Encia Remediation Ltd v Canopius Managing Agents Ltd

INTRODUCTION

STATEMENT OF FACTS

LIST OF PRINCIPAL ISSUES TO BE DETERMINED AT TRIAL

THE WITNESSES

THE SUBMISSIONS OF THE PARTIES

THE RELEVANT LEGAL PRINCIPLES

ANALYSIS AND CONCLUSIONS

INTRODUCTION

This is a trial of preliminary issues in a dispute as to the extent of insurance coverage under an Environmental Consultants Professional Indemnity policy. The relevant terms of the policy are set out at para 101. The claim in question (the Shepherd Homes claim) is set out at paras 107 to 113. The preliminary issues for decision (as refined in the course of the hearing) are set out at para 114.

Encia Remediation Ltd (“Encia”) is a company engaged in the business of civil and environmental engineering. Until a management buyout (“MBO”) on 12 December 2002, Encia was known as AIG Remediation Ltd and was part of a group of UK companies within the AIG Engineering Group.

A corporate brochure provided by the AIG Engineering Group to Creamer Group Plc (“Creamer”) on 10 October, 2001, stated that the group’s activities involved “Remediation and Reclamation, Engineering Design, environmental and engineering consultancy, environmental management consultancy and brownfield property acquisition and investment.”

Between 1998 and 2003 the following AIG Engineering Group companies were insured in respect of professional indemnity risks: AIG Remediation Ltd, AIG Consultants Limited, AIG Consultants Holdings Ltd (which became AIG Engineering Group Ltd in 2000) and Robinson Fletcher Environmental Consultants Ltd. At various times the group also included AIG Risk Engineering and AIG Property, but these companies were not insured under the professional indemnity policies.

The corporate brochure provided to Creamer on 10 October 2001 stated that AIG Consultants carried on business as a specialist environmental, engineering and risk consultancy. According to its annual accounts the principal activities of AIG Consultants “were those of consultants, environmental scientists and geologists, and in providing consultancy services relating to waste management, contaminated land, training and other environmental matters.”

The same corporate brochure stated that AIG Remediation Ltd provided services including, “demolition, site clearance, earthworks, ground engineering, remediation, reclamation and civil engineering contracting, provision of contractor services…” AIG Remediation Ltd’s annual accounts for year ending 30/11/99 describe the principal activity of AIG Remediation Ltd as, “that of land reclamation and remediation contractors.”

At all times Creamer have been producing brokers in respect of AIG/Encia’s professional indemnity insurance. Creamer have acted variously by Pam Burrows, Graham Smerdon and Steve Critchlow.

Heath Lambert (“Heaths”) or a division of Heaths known as APIA (standing for Architects & Professional Indemnity Agencies Ltd), who were instructed by Creamer, have been placing brokers at Lloyd’s in relation to Encia/AIG’s professional indemnity insurance. Heaths have acted variously by account managers Edward Lloyd, John Lund and Adam Burton.

Among the brokers employed by Heaths, who were responsible for taking the proposals into the market, were James Russell and Janos Tokok.

This AIG Group policy has not been disclosed but it contained an exclusion clause forming part of the EC3 96/12 policy wording which provided:

“This Policy does not cover any liability whatsoever arising out of: … Any contract where the Assured acts as a Contractor whether in conjunction with their Business as stated in the Schedule or not.”

The wording of this exclusion caused concern at AIG, who wrote to Creamer on 29 June 1999 pointing out that it would cause problems since AIG Remediation Ltd was a “Contaminated land clean up contracting company”.

In October 1999 the AIG Engineering Group sought professional indemnity cover for the following year, 1999/2000. The renewal package sent by Creamer to Mr Edward Lloyd of Heaths included a covering letter from AIG, completed proposal form, a brochure for AIG Consultants Ltd, a brochure for AIG Remediation Ltd and three copies of capability statements.

The proposal form was a professional indemnity insurance proposal form for environmental consultants. It was completed by AIG’s Mr Paul Stevenson and in it, in answer to a question asking for full details of those activities for which cover was required, he said: "environmental and general engineering consultancy: specialising in waste management, contaminated land assessment, environmental impact assessment, remediation strategy coordination, geotechnical engineering, training, planning consultancy, architectural design". In that proposal form Mr Stevenson did not identify AIG Remediation Ltd as a firm to be insured, but he did identify the firm as a subsidiary of AIG Consultants Holdings Ltd. By the time the policy was issued the company was included among the insured.

