European International Reinsurance Company Ltd v Curzon Insurance Ltd & Ors

This is an appeal from a decision of Gross J in which he dismissed applications on the part of three Part 20 defendants to set aside leave which had been previously granted to join them to Part 20 proceedings.

In the United States of America the concept of a class action has developed further and faster than it has in England. Courts can, in appropriate cases, require any potential litigant who has a claim similar to a number of other litigants to join a defined class, if he is to recover any compensation at all. There are and have been numerous claimants suffering from asbestosis and other illnesses caused by asbestos and products containing asbestos. Turner and Newall or T&N Plc as they are now known (“T&N”) were one of a number of asbestos producers who became members of a group known as the Centre for Claims Resolution (“the CCR”). Faced with enormous numbers of claims, of substantial amounts, T&N, together with other members of the CCR, were able to procure an order from the District Court of the Eastern District of Pennsylvania certifying the existence of a class of plaintiff who had claims for asbestos-related bodily injury caused by occupational exposure to products of asbestos manufacturers who had not filed law suits by 15th January 1993. This class became known to those interested in asbestos litigation history as “the Georgine class”. A month later on 21st September 1994 the same court granted an injunction prohibiting all members of the Georgine class from pursuing independent claims in tort against members of the CCR. On 10th May 1996, however, the Court of Appeal for the Third Circuit decided that the Georgine class should not have been certified and discharged the injunction.

This was bad news for T&N since there was now no limit to the litigation to which they could be exposed in America. They therefore set about trying to obtain insurance and reinsurance above the level which they were themselves prepared to retain. One of the pieces of information critical to the obtaining of such insurance was an assessment of the number of claims that might be made. One phenomenon relevant to this calculation was sometimes known as “the Georgine surge”, viz the number of persons who would be able to bring proceedings after the lifting of the Georgine injunction. T&N’s insurance brokers were the First Part 20 Defendant in these proceedings, Sedgwick Ltd (“Sedgwick”). They dealt with actuaries providing services to potential reinsurers. In about November 1996 the CCR produced to the actuaries an estimate of an extra 30,000 claims as a result of the Georgine surge. That was not, however, the only estimate. A different estimate was made in what has become known as the Mendes and Mount report compiled by, among others, the law firm of that name and dated 28th August 1996. Its contents became known on the London market soon thereafter and it calculated that there might be as many as 70,000 new claims which could be filed before the end of 1996 as a result of the discharge of the Georgine injunction. That estimate has, it is suggested, proved to be considerably more accurate than the CCR estimate.

In 1996 T&N sought insurance to cover a number of risks, including the risk of liability for claims made after 1st July 1996 against T&N and certain of its subsidiaries for personal injury caused by exposure to their asbestos products.

By a contract in writing, dated 20th September, 1996 (“the letter of engagement”), Coblence & Warner, New York attorneys acting on behalf of T&N engaged Sedgwick to provide various broking services in relation to the proposed insurance.

The letter of engagement provided, inter alia:-

Between September and November 1996, a Mr Hammond and a Mr Herrick held discussions on behalf of T&N with various insurers and reinsurers investigating the possibility of developing and executing the proposed cap for asbestos liabilities. Mr Hammond and Mr Herrick took personal control of the negotiations with the insurers and reinsurers and were, it is said, entrusted by Sedgwicks with nearly the whole of the task that Sedgwick were engaged by T&N to provide. At all material times, the third Part 20 defendant Sedgwick OS Ltd (“SOL”) was the employer of Mr Hammond and Mr Herrick was employed by the Fourth Part 20 Defendant, Marsh USA Inc (“Marsh”). Their activities included initial meetings with underwriters to explain the scope of the cover, various further meetings and communications and a specific meeting held on 22nd November 1996, between (amongst others), Mr Hammond, Centre Re, Swiss Re and Munich Re “to finalise the insurance and reinsurance arrangements.” Additionally, Mr Herrick co-ordinated the “finalisation of the draft policy wording”, as evidenced, inter alia, by a memorandum from him to reinsurers’ representatives, dated 27th November 1996.

On or about 22nd November 1996, it was decided that the insurance should be structured as follows: (a) a company called Curzon Insurance Ltd (“Curzon”) owned by T&N would issue a policy of insurance covering T&N and its relevant subsidiaries, (b) the proposed underwriters would act as reinsurers and would enter into a facultative reinsurance of the Curzon insurance policy for 100 per cent of the risk written by Curzon.

