UK: Goshawk v Tyser – Round 2 : Underwriters Strike Back

Last Updated: 15 February 2006
Article by Stephen Netherway

The Court of Appeal has now delivered the eagerly awaited judgment in the case of Goshawk Dedicated Ltd and Others v. Tyser & Co Ltd and Another [2005] EWHC 461 (Comm). The Lloyd’s Syndicate underwriters ("the Syndicates") had appealed the High Court decision that the defendant brokers ("the Brokers") had no obligation to produce to a Lloyd’s Syndicate placing and claims documents that had previously been produced to underwriters, but which the broker retained. The Court had also ruled that there was only a limited obligation to produce accounting documents for inspection.

In unanimously reversing the High Court decision, and upholding the Claimant Syndicates’ appeal, the Court of Appeal have now ruled authoritively that in the Lloyd’s market there has at all relevant times been a term implied in the insurance contracts between underwriters and insureds to this effect: that placing and claims documents which have been previously shown to underwriters, and premium accounting documents which are necessary to the operation of the contract, where retained by the Insureds’ Lloyd’s brokers, should be available to underwriters in case of reasonable necessity.

Furthermore, consequential to such a finding, and prior to any TOBA being entered into by the relevant parties, business necessity also required that there should be a contract held to exist directly between the Lloyd’s broker and Lloyd’s underwriters concerned, to the effect that the Lloyd’s broker was obliged to perform that duty undertaken by its principals, the insureds, namely to make available the documents necessary for the effective performance of the insurance contracts concerned.

To view the article in full, please see below:


Full Article

The Court of Appeal has now delivered the eagerly awaited judgment in the case of Goshawk Dedicated Ltd and Others v. Tyser & Co Ltd and Another [2005] EWHC 461 (Comm). The Lloyd’s Syndicate underwriters ("the Syndicates") had appealed the High Court decision that the defendant brokers ("the Brokers") had no obligation to produce to a Lloyd’s Syndicate placing and claims documents that had previously been produced to underwriters, but which the broker retained. The Court had also ruled that there was only a limited obligation to produce accounting documents for inspection.

In unanimously reversing the High Court decision, and upholding the Claimant Syndicates’ appeal, the Court of Appeal have now ruled authoritively that in the Lloyd’s market there has at all relevant times been a term implied in the insurance contracts between underwriters and insureds to this effect: that placing and claims documents which have been previously shown to underwriters, and premium accounting documents which are necessary to the operation of the contract, where retained by the Insureds’ Lloyd’s brokers, should be available to underwriters in case of reasonable necessity.

Furthermore, consequential to such a finding, and prior to any TOBA being entered into by the relevant parties, business necessity also required that there should be a contract held to exist directly between the Lloyd’s broker and Lloyd’s underwriters concerned, to the effect that the Lloyd’s broker was obliged to perform that duty undertaken by its principals, the insureds, namely to make available the documents necessary for the effective performance of the insurance contracts concerned.

Factual background

The background facts concerned "viatical" business that was insured by the Syndicates. Viatical companies purchase life assurance policies of the terminally ill or those over 65 at a discount, with a view to profiting from the payout upon death in the event that the sum assured exceeds the purchase price of the policy and the premiums paid to keep it in force thereafter. The risk insured by the Syndicates was the possibility that payment was delayed or was never paid at all because the life assured outlives the terms of his term insurance. The insurance put in place was a form of contingent cost insurance.

In this case such insurance business was placed with the Syndicates by the Brokers both directly and also indirectly via the Syndicates' appointed underwriting agents who, from 2000 onwards, held a binding authority granted by the Syndicates.

The dispute arose because the Syndicates went into run-off and the run-off managers sought access to placing, claims and premium /accounting documents in order to manage the run-off. The Brokers in fact provided a substantial quantity of this material to the Syndicates where relevant client assureds they had contacted gave their consent. However, in some cases the Brokers could not get such client consent and in many cases clients were uncontactable or unresponsive. In these instances, the Brokers refused the Syndicates access to documents relevant to these assureds (notwithstanding that the Syndicates had in many cases already seen the documents in issue or these had been made available to them, or had even been mentioned in the relevant slips) fearing that they might be sued if they volunteered the documentation without their client's express agreement.

The position was also complicated by the fact that on 20 December 2001 the Syndicates and the Brokers entered into a Terms of Business Agreement ("the TOBA") in which, by clause 8.1, the Brokers agreed that they would make the following available for inspection on reasonable notice:

"8.1.1 the accounting records pertinent to any insurance business including information relating to the receipt and payment of premiums and claims and documentation such as any insurance contract or slip endorsements, addenda or bordereaux in the possession of [the Brokers] relating to that business; and

8.1.2 documents as may be in the possession of [the Brokers] which were disclosed to [the Syndicates'] managing agent by [the Brokers] in respect of any insurance business including, but not limited to, documentation relating to the proposal for the insurance business, the placing thereof (including endorsements and reinstatements) and any claims thereunder.

