SOCIETY OF LLOYD'S (Respondent) v WAYNE KIRK ROBINSON (Substituted Appellant) & ANOR (1999)

HL (Lords Browne-Wilkinson, Woolf MR, Steyn, Hope and Hutton) 25/3/99

INSURANCE - DAMAGES - CONTRACT - NEGLIGENCE - TRUSTS

LLOYD'S NAMES LITIGATION : LLOYD'S UNDERWRITING CLAIMS : PREMIUM TRUST DEED : FUND : AMENDMENT : NAMES : STOP LOSS : NEGLIGENT ADVICE : COMPENSATION : NEGLIGENT UNDERWRITING

The Premium Trust Deed at Lloyd's had been validly amended with the effect that three types of damages within the Lloyd's litigation fell within clause 2(a)(i) of that deed, being the clause which went towards defining the Trust Fund.

Appeal by a representative Name at Lloyd's ('R'), who was substituted in place of Woodard following the decision in Napier & Ettrick v Kershaw & Ors : Society of Lloyd's v Woodard & Anor (1996) TLR 7/11/96 and the settlement agreement reached by many other Names in previous litigation. The appeal raised three key questions as to interpretation of clause 2(a)(i) of the Premium Trust Deed ('PTD') which each Name had to execute, and the court's conclusions would affect whether certain recovered sums were to be claimed by Lloyd's as part of a trust fund, or the Names, where clause 2(a)(i) stated that the Trust Fund should consist of "all premiums and other monies whatsoever... now belonging or payable or hereafter at any time belonging or becoming payable to the Name in connection with the Underwriting...".

The three questions were whether:

(1) damages awarded to a Name against his managing agent as compensation for negligent underwriting were caught by clause 2(a)(i);

(2) clause 2(a)(i) covered damages for negligent advice about personal stop loss insurance;

(3) clause 2(a)(i) covered damages for negligent advice by the members' agent about syndicate selection.

R sought a negative answer to those three issues, whereas Lloyd's as respondent ('L') sought an affirmative answer to all three (so that the monies identified would be captured under the PTD).

It was also highly relevant that in purported exercise of its power to amend the PTD under clause 22 thereof, a new sub-clause had been introduced into clause 2 by which the recoveries of litigation by Names were explicitly (and not by reference to questions 1, 2 and 3) made subject to clause 2(a)(i). The validity of that amendment ('the amendment') was the subject of a further question below. That question only arose if L failed on any of the first three issues, and the question also formed the basis of a cross-appeal by L.

(4) Question 4 was: whether amendments purportedly made to the PTD in 1995, which undoubtedly covered the categories of damages described in questions 1, 2 and 3 above, were validly made under clause 22.

The court in this unanimous judgment was led to find decided per incuriam the case of Napier & Ettrick (supra), and also to consider in detail inter alia Society of Lloyd's v Morris (1993) 2 Re LR 217 and Deeny v Gooda Walker Ltd (No.2) (1996) 1 WLR 426.

HELD: (1) Question 1: in Napier (supra) it was decided that clause 2(a)(i) was inapplicable to such damages. It had been implicit in the reasoning expressed by Saville J that a Name conducted more than one business at Lloyd's but in Deeny (supra), although it was not expressly stated that Napier (supra) had been wrongly decided, it was held that a Name carried on one business at Lloyd's, and not two, and the reasoning of Lord Hoffmann on the point was clear and unanswerable. It was not possible to rely on the niceties of the phrasing "monies... becoming payable to the Name in connection with the underwriting" in order to make the decision in Napier (supra) supportable, and a contextual construction was appropriate which must consider these two key factors: (i) a central purpose of clause 2(a)(i) was to protect policyholders in the interests of the integrity of the Lloyd's market and that protection would be weakened if damages for negligent underwriting were not covered; (ii) damages for negligent underwriting were in law and reality the surrogate of the receipts produced by proper underwriting and one would expect no difference of treatment under the trust of the two categories of monies payable to a Name. Further, although the Court of Appeal in Morris (supra) expressly approved Napier (supra), the real difficulties inherent in the reasoning of Napier (supra) were not explored and it would be wrong now to perpetuate the error in Napier (supra). Thus the Napier case was wrongly decided and damages for negligent underwriting were covered by clause 2(a)(i).

(2) Question 2: this matter was directly in issue in the Morris case (supra), in which it was decided that clause 2(a)(i) was inapplicable to the receipts from stop loss insurance. It was clear that the proceeds of reinsurances arranged by a managing agent for a syndicate fell within the trust but receipts of personal stop loss cover taken out by a Name did not, and that distinction was affirmed in Deeny (supra) though not strictly part of the ratio of that case. The court would not therefore depart from Morris (supra) and the answer to this issue was that the insurance identified was not covered by clause 2(a)(i).

(3) Question 3: membership of a syndicate came about by entering into an annual contract, renewable year by year. Until an individual joined a syndicate his underwriting activity could not be taken to have started, and therefore advice on choice of syndicate pre-dated commencement of underwriting: questions relating to selection of syndicates were distinct from underwriting through a syndicate and damages of the kind identified were not therefore within the contemplation of clause 2(a)(i).

(4) Question 4: since the three questions could not all be answered in the negative as R sought, the appeal by R failed. However, since questions 2 and 3 had also been answered adversely to Lloyd's, it was necessary to proceed to considering the argument on cross-appeal: that the 1995 amendments effectively resulted in all three categories of damages (as identified in questions 1-3 above) being caught by the PTD. The issue was whether the amendment was validly made under clause 22, upon which issue the Court of Appeal had been divided. However, although it was right to consider some of the limitations relevant to the power to amend, nevertheless it would be going too far to say that a power of amendment of the kind in issue could never be exercised to alter rights, or, specifically, to bring a new class of property within the scope of a trust. Furthermore, the court was persuaded by the reasoning of Hobhouse LJ in the court below, which identified that the purpose of the trust deed was served by the amendment in this exceptional set of circumstances. The conclusion was that the amendments were within the scope of clause 22 and were validly made; and it followed that all three categories of damages identified earlier were subject to the trust in clause 2(a)(i).

Appeal by R dismissed. Cross-appeal by L allowed.

Nicholas Underhill QC and Adam Tolley instructed by Grower Freeman & Goldberg for the representative underwriter. Jules Sher QC, John Child and Joanne Wicks instructed by Simmons & Simmons for Lloyd's.

LTL 25/3/99 : TLR 29/3/99 : (1999) 1 WLR 756 : (1999) CLC 987

Judgment Transcript - 13 pages

Document No. AC7600210