Further, in answer to question 8, which sought an approximate breakdown of the firm's work undertaken in the last financial year, Mr Stevenson provided figures for the AIG Group totalling 100% – as the question required – none of which made express reference to “contracting” or “piling” works. Mr Stevenson did state under “Other Non-Environmental Work” that 4% of the firm’s work was civil engineering and 2% was structural engineering. Gross fees to 1999 were given as £1.55m.

In answer to question 9(a) on the proposal form, asking for details of the five largest contracts undertaken during the last five years, Mr Stevenson included for the AIG Group references to the design, planning, project management and supervision of reclamation and remediation schemes.

By the proposal form Heaths had asked for the firm’s brochure or other promotional literature. A capability statement, entitled “Brownfield Redevelopment Capability Statement” sent by Creamer to Heaths by a memo of 6 October 1999 with a proposal form, covering letter and brochures for AIG Consultants Ltd and AIG Remediation Ltd, stated that “AIGC [AIG Consultants] often works in association with AIG Remediation to provide fixed price re-development solutions on a design and construct basis.”

The proposal form did not expressly mention “contracting works” or the “construction or installation of piles”. As set out above, it did state that work undertaken by the companies related to non-environmental, civil engineering, structural engineering and also made clear that they had project managed landfill reclamation contracts.

The resulting environmental consultants’ policy for the AIG Group was on the terms of the EC3 96/12 form and included the exclusion set out above.

The policy schedule provided the definition of AIG Group’s business as “Environmental Consultancy specialising in Waste Management, Geotechnics, Contamination and Training and as more fully declared in the proposal form(s) referred to below and any accompanying information submitted with the proposal form(s)".

None of the Insurers in this case subscribed to the 1999/2000 policy.

In October 2000, the AIG Engineering Group sought cover for the coming year, 2000/2001. Disclosure has not produced a letter from AIG to Creamer.

Creamer forwarded to Heaths under cover of a fax dated 10 October 2000 a proposal form for the AIG Group which they referred to as the "renewal proposal form" signed by Mr Stevenson. The fax was said to consist of 29 pages and appears to have included the proposal form and AIG Engineering Group's corporate brochure.

The proposal form was a professional indemnity insurance proposal form for environmental consultants. In the 2000/2001 proposal form, and for each of the subsequent years, AIG Remediation Ltd was specifically identified as one of the firms to be insured.

At Question 2 of the proposal form dated October 2000, which requested full details of those activities for which cover is required, Mr Stevenson stated in terms he would repeat for the following years until the year at issue "Please refer to attached Statement of Capability for AIG Engineering Group". He also wrote "Please note that only a small percentage (approximately 2.5%) of AIGR turnover relates to design or advice given to clients. The remaining 97.5% relates to site contracting works".

The description of AIG Remediation Ltd in the AIG Engineering Group Brochure was as follows:

“By combining the consultancy services of AIGC with the contracting facilities of AIG Remediation and the leading environmental insurance expertise of the AIG Group we are able to offer a complete environmental risk management package. ….

AIG Remediation Limited

Key Services Provided:

demolition, site clearance, earthworks, ground engineering

remediation, reclamation and civil engineering contracting

provision of contractor services for both civil based reclamation type solutions as well as specialist process based solutions;

fixed price reclamation solutions;

provision of bonds, warranties, guarantees as required

provision of day to day support and frontline liaison with the Local Planning Authority representatives, NHBC, Environment Agency and local public action groups.

AIGR delivers reclamation solutions for sites which present diverse problems from contamination, derelict structures to topographical features and the proximity of residents and/or neighbouring buildings.

Whether the project involves the demolition of existing structures and preparation of ground; treatment and/or removal of contaminated waste; stabilisation of mineworkings or redevelopment of landfill sites AIGR has the skills and innovation to provide cost effective and sustainable solutions to the most complex sites.”

Again in answer to question 8, which sought an approximate breakdown of the firm's work undertaken in the last financial year, Mr Stevenson provided figures for AIG Group totalling 100%, none of which expressly referred to “contracting” or “piling works”. Question 8 required a breakdown totalling 100%. None of the sub-categories which appear in question 8 include “contracting” or “piling”. Gross fees to 2000 were given as £2.15m.

In answer again to question 9(a) on the proposal form, asking for details of the five largest contracts commenced during the last five years, Mr Stevenson again included references to the design, planning, project management and supervision of reclamation and remediation schemes.