Clause 2.2 of the TOBA also stated that

"Nothing in this Agreement overrides [the Broker's] duty to place the interests of its client before all other considerations nor shall this Agreement override any legal or regulatory requirement (whether obligatory or advisory) which may apply to [the Brokers], [the Syndicates], or the placing of any insurance business."

The issues before the Courts

Both the High Court and the Court of Appeal considered the various relevant Lloyd's and Insurance Brokers Registration Council codes of practice for brokers issued since 1988 that addressed the production of brokers' papers. Both Courts noted provisions in these to the effect that brokers were to place the interests of their clients above all other considerations, and to oblige brokers not to use or disclose any information acquired by them from clients other than for use in the normal course of negotiating, maintaining or renewing a contract of insurance for such clients -unless the consent of the respective client concerned had been obtained or if the production of that information was ordered by a Court.

Also noted by both Courts was the fact that a guidance note annexed to the draft market model form TOBA agreement that was issued prior to the execution of the TOBA in this matter also stated that a broker had a duty of confidentiality, and could not grant third parties access to documents without an assured's permission. That note also proceeded to comment that as an exception "pursuant to London market practice" a managing agent was entitled to see documents that they saw at the time of placing.

Both parties put expert evidence before the High Court. For the Syndicates, expert underwriting evidence was put forward to the effect that it was "an accepted and understood market practice" that underwriters were entitled to require the production to them of copies of any documentation made available by the brokers at placing and remaining on the brokers' files (indeed as later expressly reflected by the terms of paragraph 8.1 of the TOBA). Furthermore, it was "the custom and practice" of the Lloyd's market that underwriters could call for claims files at any time even if a loss had been settled, otherwise the market would not work.

For the Brokers, expert broking evidence was called to the effect that where an underwriter did not retain copies of placing information that was shown to him at the time of placing, a broker would indeed make such documents available to the underwriter upon request, but subject to the qualification that a broker might not do so if the broker's client expressly forbade that act or if the broker thought that the request was not in the best interests of his principal. As to claims files, brokers should produce to underwriters any report or other document that had been paid for by the underwriters concerned but, in relation to other documents, the position was the same described above. In summary the expert broking evidence called was that the interests of a broker's client was paramount, even if they conflicted with an undertaking that the broker may have given to the underwriter.

The Syndicates’ legal argument before the High Court was focused on whether, as the Syndicates then contended, prior to the execution of the TOBA, there was an implied obligation between the Syndicates and the Brokers, based if necessary on a long established market practice and the custom of Lloyd's, that the Brokers would allow the Syndicates access to information which they did not have, but which had hitherto been produced or made available to them and which the Brokers had retained on their placing and claims files; after the execution of the TOBA, the Syndicates relied upon clause 8.1 as expressly conferring upon them such rights of access. These contentions were denied by the Brokers who maintained that there was no such unfettered right to compel production, whether before or after the execution of the TOBA.

Argument before the Court of Appeal

Before the Court of Appeal the Syndicates put their case on a different basis from that argued before the High Court, namely they argued that in the Lloyd’s market there was an implied term in the contract of insurance on grounds of business necessity entitling underwriters to reinspect documents that brokers had shown underwriters in the course of placing the reinsurance or in the course of making claims under it, as well as inspecting documents that the Brokers held which would enable the premium to be checked or calculated. Additionally and consequently, the Syndicates argued that there was a contract between the Brokers and the Syndicates that obliged the Brokers to produce such documents.

The Syndicates made the following points, among others, in support of its case:

  1. No confidentiality issues arose in respect of the documents.
  2. It could not be sensibly said that it was against an insured’s interests for the Syndicates to see what it had seen before.
  3. It was better for the Syndicates to be guided by what the documents said when reviewing matters rather than mere recollection.
  4. In a contract of good faith, all documents presented to underwriters as part of the placing were necessary for a true appreciation of the contract.
  5. The contract of insurance simply could not work without the Syndicates having available all such documents.
  6. The practice of the Lloyd’s market, which was "idiosyncratic", was the background to necessity for such terms to be implied.

vii) Whilst the accounting documents had not been seen before, Clause 8.1 of the TOBA placed such documents into the same category as placing and claims documents.

It was not suggested the term operated where underwriters had retained the documents, but in the present case they had not.

The Society of Lloyd’s also intervened in the Appeal and made submissions of its own at the hearing supportive of the Syndicates’ arguments.