It is alleged (paragraph 9 of Amended Particulars of the Part 20 Claim) that from around 22nd November 1996, Sedgwick and/or the second Part 20 defendant (“SRS”), a Sedgwick subsidiary, undertook to act and acted as brokers on behalf of Curzon in connection with the placing of the reinsurance. It is further alleged that Sedgwick, SRS, Mr Hammond and Mr Herrick voluntarily assumed responsibility to Curzon in connection with that placing, by acting for Curzon in dealings with the reinsurers in connection therewith, knowing that Curzon would rely on them as professional insurance brokers to exercise reasonable care and skill in that regard. These allegations are particularised in the following terms:

It is further said that from about the 21st or 22nd November 1996, Messrs Hammond and Herrick acted for Curzon as its brokers in relation to the placing of the reinsurance and took instructions from Curzon in this regard “as prospective reinsured and as their client”. Messrs Hammond and Herrick were in all such respects acting in the course of their employment by SOL and Marsh respectively, so that SOL and Marsh:-

In the event, on or about 25th November 1996, EIR became reinsurers instead of Swiss Re and agreed to reinsure Curzon for one third of the risk to be assumed under the insurance contract. By this time, the two other reinsurers were already in place, Centre Re and Munich Re having already signed a reinsurance slip on the 22nd November 1996.

Also on 25th November 1996, Mr Easton of SRS sent, it would seem twice, once by fax and once under cover of a letter of the same date, to Mr Powell of Curzon, both the insurance and reinsurance slips plus the draft policy wording. Mr Easton asked Mr Powell to sign and date Curzons’s line of 100% on the insurance slip marking beneath his signature words to the effect of “subject to 100% R/I at Inception Date”.

Mr Powell duly signed: accordingly, Curzon became the 100% insurer of T&N (and its subsidiaries and subsidiary undertakings) in respect of the insured’s “Ultimate Net Loss” arising from asbestos personal injury claims, first notified after 1st July 1996, in respect of losses incurred before 1st July 1996, until commutation or exhaustion, for £500 million excess of, in the event, £690 million. In accordance with the terms of Mr Powell’s signature, the contract of insurance was “subject to 100% reinsurance at slip signing date”.

Pausing there, it is to be noted that when Mr Easton wrote to Mr Powell sending hard copies of the slips, the covering letter was headed “Sedgwick” and underneath that “Sedgwick Global”. Mr Easton’s signature was above the words “Sedgwick Global”. In small print at the foot of the page, there is wording to the effect that Sedgwick Global is a division of SRS “A Lloyd’s Broker acting as agent of [Sedgwick]”. Both the reinsurance slip as signed and the insurance slip which Mr Powell was to sign were on a form drawn up and headed “Sedgwick UK Risk Services Limited” viz. SRS without any qualification.

Curzon go on to allege (paragraph 13(d)) that by writing to Curzon in the terms used by Mr Easton, Sedgwick and/or SRS represented that there was in place effective reinsurance for 100% of the risk; Messrs Hammond and Herrick are said to have been aware of and to have assented to that representation, by reason of their close involvement in the transaction.

As to the wording of Mr Easton’s letter referring to SRS as a Lloyd’s Broker acting as agent of Sedgwick, it is alleged that (paragraph 13(e)):-

Finally for these purposes, the Part 20 Claim (paragraph 13A) says this:-

The judge held that Curzon should be allowed to bring not merely Sedgwick into the proceedings (which was never opposed) but also SRS who actually broked the risk and the respective employers of Mr Herrick and Mr Hammond. He held that it was arguable that SRS, SOL and Marsh owed duties of care to Curzon. SOL and Marsh owed those duties because it was their employees who had done the main broking work and they had thus either assumed responsibility themselves or were vicariously responsible for breaches of a duty which had been personally assumed by Mr Herrick and Mr Hammond. SRS owed that duty because it was arguable that in broking the risk it was acting not merely as an agent for Sedgwick but on its own behalf and had assumed responsibility for carrying out the reinsurance broking with due care. SRS, SOL and Marsh now appeal to this court.

Since Sedgwick Ltd, SRS, SOL and Marsh are all represented by the same solicitors and counsel, there is a certain artificiality in a position whereby Sedgwick Ltd are content to be in the proceedings and defend themselves against allegations of negligence, but SRS, SOL and Marsh want to stop any proceedings against themselves at the outset. The commercial reason for this stance becomes apparent, however, once it is recalled that the contract between T&N and Sedgwick Ltd contains a limit of liability in the sum of £1 million. It is said by Curzon that even if (which is denied) any such limit of liability can apply to Sedgwick itself, it cannot apply to any claims for breach against SRS, SOL and Marsh. Thus SRS, SOL and Marsh now submit that it is not arguable that any of them were under any duty of care to Curzon at all.