The slip for the 2000/2001 AIG Group policy makes it clear that the wording for 2000/2001 was not on EC3 but on EC4 00/01 form. That wording does not include the exclusion in absolute terms which had earlier concerned AIG, but rather replaces it with the modified exclusion 2:

“This Policy does not cover any liability whatsoever arising out of: …

Any claim arising from the provision of advice design or specification where the Insured contracts to manufacture construct erect install or supply materials or equipment unless defined in the Business as stated in the Schedule”

The 2000/2001 AIG Group policy EC4 00/01 wording has not come to light in disclosure.

Again, none of the Insurers in this case subscribed to the 2000/2001 AIG Group Policy. Further it is not alleged that the proposal form or any of the documents that were sent by Creamer to APIA were ever provided to Insurers during the placement of the 2000/2001 AIG Group Policy. It is not an agreed fact that underwriters in this action were not shown the corporate brochure provided in October 2000 at later placements.

Exclusion 2 was raised again by Creamer with APIA in July 2001, but the matter was raised with reference to the old 1999-2000 policy wording as the most recent then available to Creamer, and APIA responded that the matter would have to be addressed at renewal.

AIG Group’s Finance Director, Mr Stevenson, completed a proposal form dated 8 October 2001 and sent it to Mr Steven Critchlow of Creamer under cover of a letter dated 10 October 2001.

The proposal form was a professional indemnity insurance proposal form for environmental consultants. On the proposal form Mr Stevenson answered question 2 (a request for the “Professional business of the Firm”) “Please refer to attached statement of capability for AIG Engineering Group and subsidiaries”. On this occasion, in his response to question 2, he made no reference to the percentage of AIG Remediation Ltd’s turnover that related to design or advice or to the percentage of its works that related to site contracting works.

In answer to question 10 on the proposal form, asking for details of the five largest environmental contracts commenced during the last five years, Mr Stevenson included references to the design, planning, project management and supervision of reclamation and remediation schemes.

In answer to question 12, seeking details of any particular client group in the environmental field Mr Stevenson stated: “Housing building sector – investigating/designing/supervising brownfield land remediation”.

In a covering letter dated 10 October 2001 he gave particulars of the nature of the work which the AIG Group (including AIG Remediation Ltd) performed. His covering letter gave additional information in response to questions 8(a) and 9(a) on the proposal form.

By Question 9(a) Underwriters had asked whether the firm provided reports /advice on the effects and/or existence of contaminated land and if so the percentage of the split between desk top studies, reports involving no specialist investigation by the firm and reports involving specialist investigation undertaken by the firm. The answer was:

“Works percentages – The nature of the work we perform does not fall directly within the categories outlined. In addition to providing environmental consultancy advice we offer other services including structural and civil engineering design, due diligence, layout design services, land surveying, environmental health and safety management systems and training. A significant element of our works involves the project co-ordination and supervision of demolition, landfill construction and remediation contracts. Taking this information into the equation in response to the question I would respond as follows:

(i)

[desk top studies involving study of historical ordinance survey maps, topographical, geological and hydrographical maps and enquiries of statutory authorities, publicly available reports and photographs] 5%

(ii)

[report and advice regarding specialist investigation, but no specialist investigation undertaken by or on behalf of the firm] 3.5%

(iii)

[report and advice regarding specialist investigation where such is undertaken by or on behalf of the firm] 21.5%

(iv)

design services/training etc 10%

(v)

waste management 25%

(vi)

design/supervision/validation landfill/remediation 35%

It is agreed that paragraph (vi) should be read “design/supervision/validation of landfill/remediation”.

On the above figures, only 30% of AIG’s work fell into the categories set out on the proposal form.

The proposal form again asked for brochures issued by the firm and Mr Stevenson’s covering letter also noted that he had enclosed a copy of the AIG Group “corporate profile which details the services we offer in a little more detail”.

The description of AIG Remediation Ltd in the corporate profile attached was precisely the same as that set out in the AIG Engineering Group Brochure attached to the 2000/2001 proposal form, set out above.

Neither the proposal form nor the letter stated expressly that the AIG Group or AIG Remediation Ltd undertook contracting or piling works.

Creamer forwarded the proposal form and Mr Stevenson’s covering letter of 10 October 2001 to APIA the following day. Only 10 pages were faxed, from which it appears that Creamer did not include the AIG Engineering Group corporate brochure with this fax. Heaths’ files do not contain a copy of the corporate brochure sent to Creamer by AIG Remediation Ltd on 10 October 2001. The two copies of the corporate brochures that do appear on Heaths’ 2000-2002 file are the version sent by Mr Graham Smerdon, of Creamer, in October 2000.

APIA arranged an extension of the 2000-2001 policy and then set about obtaining quotations for the renewal.