On the other hand the brokers contended that the alleged implied term was unnecessary, unreasonable and so impermissible. Additionally, they pointed out that the Syndicates’ requests were reasonably believed to be a prelude to an attempt to find reasons to decline liability, and to create litigation. It was a device to avoid the procedural code for disclosure. As for claims documents, paid claims were a "closed book"; premium accounting documents had never been introduced to underwriters.

The decision of the Court of Appeal and the Court's reasoning

The High Court was not persuaded that prior to the execution of the TOBA on 20 December 2001, there was any contract or obligation by market practice or custom or otherwise to be inferred or implied between underwriters and brokers in the Lloyd's market to require the Brokers to produce such documents to the Syndicates without client instructions. So far the TOBA was concerned, and its impact on the legal position, Christopher Clarke J considered it was necessary to focus upon not only terms of the access to records clause, clause 8.1, but also the terms of clause 2.2. The Judge concluded that clause 2.2 was capable of "trumping" the terms of clause 8.1 in appropriate situations, so that even after the execution of the TOBA, the Brokers were not contractually obliged to grant the Syndicates access to any of these categories of documents if, to do so, would be inconsistent with the broker's duty to place the interests of his client before all other considerations. He did rule that some limited premium accounting documents should be produced.

The Court of Appeal, for whom Rix LJ gave the judgment of the Court, accepted the Syndicates reformulated case, namely the implied term requiring the Insured to permit re-inspection of documents retained by the Broker and the contract between the Brokers and the Syndicates contended accordingly.

Rix LJ viewed it as "critical" that in a market (the Lloyd’s market) where traditionally the placing and claims documents shown to underwriters are kept by brokers and not underwriters, there is an implied obligation in the insurance contract itself that those documents should be made available to underwriters where that is reasonably necessary. There was however no obligation to provide such underwriters with what they had already got, or to provide what the brokers had not retained.

Rix LJ was not persuaded that motivation for the request by the Syndicates was a relevant consideration (absent bad faith) : in commercial matters, he decided "a simple rule is best". The documents in question were those already seen by underwriters or necessary to the working out of premium. In his view it was undesirable to compel parties to litigation simply in order for them to know what their contractual rights and obligations are.

Rix LJ considered that the post TOBA period in issue presented no problem. There was a contract between the Brokers and the Syndicates which, by Clause 8.1, obliged the Brokers to produce these very documents in issue. If, as he held, there was an implied tem in the contract between the Brokers’ clients and principals (the assureds) to the effect that such documents retained in the possession of these Brokers should be disclosed to the Syndicates, there was no conflict between Clauses 8.1 and 2.2. It was not necessary for him to consider whether, in terms, Clause 2.2 indeed "trumped" 8.1, and he did not do so – save to observe that he considered this question as very much an "open one".

He also held that in his judgment it was the business necessity that required there should be a contract created directly between the Brokers and the Syndicates to give effect to the Brokers obligations to the Syndicates in this regard. Indeed, he observed, it was for that reason that the standard form of TOBA was created, to formulate the terms on which underwriters and brokers deal with one another. He viewed it as unrealistic to suppose that there was no contract between them prior to the TOBA.

Comment

The initial High Court decision caused much comment within the market. Round 2 will do so likewise. Whether there is a "Round 3" will depend on whether the House of Lords grants permission to appeal (the Court of Appeal refused permission).

This is certainly a highly relevant case for all brokers and underwriters/insurers alike to consider. Although the instant case was addressing the confines and context of the Lloyd’s market, it will certainly be a first reference point for any general market dispute between insurers and brokers concerning document production.

It should be noted that the premise of the Court of Appeal’s decision appears to be that there was a common and habitual practice in the Lloyd’s market regarding document retention by brokers, which justified the imposition of an implied term and contract between brokers and underwriters on the basis of business necessity.

The Court clearly thought that in circumstances where documentation is retained in London with brokers, it would be highly un-businesslike to suppose that parties contracted on the basis that an underwriter would need to apply direct to a brokers’ client, wherever they were in the world, in order to obtain (again) sight of documentation needed that was in the possession of the brokers.

Rix LJ also clearly considered that the insurance context, where good faith operates, supported the Court’s conclusions.

Obviously this is a reversal of the legal position as stated following the High Court decision last year – to the extent working practices and procedures have been modified by that High Court decision, then these will need to be further reviewed.

Finally, it will also be interesting to see whether the finding of a contract between a broker and an underwriter in the Lloyd’s market in this regard, will be used as a basis for the further extension by the Courts in due course regarding duties owed directly by brokers to underwriters/insurers.

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 07/02/2006.

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.