It was common ground between counsel that the question for the judge and for us was whether Curzon had a realistic prospect of succeeding against SRS, SOL and Marsh. That was the limit of such common ground. Mr Mark Barnes QC for SRS, SOL and Marsh submitted:-

Mr Crane QC for Curzon submitted that:-

It is true that most of the activity of Mr Hammond and Mr Herrick is alleged to have occurred before any decision was made that T&N should utilise Curzon for insurance and that Curzon should seek 100% reinsurance. Paragraph 4(a) - (g) of the Amended Points of Claim sets out their activity before 21st November when Curzon first came into the picture. Sub-paragraphs (h)-(j), however, detail the activity of both of them after 21st November, then asserts that Mr Hammond and Mr Herrick voluntarily assumed responsibility to Curzon knowing that Curzon would rely on them and paragraph 9 details activity of Mr Hammond after 21st November alleging that Mr Herrick must have known of that activity. Paragraph 10 then alleges that from 21st or 22nd November Mr Hammond and Mr Herrick acted for Curzon as its brokers in relation to the placing of reinsurance. The relevant facts are pleaded, as is the asserted relationship of reinsurance broker and client. It should, in our judgment, be for the trial judge to decide, having found the facts, whether Mr Hammond or Mr Herrick assumed any responsibility to act with care as reinsurance brokers and, if so, whether Curzon relied on them to do their job properly and carefully. The allegation, as an allegation, is sufficiently made.

Mr Barnes submitted that Henderson v Merrett had decided that any agent or sub-agent who had no contractual relationship with the client for whom the services had been rendered could only be liable if he directly assumed responsibility to that client and that nothing could be presumed merely from the mere fact that agent or sub-agent was, for example, an insurance broker. But we do not think the law can be stated in so rigid a way. As Lord Goff of Chieveley said at [1995] 2 AC 145, 181-2, the Hedley Byrne principle has been expressly applied to different categories of person who perform services of a professional nature. He instanced bankers, solicitors, surveyors, valuers, accountants and specifically insurance brokers. One of the authorities he cited in relation to insurance brokers was Punjab National Bank v de Boinville [1992] 1 Lloyds Rep 7 where it was held:-

SOL and Marsh were the employers of Mr Hammond and Mr Herrick. Mr Barnes submitted that in the light of Williams v Natural Life they could not, as mere employees, have assumed responsibility to Curzon. There was, therefore, nothing for which SOL and Marsh could be vicariously responsible and, since neither SOL nor Marsh had assumed any responsibility themselves to Curzon (who did not even know of their existence when the reinsurance contract was made), neither SOL nor Marsh could be liable to Curzon. We admire the ingenuity but are not so convinced by the argument as to consider it right to refuse permission to join SOL or Marsh to the proceedings. It is at least arguable that the submission overlooks the somewhat crucial factor that a company can only act through its employees. As was held in Williams v Natural Life the usual assumption will be that a director or employee of a company does not himself voluntarily assume responsibility on his behalf; he assumes it on behalf of his employer. But that cannot mean that, if the person for whom the work is done does not know the identity of the employer, he does not rely on the employer to use the necessary skill and care. Entirely properly, Curzon’s solicitors were reluctant to proceed against the named individuals with whom their clients knew that they had dealt (viz Messrs Hammond and Herrick) and asked Sedgwick’s solicitors to identify the companies in the group by whom they were employed as being the proper entities against which to proceed. Paragraph 10 of the Amended Part 20 Claim pleads that SOL and Marsh, by their employees assumed common law duties to Curzon to use reasonable skill and care in relation to the placing of the reinsurance. That is sufficient to implead SOL and Marsh. In this context Lord Goff’s description of the managing agents’ position in Henderson v Merrett, in the absence of any contractual context, is instructive. He said at page 182D:-

Paragraph 10 of the Amended Part 20 Claim then alleges in the alternative that SOL and Marsh are vicariously liable for breach of such duties owned personally by Messrs Hammond and Herrick. That alternative plea can legitimately be met with a plea that the two gentlemen did not indicate to Curzon that they voluntarily assumed the duties of a broker themselves. I would, however, consider that it is arguable that they did. The first two defendants in Punjab National Bank v de Boinville were personally sued and found to be personally liable. They were the principals of their respective (small) insurance broking companies and I would not regard the decision of the Court of Appeal in that case as necessarily inconsistent with the House of Lords decision in Williams v Natural Life. It is at least arguable that there was a personal liability in this case for which SOL and Marsh are vicariously liable. It is not a necessary argument in the light of the previous paragraphs of this judgment but there is no reason why it should not be made in the alternative.