For the policy year 2001-2002 the AIG Group’s professional indemnity insurers included Trenwick International Limited, as lead insurer (where the underwriter was a Mr Alex Dyer), Mitsui and Amlin. The final 10% (signed down to 9.83%) was placed with Ace who did not participate the following year.

On 18 October 2001 Mr Dyer of Trenwick International Limited (“TIL”) gave a quotation for a 25% subscription to the primary layer at a premium of £43,750. The next day Mr Rob Ward of Mitsui scratched the back of the quotation sheet for a 25% subscription at a slightly higher premium of £49,750 “sub review of ‘capability statement’”. On 24 October 2001 Mr Chater of Amlin also scratched for 25%, at the same higher premium as had been indicated by Mitsui. Mr Ward’s initial scratch was written in pencil as was Mr Chater’s, but the reverse of the quote sheet was photocopied by Heaths when it contained only those scratches and then taken around the market and scratched subsequently by Mr Ward (twice) and Mr Potts in pen. Mr Ward’s and Mr Chater’s initial pencil scratches were clearly visible and were not rubbed out and were not struck through on the later photocopy. On 29 October 2001 Mr Dyer of TIL and Mr Ward of Mitsui increased their respective percentage participations to 33 1/3%. On 29 October 2001 Mr Simon Potts of Amlin confirmed the 25% line. On 31 October 2001 Mr Dyer and Mr Ward each scratched “FON” (firm order noted) with effect from 16 October 2001 on the quotation sheet. TIL, Mitsui, Amlin and Ace then placed their stamps upon the Heaths slip between 13 and 15 November 2001.

No copy of the corporate brochure sent from AIG Remediation to Creamer on 10 October 2001 appears on the underwriting files of Amlin or Mitsui, or among the documents that Mr Dyer brought from TIL to Trenwick Managing Agents (“TMA”).

None of the parties to this action has been able to find a copy of a formal policy wording for 2001-2002, suggesting that none was ever drawn up to replace the slip. But the Heaths slip stamped by underwriters and the LPSO has a policy number – PA1133701 – and attaches a blank pro forma of the EC4 00/01 wording and policy schedule. The slip refers to the proposal form of 8 October 2001, covering letter of 10 October 2001 and a no claims declaration as “Information” seen and noted by underwriters. The quotation sheet scratched by the underwriters stated “Professional business: Environmental Cos”. Heaths’ letters to Creamer dated 25 October 2001 and 21 November 2001 state “BUSINESS: Environmental Consultants” The Heath Lambert slip does not have a clause for the Business of the assured. The EC4 pro forma schedule provides: “BUSINESS: [blank] and as more fully declared in the proposal form(s) referred to below and any accompanying information submitted with the proposal form(s).”

The 2001-2002 AIG Group Policy was due to expire at midnight on 15 October 2002. In about March 2002 discussions commenced about the possibility of an MBO of part of the AIG Group. This would involve the business done by AIG Consultancy Ltd and AIG Remediation Ltd’s Northern and Southern offices being split in two, with the Northern business (the Wetherby, Wigan and Middlesbrough offices) being bought out and renamed Encia. New off-the-shelf companies were to be incorporated and renamed AIG to take forward the business of the Southern offices in Wolverhampton, Basildon and London.

Encia/AIG informed the brokers, Creamer, of the plans and instructed them to obtain professional indemnity insurance covering each of the AIG and Encia companies and all contracts entered into by those companies before and after the MBO.

On 3 July 2002 Creamer wrote by fax to the placing brokers, APIA, informing them of the proposed MBO which was then expected to take place the following month, and consequent split in business with the intention to renew the existing professional indemnity policy for the existing companies and also to cover the newly incorporated companies going forward. As the fax explained, at that stage it was envisaged that the newly incorporated AIG Consultants and AIG Remediation companies would be new start up companies with no liability for historical contracts, all of which would stay with the Northern/Encia companies. The fax enclosed a proposal form dated 27 June 2002 in relation to the AIG Engineering Group Ltd and the two newly incorporated companies and a copy of the pre-MBO AIG Group’s corporate brochure describing the work carried out by the various companies within the group. Creamer’s letter concluded by stating that they hoped they had provided the necessary information to enable APIA to approach the market.

In or around mid October 2002, it was decided that, as the newly incorporated companies wanted to be able to market themselves as having completed projects worked on by the AIG Southern offices, those companies should retain liability for claims arising out of those contracts. The brokers were informed, and advised that insurers would require a list of projects undertaken by the Southern offices. This was duly provided on 27 November 2002.

