents trustees for the time being of the premiums trust deed of that member relating to the syndicates and years of account to which the policy applied
Section 6 of the Lloyds Act provides:
(1) The Council shall have the management and superintendence of the affairs of the Society and the power to regulate and direct the business of insurance at Lloyds
(6) The Council may, by special resolution, delegate
(b) to the Committee or to the Chairman of the Committee or to a Deputy Chairman of the Committee but not otherwise the giving of directions regarding the business of insurance at Lloyds to any member of the Society, Lloyds broker, underwriting agent, director or partner of a Lloyds broker or underwriting agent or person who works for a Lloyds broker or underwriting agent in such capacity as may be specified by the Council
Lloyds contend that Holman Wade and the names were bound to comply with the direction as a direction having statutory effect and as a matter of contractual agreement (as a term of his being approved to carry on business the broker undertakes to comply with the Lloyds Acts; so does the name in his General Undertaking).
The names contend that the Chairman had no power to make a direction the effect of which was to vary the terms of the LPTD. The deed can only be varied pursuant to Clause 22 which requires, among other things, the prior approval of the Secretary of State. They also contend that the direction was invalid because the Chairman had no power to make it under section 6 since it was not a direction regarding the business of insurance at Lloyds and/or because it was unfair, discriminatory and confiscatory.
The validity of the direction has to be considered on the basis that PSL recoveries were not subject to the LPTD. A direction which required such recoveries to become part of the trust fund does in my judgment have the effect of varying the LPTD. It is no answer to this point to say that the name could have added the recoveries voluntarily. He could, but here the names did not volunteer to do so and Lloyds are seeking to achieve their purpose by compulsion. In any event in the accompanying letter to brokers Lloyds stated that the reason for the direction was that PSL recoveries were subject to the LPTD. They were not therefore intending to vary the deed by the direction. In my judgment they were not entitled to do so other than in accordance with Clause 22 and therefore the direction was invalid.
I need not therefore deal with the names other arguments at any length save to say that I think this was a direction regarding insurance business at Lloyds which could be given to a broker pursuant to the terms of section 6 of the Act. The public law points were not developed fully before me; how far a direction of this kind can go before it is susceptible to challenge on such grounds is a difficult point which I think should be left for decision in a case where the outcome depends upon it.
I answer the questions as follows:
Question (1): Are stop loss recoveries as a matter of construction subject to the trusts of the LPTD?
Question (2): Did either of the letters of authority effect an assignment of PSL recoveries to the trustees of the names LPTD?
Question (3): Are names estopped from denying that PSL recoveries are eligible assets?
Question (4): Are stop loss recoveries as a matter of construction subject to the Assignment of Premium Deed?
Question (5): Did the Chairman of Lloyds direction on the 21st February 1992 effect a transfer of PSL recoveries to the trustees of the LPTD?
Lloyds Legal Department; Michael Freeman & Co