UK: Minimum and deposit premium: is the reinsurance broker entitled to be paid brokerage twice?

Last Updated: 30 January 2006
Article by Daniel Booker

In a recent judgment of the Court of Appeal (G Absalom (on behalf of all members of Lloyd’s Syndicate 957) v. TCRU (formerly known as Monument Insurance Brokers Ltd) it was held that a broker who had arranged reinsurance providing for payment by the reinsured of a minimum and deposit premium, was only entitled to be paid brokerage on first, the deposit premium and, second, the total adjusted premium (also known as the minimum) taking into account the deposit premium already paid. In other words, the broker was not entitled to claim brokerage on the deposit premium twice.

Reinsurance facilities often provide for payment by the reinsured of a minimum and deposit premium. The deposit premium is usually a fixed amount payable either at the inception of the contract or in instalments. Further amounts will become payable later on a fixed date or dates based on an adjustment applied to, for example, net premium income written to the facility. This is usually subject to a minimum adjustment.

In this case the brokers, Monument, argued that they were entitled to be paid 15% brokerage based on the deposit premium and, in addition, brokerage on the total adjusted premium which amount included the deposit premium that had already been paid. At first instance it was held that Monument were only entitled to brokerage on the deposit premium as it became payable and on the minimum premium as the premium came to be adjusted, taking into account the deposit premium already paid. Monument appealed. The Court of Appeal recently dismissed Monument’s appeal, effectively holding that Monument were not entitled to receive brokerage on the deposit premium twice.

In reaching its decision the Court of Appeal confirmed that, when interpreting clauses in insurance policy wordings, the courts will not review the wording in a vacuum and will take into account relevant admissible background material. The courts will not however allow evidence to be given concerning the negotiations and subjective intent of the parties. In this case the Court of Appeal held that the ordinary and natural meaning of the brokerage clause, when viewed against the background of the premium clause, did not entitle the reinsurance brokers to recover brokerage on the deposit premium twice.

To view the article in full, please see below:


Full Article

In a recent judgment of the Court of Appeal (G Absalom (on behalf of all members of Lloyd’s Syndicate 957) v. TCRU (formerly known as Monument Insurance Brokers Ltd) it was held that a broker who had arranged reinsurance providing for payment by the reinsured of a minimum and deposit premium, was only entitled to be paid brokerage on first, the deposit premium and, second, the total adjusted premium (also known as the minimum) taking into account the deposit premium already paid. In other words, the broker was not entitled to claim brokerage on the deposit premium twice.

Reinsurance facilities often provide for payment by the reinsured of a minimum and deposit premium. The deposit premium is usually a fixed amount payable either at the inception of the contract or in instalments. Further amounts will become payable later on a fixed date or dates based on an adjustment applied to, for example, net premium income written to the facility. This is usually subject to a minimum adjustment.

In this case the brokers, Monument, argued that they were entitled to be paid 15% brokerage based on the deposit premium and, in addition, brokerage on the total adjusted premium which amount included the deposit premium that had already been paid. At first instance it was held that Monument were only entitled to brokerage on the deposit premium as it became payable and on the minimum premium as the premium came to be adjusted, taking into account the deposit premium already paid. Monument appealed. The Court of Appeal recently dismissed Monument’s appeal, effectively holding that Monument were not entitled to receive brokerage on the deposit premium twice.

In reaching its decision the Court of Appeal confirmed that, when interpreting clauses in insurance policy wordings, the courts will not review the wording in a vacuum and will take into account relevant admissible background material. The courts will not however allow evidence to be given concerning the negotiations and subjective intent of the parties. In this case the Court of Appeal held that the ordinary and natural meaning of the brokerage clause, when viewed against the background of the premium clause, did not entitle the reinsurance brokers to recover brokerage on the deposit premium twice.

The facts

Monument placed on behalf of the Syndicate a number of excess of loss reinsurance contracts and burning cost contracts. The Syndicate issued proceedings against Monument seeking recovery of over $8 million in claims that Monument had collected on the Syndicate’s behalf. Monument resisted onward payment of the claims to the Syndicate arguing that it was entitled to bring into account a number of claims for brokerage against the Syndicate either by way of net accounting or set-off. Monument claimed total brokerage due to it of $9.2 million.

The issue

Monument’s claim was predicated on the brokerage actually being due. The court at first instance looked at four preliminary issues to determine whether the brokerage was due to Monument. Preliminary issue one, which was the subject of the appeal, was phrased as follows: "Do the terms of the reinsurance contracts …on their proper construction entitle [Monument] to charge brokerage on both (a) the deposit premium, and (b) the total adjusted premium (without deduction of the deposit premium)?"

The argument on the proper amount of brokerage due turned on the clause: "Brokerage: 15% applicable to deposit premium and minimum rate." Monument argued that the natural and ordinary meaning of this clause was that brokerage was payable on both the minimum amount of premium payable and, in addition, also on the deposit premium. This argument was principally based on the use of the word "and" in the brokerage provision which, the brokers argued, had to be read as being conjunctive and cumulative.

The Syndicate disagreed and pointed out that the reinsurers were not entitled to be paid both the deposit premium and the full amount of the adjusted premium without taking account of the deposit premium already paid. It was also submitted on behalf of the Syndicate that the use of the word "and" did not mean that Monument could keep brokerage on both the deposit premium and the minimum rate; it simply meant that the same rate applied to both.

Another argument put forward by Monument related to what they said would be the relative under-remuneration of the brokers in a soft market. Monument argued that the large "swing" (or disparity) between the minimum (10% of the net premium income of the underlying facility) and maximum (35% of the NPI) premiums payable, would lead to the brokers being under-remunerated. In light of the premium clause, which provided that "the minimum payable premium in all" is equal to "10% of the net premium income written under the Master Lineslip Facility", Monument were only entitled to brokerage on the minimum premium payable (15% of 10% of net premium income). Moreover, total premium payable would depend on the claims generated on the reinsurance.

The result

The court agreed with the Syndicate on construction of the brokerage clause and disagreed with Monument that this produced an absurd result which under-remunerated the brokers. When looked at as a whole complex of contracts, the court found that the brokers were not receiving an uncommercial rate of commission.

Monument appealed

The Court of Appeal dismissed the appeal and, for the same reasons as the judge at first instance, found that Monument were not entitled to claim brokerage twice in respect of the deposit element of the premium. One appeal judge commented that a deposit is a part payment, usually in advance, of what is expected eventually to be a greater amount. It was not the case that the deposit would be paid twice and it followed that the brokers should not be entitled to brokerage in respect of it twice.

Comment

While this decision is an unwelcome outcome for the brokers who perceived that they were under-remunerated where the minimum premium was adjusted based on net premium income. It would however appear that on the facts of the case common sense has prevailed in this instance.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 30/01/2006.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.