In the event, negotiation of the MBO took longer than had been envisaged, and was not completed by the time the 2001-2002 AIG Group professional indemnity policy was due to expire on 15 October 2002. APIA/Heath Lambert brokers approached the 2001-2002 underwriters and asked them to extend the policy. TIL had ceased underwriting new business in 2002 and its underwriting team including Mr Dyer moved to TMA which was the underwriting agent for syndicate 839. On 8 October 2002 Mr Dyer scratched an endorsement agreeing to extend the period of the 2001-2002 AIG Group policy for 42 days with effect from 16 October 2002. On 11 November 2002, Mr Jeremy Hyne of TMA scratched an endorsement for the same extension. Mitsui and Amlin also agreed the extension. As noted on the endorsement, the MBO was at that stage envisaged to take effect from 1 November 2002. In fact, the MBO did not complete until 12 December 2002, after yet further extensions to the 2001-2002 AIG Group professional indemnity policy had been agreed by Trenwick, Mitsui and Amlin.

On 27 June 2002 Mr Tony Tompkins filled out a proposal form on behalf of AIG Southern and sent it to Mr Critchlow of Creamer with a covering letter that elaborated upon certain answers in the proposal form. In answer to a request for the “Professional business of the Firm” (question 2), Mr Tompkins wrote: “Please refer to attached statement of capability for AIG Engineering Group and subsidiaries.”

In his letter to Creamer dated 27 June 2002 he gave further particulars of the nature of the work performed and stated in relation to question 2 “I have enclosed a copy of our corporate profile to answer this question”.

Mr Critchlow “cut and pasted” the additional information provided by Mr Tompkins in his covering letter into a covering fax to Mr Lund of APIA dated 3 July 2002.

In respect of question 2, Mr Critchlow stated in his covering fax: “Q(2) For your information I enclose a copy of our client corporate profile for your information.”

The fax was 21 pages long, including the corporate brochure. The brochure attached differed from that sent to Creamer on 10 October 2001 only in the font in which the words “AIG Risk Engineering” appeared on the first page. The description of AIG Remediation Ltd was identical to that set out in the corporate brochure provided to Creamer on 10 October 2001.

Creamer’s fax concluded by stating that they hoped they had provided the necessary information to enable APIA to approach the market.

Creamer approached XL Insurance for cover, who provided an indication in July 2002. On 5 July 2002 Creamer is said to have sent a fax to XL Insurance seeking a quotation for the AIG Southern risk. This fax has not been found on disclosure. On 9 July 2002 Mr Graham Withers of XL replied providing a premium indication and requesting further information. On 19 September 2002 Mr Tompkins wrote to Creamer enclosing a completed XL Environmental proposal form. Disclosure has not produced a copy of this proposal. On 22 November 2002 XL wrote to Creamer following up the earlier indication and Creamer’s more recent requests for retroactive cover for AIG Southern in respect of the London and Wolverhampton offices. The fax also referred to Creamer’s request of 6 November 2002 for an indication of terms for Encia’s professional indemnity cover. On 26 November 2002, Creamer faxed to Mr Withers contract numbers and turnover figures for each of the Southern AIG offices. On 27 November 2002 Creamer sent three faxes to XL: one providing further details of the London and Basildon contracts for which retro active cover was required by AIG Southern; a second attaching Wolverhampton contracts for which retro active cover was required also in respect of AIG Southern; and a third providing details of claims experience of the existing AIG companies. On 3 December 2002 XL sent a fax to Creamer clarifying the position in relation to retroactive cover for AIG Southern and seeking further information in respect of Encia’s historical contracts. Creamer did not proceed with XL.

On 5 November 2002 Mr Stevenson completed a proposal form for cover for the Northern operations which were to be renamed Encia. The proposal form was a professional indemnity insurance proposal form for environmental consultants.

The proposal form included the following questions and answers:

“Q1. Name of the Firm to be insured:

Established

AIG Consultants Ltd 1992

AIG Remediation Ltd 1995

Robinson Fletcher Environmental

Consultants Ltd 1985

Q2. Professional business of the Firm:

See attached covering letter dated 5 November 2002

….

Q10. Please detail your five largest environmental contracts commenced during the last five years

Start Date	Finish Date	Description of Contract	Total Contract Value (if applicable)	Extent of Service provided
1995	Ongoing	Project Management Colliery Reclamation	500K	SI/Contract Project Management
1998	June 2000	Reclamation Former Steelwork	200K	Design/plan/project manage/supervise Reclamation scheme
1997	Ongoing	Contamination Investigation. Assist planning/public enq. Expert witness	200K	SI/Design Scheme/assist planning/public enq./expert witness – reclamation scheme
2001	Ongoing	Supervise Reclamation Scheme	100K	Supervision and QA of Remediation Scheme
2000	Ongoing	Waste Management/Landfill Design/CQA Advisor	400K pa	Provide technical support to waste management operators

….

