R E BROWN & ORS v G I O INSURANCE LTD (1998)
INSURANCE - CONTRACT - COMMERCIAL
REINSURANCE : ORIGINATING CAUSE : EVENT : REASSURED'S DECISION
Whether the effect of clauses in re-insurance contracts was such as to leave to the reassured (subject always to considerations of good faith and reasonableness) the decision as to what constituted the event out of which any loss or series of losses for which he had to accept liability as the primary insurer could be said to arise. If so, whether the decisions which the plaintiff reached on that matter were vitiated on grounds that they were unreasonable or whether he misdirected himself as to what it was that he had to decide.
Syndicate 702 represented by the plaintiff underwrote proportions of the Lloyds Agents E&O line slips for the years 1988-91. These included Members' Agents whose Names were placed on the Gooda Walker and Feltrim syndicates who underwrote LMX business. By judgments of Phillips J in Deeny v Gooda Walker (1994) and Arbuthnot v Feltrim (1995) the Members' Agents were held liable to the Names. The agents claimed indemnity under the E & O cover from, inter alia, Syndicate 702. The agents' cover was on the basis of a limit of indemnity "any one occurrence or series of occurrences arising from one originating cause". In Cox v Bankside Members' Agency (1995) Phillips J held that the Gooda Walker losses arose from three originating causes. On that occasion the underwriters argued for one originating cause. The Names argued for four originating causes and Phillips J held that there were three, viz each underwriter's approach to underwriting. Having paid claims Syndicate 702 claimed against the defendants in these proceedings under four excess of loss re-insurance contracts providing for an Excess and Limit of Liability to be calculated on the basis of "each and every loss and/or series of losses arising out of one event". In each contract there was a Special Condition 9 which provided that the re-assured (ie the plaintiff) was to be the sole judge as to what constituted each and every loss and/or one event. The issue on appeal was whether the plaintiff was entitled to advance a claim on the basis that losses which could be attributed to the same originating cause, were, in the particular events which had occurred, losses arising out of one event. In order to determine that issue it was necessary to answer two questions. (1) Whether the effect of special conditions 9 of the re-insurance contracts was such as to leave to the reassured (subject always to considerations of good faith and reasonableness) the decision as to what constituted the event out of which any loss or series of losses for which he had to accept liability as the primary insurer could be said to arise. (2) If so, whether the decisions which the plaintiff reached on that matter were vitiated on grounds that they were unreasonable, or alternatively that the plaintiff misdirected himself as to what it was that he had to decide.
HELD: (1) As a matter of construction, the parties to the re-insurance contracts did intend by special conditions 9 that the re-assured should be entitled to decide whether losses or a series of losses for which he had to accept liability as primary insurer arose out of a single event. Such matters were suitable for decision by an experienced underwriter having a full knowledge of the circumstances of each case and therefore such a provision made commercial sense. (2) A provision which made the re-assured's definition of an event final and binding on the re-insurers was consistent with an intention that the reassured should decide mixed questions of fact and law. (3) The courts should be slow to strike down a sensible commercial bargain made between experienced parties in the absence of an identifiable element of public policy which requireD that to be done. (3) No rule of public policy prevented parties from agreeing to submit to the final and conclusive decision of a third party some issue which involved questions of construction or of mixed fact and law (Nikko Hotels (UK) Ltd v MEPC plc (1991) approved and see The Glacier Bay (1995) 1 Ll Rep 560 and (CA) (1996) 1 Lloyd's Rep 370). (4) The jurisdiction of the court was not ousted by such an agreement provided that the agreement allows the court to interfere if the decision-making party has acted unreasonably, perversely or in bad faith. (5) When considering the plaintiff's decision, the test was as follows: If he had answered the right question in the wrong way his decision would be binding. If he had answered the wrong question his decision would be a nullity. (6) Whilst the plaintiff was prepared to disagree with Mr Justice Phillips' in Cox v Bankside that the answer to the question "how many events" was the same as the answer to the question "how many originating causes", he recommended, in a spirit of goodwill and flexibility, that the claim be presented as arising from "three events". He did not misdirect himself as to what it was he had to decide. (7) Although the HL in Axa Reinsurance v Field (1996) had made it clear in respect of insurance policies that did not have wordings equivalent to Special Conditions 9 that the answer to the question "how many originating causes" was not necessarily the same as the answer to the question "how many events" they did not decide that the answers could never be the same and did not rule out the possibility that in other circumstances on different facts they might well be. Therefore the plaintiff's answer, which was wholly consistent with the reasoning of Phillips J in Cox v Bankside, was reasonable and one which he was entitled to reach. The court did not need to decide whether it would reach the same answer.
Sydney Kentridge QC and Andrew Popplewell QC instructed by Barlow Lyde & Gilbert for the appellants. Jonathan Hirst QC and Michael Swainston instructed by Clyde & Co. for the respondents.
LTL 6/2/98 : TLR 18/2/98 : (1998) CLC 650 : (1998) Lloyd's Rep IR 201
Document No. AC8600113