SRS stood in a different position since Curzon had no knowledge of (let alone relationship with) that company or its personnel. The allegation is that the services rendered by Messrs Hammond and Herrick were rendered on SRS’ behalf in addition to being rendered on behalf of SOL and Marsh. It is also alleged in paragraph 12 of the Amended Particulars of the Part 20 Claim that SRS owed duties to Curzon to advise them of any matters of which they were aware which would prejudice their ability to recover under their reinsurance. The particulars given are that Mr Easton of SRS sent to Curzon a copy of the reinsurance slip once it had been signed by the three reinsurers and requested Curzon then to sign the insurance slip “subject to 100% RI at Inception Date”. Mr Easton was allegedly an employee of SRS. We have already said that it is the fact that the copy reinsurance slip sent to Curzon was presented by SRS to reinsurers for their signature, in as much as the slip was on SRS’s form. Paragraph 13(e) alleges further that SRS’s letter heading (which was, probably, on any covering letter or note and was on the fax sent with at least one version of the reinsurance slip) described SRS as:-

This was the substantive argument of Mr Barnes in relation to SRS. He submitted that Curzon, by their own pleading (particularly paragraph 13(e) setting out SRS’s letter heading “A Lloyd’s Broker acting as agent of [Sedgwick Ltd]”), showed that SRS were acting as agent only and could not, therefore, have voluntarily assumed any responsibility of their own to Curzon who did not know of their existence at the time of the placing of the reinsurance. He likewise asserted that SOL and Marsh were acting as agents only of Sedgwick Ltd. In this context he relied on the agreement made between T&N and Sedgwick Ltd as showing that the arrangement was for Sedgwick Ltd to provide the broking services; anyone chosen by Sedgwick Ltd to perform their obligation was, he submitted, only doing so on behalf of Sedgwick Ltd and not assuming any personal responsibility.

The critical difficulty for Mr Barnes is that, while this may be a powerful line of defence, it does not form a reason for refusing Curzon permission to join SRS, SOL or Marsh. The amended Part 20 Claim does not, naturally, allege that SOL or Marsh were acting as agents. Mr Barnes can say, truthfully, that as far as SRS are concerned, the pleading is more equivocal. It does rely in paragraph 13(e) on SRS’s letter heading and states that “it was not clear whether [SRS] was purporting to act on its own behalf or as agent for [Sedgwick Ltd] or in both capacities”. It does, however, go on to assert that in the circumstances SRS “on its own behalf” assumed towards Curzon duties to use reasonable skill and care in and about the placing of the reinsurance. It must, moreover, be at least arguable that someone who held himself out as “A Lloyd’s Broker” assumes a personal responsibility to the person seeking to use his broking services. He may at the same time say that he is the agent of another broker or broking company but that does not, of itself and without question, negate any liability on his part.

We put this in measured terms because the question is only whether the case against SRS is legitimately arguable. The truth, however, is that we are somewhat surprised that SRS would wish to argue that they can at one and the same time call themselves “A Lloyd’s Broker” and yet say that in presenting a reinsurance slip in their own name even to the non-Lloyd’s market, they are not accepting any responsibility at all in relation to disclosure towards the company who is the reinsured pursuant to that slip.

Be that as it may, we consider that Curzon has an arguable claim against each of the proposed Part 20 defendants. We, therefore, uphold the judgment of Gross J and dismiss the appeal.

Out of an abundance of caution we should add that nothing we have said whether advertently or inadvertently in this judgment is intended to prevent the judge at trial making any decision he chooses in relation to any aspect of this somewhat complex case.

In the course of argument, we suggested to counsel that there must be some authority in relation to such brokers’ potential liability to the insured or reinsured. The authority we had in mind turns out to be Coolee v Wing, Heath & Co (1930) 38 Lloyds Rep 157. No doubt it should now be read in the light of Henderson v Merrett.

Since we prepared this judgment, counsel have referred the court to one case where a sub-broker was assumed to owe a duty to the insured without such assumption being questioned, Tudor Jones & Marsh McLennan v Crowley Colosso [1996] 2 Lloyds Rep. 619 and another case in which it was held, on the facts, that a sub-broker did not owe a duty to the insured to alert him to the particular terms of a warranty in the insurance; he had fulfilled his duty by transmitting the terms of the insurance to the intermediate “producing” broker, Pangood Ltd v Barclay Brown & Co [1999] 1 All ER Comm. 460. Neither of these cases seems to us to advance the argument.