Q12. Does The Firm have any particular client group in the environmental field, e.g. Waste Industry, Water Authorities, Local Authorities, Government Bodies, Power Industry, Oil and Gas, Chemical/Process Industries, etc?

House Building Sector – Investigating/Designing/Supervising

Brownfield Land Remediation”

Mr Stevenson expanded upon some of his answers in his attached covering letter to Creamer of the same date.

There was no express mention in the proposal form or covering letter of the fact that Encia undertook “contracting” or “piling” works. It is Encia’s case that certain of the jobs identified in question 10 were contracting jobs. Insurers do not accept that position.

The proposal form again asked for brochures issued by the firm, but on this occasion Mr Stevenson made no reference in the proposal form or the covering letter to any capability statement or corporate brochure and on this occasion no corporate brochure was submitted by Encia to Creamer with the proposal form.

Mr Stevenson’s covering letter dated 5 November 2002 was ‘cut and pasted’ into a fax from Creamer to APIA dated 6 November 2002 enclosing the proposal form. Both documents included clarification of the answers in the proposal form.

In response to the question "Professional Business of the Firm", Encia replied in their fax:

“Q2: Professional Business of the firm – the predominant specialty of the business is that of environmental consultants. However, in addition to providing environmental consultancy advice the company will offer other services including structural and civil engineering design, due diligence, layout design services, land surveying, environmental health and safety management systems and training. A significant element of work will involve the project co-ordination and supervision of demolition, landfill construction and remediation contracts.”

Creamer reproduced that answer in the 6 November 2002 covering fax.

By question 7(c), Underwriters asked for:

“Gross fees received in the last financial year: - (i) Air Pollution (ii) Noise Pollution (iii) Water Pollution (iv) Waste Treatment/Disposal (v) Waste Management (vi) Contaminated Land including removal of underground storage tanks (vii) Land Fill Reclamation and Design (viii) Environmental assessments.”

To the end of the list Encia added on the proposal form, “Other design”. Encia did not add work as contractors or constructing or installing piles. But, in this respect it is to be noted that the question related to gross fees for professional services.

Question 8(b) asked for names of independent specialist consultants they engaged and the answer, given in Encia’s covering letter and Creamer’s fax, which was prefaced with the number 8(a) and was probably meant to read 8(b), read:

“Independent Specialist Consultants – Various consultants will be engaged to perform duties relating to surveying (topographical), foundation and structural design; civil engineering design; resident engineering works and occasionally for noise, dust and water/gas monitoring purposes.”

By Question 8(c) Underwriters asked “Do you use the services of independent persons not under a contract of service? If “yes”, give exact details of method of operation, controls etc.” The response was “Engaged via purchase order system and their works are reviewed by relevant in house technical managers.”

By Question 9(a) Underwriters had asked whether the firm provided reports /advice on the effects and/or existence of contaminated land and if so the percentage of the split between desk top studies, reports involving no specialist investigation by the firm and reports involving specialist investigation undertaken by the firm. The answer was:

“Works percentages – The nature of the work performed does not fall directly within the categories outlined. In addition to providing environmental consultancy advice the Company will offer other services including structural and civil engineering design, due diligence, layout design services, land surveying, environmental health and safety management systems and training. A significant element of the works involves project co-ordination and supervision of demolition, landfill construction and remediation contracts. Taking this information into the equation to the question the following figures are [p]ut forward:

(i)

[desk top studies involving study of historical ordinance survey maps, topographical, geological and hydrographical maps and enquiries of statutory authorities, publicly available reports and photographs] 5%

(ii)

[report and advice regarding specialist investigation, but no specialist investigation undertaken by or on behalf of the firm] 3.5%

(iii)

[report and advice regarding specialist investigation where such is undertaken by or on behalf of the firm] 21.5%

(iv)

Design services/training etc 10%

(v)

waste management 25%

(vi)

design/supervision/validation landfill/remediation 35%”

It is agreed that paragraph (vi) should be read “design/supervision/validation of landfill/remediation.

Creamer did not state that it was forwarding any corporate brochure and the fax from Creamer to APIA dated 6 November 2002 was only 7 pages long.

On 6 November 2002 Creamer sent a fax to XL Insurance enclosing “a presentation” in respect of Encia and requesting an initial quotation. The fax was said to contain 7 pages (the 2 page fax and 5 page proposal form). On 22 November 2002 XL replied to Creamer requesting further information. On 3 December 2002 XL sent a fax to Creamer confirming their position in relation to retro active cover. As set out above, both the fax of 22 November 2002 and the fax of 3 December 2002 from XL also dealt with the AIG Southern risk, for which Creamer had sought professional indemnity terms in July 2002. In the event, neither XL quotation was pursued.

The presentation materials for the 2002/2003 Encia Policy were the proposal form of 5 November 2002, the covering letter of 6 November 2002, highlighted in respect of the question 2 information, some claims information and for the later meetings when the slips were stamped, no claims declarations. These documents appear together attached by a clip in the Heaths file entitled “Encia Group Ltd – Formerly AIG Consultants Ltd 02/04” (“the Encia Group file”). For the avoidance of doubt it is Encia’s case that the AIG Southern proposal form of 27 June, the covering fax of 3 July 2002 and the AIG Engineering Group corporate brochure were accompanying information for the purposes of the Policy schedule. However, these documents do not appear in this clip or elsewhere in the Heaths Encia Group file.

The presentation materials for the 2002/2003 AIG Southern Policy were the proposal form of 27 June 2002, the covering fax of 3 July 2002, the AIG Engineering Group corporate brochure and for the later presentations, information relating to job quantities and individual contract information provided by Creamer on 27 November 2002 (in order to obtain retrospective cover) as well as a no claims declaration dated 2 January 2003. These documents appear together attached by a clip in the Heaths file entitled “AIG Engineering Group”, which states on its cover, “cross check with AIG Consultants Ltd and Encia Group”.

In addition, in respect of both the AIG Southern and Encia risks Brit appear to have been presented with, and taken copies of, two “crib sheets” drafted by Heaths. These appear to be aides-memoire for the broker in presenting the risk.

The Encia “crib sheet” was headed “AIG Engineering Group – Northern ENCIA”. It noted that there were 2 principals. The business was identified as “Environmental Consultants +” and below “BIO: Structural/Civil Engineering Design + see highlighted”. Fees were given as 1.97m. In relation to the proposed insurance cover it was noted: “Agg + 3 Automatic R/I”. In respect of retrospective cover, it stated: “All past liabilities stay here”. There was a reference to “claim was derived from Directors of this Practice”; the proposed insurers were listed as TREN ⅓ ; AML ¼ (both of whom were ticked); AGM; and MIT. The sheet noted “Anticipated that the split will happen on 22/11/02”. Finally, on the reverse of the sheet was noted: “Q. Do we need to have AIG on this slip? As this is shown on the Southern Policy”.

The AIG Southern “crib sheet” was headed “AIG Consultants Ltd – Southern”; it noted 4 principals. Fees were £850,000. Business was identified as: “Bio: Environmental Consultants + As per Northern”. It noted that Trenwick (who were ticked) had quoted £22,150 for £5m and listed AML (who were also ticked), AGM and MIT as potential followers. At the base of the document it stated “New Company: no past liabilities”; and, finally, noted “Anticipate the split will happen 22/11/02”.

Certain underwriters were also shown and/or were provided with copies of documents relating to a potential claim in respect of the Wivenhoe Quay project. The documents were contained in two faxes from Creamer to APIA of 21 November 2002 and 22 November 2002 and included various letters relating to the potential claim a statement of case and an order of the TCC. The contents of the fax of 22 November 2002 were scratched by Mr Hyne of TMA as “seen” on 26 November 2002. It was also stamped by Amlin. The documents appear on TMA’s and Mitsui’s files.

It is common ground that the Encia and the AIG Southern risks were presented to underwriters on the same days and very likely at the same meetings.

It is Encia’s case that the risks were presented together and that documents and information in the AIG Southern presentation were used to explain and elaborate upon information provided in the Encia presentation, and vice versa.

It is the defendant’s case that the Encia risk and the AIG Southern risk were placed as two distinct and separate risks based on separate proposal forms and the submission by Heaths of separate sets of information. Further it is the defendant’s case that the Encia risk was written on the basis of the Encia submission documents only. The defendant says that the AIG Southern submission documents were presented in respect of the AIG Southern risk and were not presented to underwriters in respect of the Encia risk.

From about 13 November 2002 onwards Heaths’ brokers set about placing the 2002-2003 Encia Group risk and the AIG Southern Group risk with underwriters in the Lloyd’s market.

The lead underwriter for both the Encia and AIG Southern 2002-2003 primary layer policies was Mr Alex Dyer of TMA. When at TIL Mr Dyer had subscribed to the AIG Group 2001-2002 professional indemnity insurance. The other syndicates which subscribed to the 2002-2003 Encia Policy and the 2002-2003 AIG Southern policy were Mitsui, Amlin (both of which had also subscribed to the 2001-2002 AIG Group Policy) and Brit (which had not subscribed to the expiring AIG Group Policy). Brit also subscribed as leader to the £5 million excess of £5 million excess layer policies for Encia and for AIG Southern in 2002-2003. Both the Encia and the AIG Southern 2002-2003 policies were for the period from 12 December 2002 to 11 December 2003.

The relevant dates and events are set out in short form in a table below, followed by a more detailed narrative.

On 19 November 2002 Mr Dyer of Trenwick Managing Agents scratched a draft quotation sheet in respect of 25% of the Encia risk. The quote sheet described the assured as: “AIG Engineering Group Ltd, AIG Consultants Limited, AIG Remediation Limited, Encia Consulting and Encia Remedica” and referred to a proposal form dated 5 November 2002. Mr Dyer quoted £68,500 for the Encia risk.

On 19 November 2002 Mr Dyer also scratched a second draft quotation sheet in respect of 25% of the AIG Southern risk. This quote sheet contained a typed description of the assured as: “AIG Engineering Group Ltd, AIG Consultants Limited, AIG Remediation Limited” which he struck through and replaced in manuscript with “Title T.B.A. (new practice only)”. Reference was made to a proposal form dated 27 June 2002. Mr Dyer quoted £22,150 for the AIG Southern risk.

On 26 November 2002 Mr Dyer’s colleague Mr Hyne scratched an amended quote sheet for the Encia risk and the AIG Southern risk in each case “per AD” (for Alex Dyer), restating the 25% lines.

Mr Hyne scratched the Encia quote sheet and the AIG Southern quote sheet again on 29 November 2002 at the bottom of the page. On the Encia slip he wrote: “If RD on ‘AIG Southern’ deleted: annual premium £62,000” i.e. a reduction from the previously quoted £68,500. On the AIG Southern quote sheet he wrote “If RD deleted Annual prem. £28,000” i.e. an increase from the previously quoted £22,150. “RD” is a reference to retroactive date or “retrodate” i.e. the earliest date from which the insured business would be covered in respect of claims subsequently made during the policy period. This was written by Mr Hyne after AIG and Encia had advised Creamer and APIA of the change of plan whereby AIG Southern would now keep responsibility for AIG Remediation Ltd and AIG Consulting Ltd projects which had been carried out by the Southern AIG offices (rather than Encia retaining all historical liability), and had provided the brokers on 27 November 2002 with a list of all the contracts where historical liability was to be retained by AIG Southern, as required by the underwriters.

On 2 December 2002 APIA sent Creamer copies of the revised lead indications from underwriters, explaining that the revised premium indications had been provided on the basis that AIG Southern would have a retrodate of inception for new work but fully incorporate historical liability of AIG Engineering Group Ltd and the named contracts from AIG Consultants Ltd and AIG Remediation Ltd, whereas the MBO company Encia would pick up the run off for AIG Consultants Ltd and AIG Remediation Ltd apart from the named contracts.

Mr Hyne of Trenwick scratched the bottom of each of the Encia and AIG Southern slips again on 12 December 2002, noting on each of them “FON w.e.f. 12/12/02 subj decln” i.e. firm order noted with effect from 12 December 2002 subject to a no claims declaration. By this time the number of reinstatements had been reduced from the three that Mr Dyer quoted to one. Mr Hyne put down the syndicate’s stamp and scratched the Heath signing slip for the 2002-2003 Encia policy and the 2002-2003 AIG Southern policy on 23 January 2003, noting in each case “copy submission please”, and initialling the policy wording.

None of the quotation sheets referred to above identified the inception date of the insurance contracts in the period clause for Encia or AIG Southern. The first occasion on which an inception date appeared was when Mr Hyne scratched “FON” with effect from 12 December 2002 on both amended quote sheets. This inception date was subsequently included in the slips.

All of the quote sheets, amended quote sheets and signing slips for the Encia primary policy referred against the heading “Information” to the proposal form dated 5 November 2002 seen and noted by underwriters”, although in the signing slips there was also a reference to the NCD dated 23 December 2002. The quote sheets, amended quote sheets and signing slips for the AIG Southern primary policy referred to the proposal form dated 27 June 2002 and the NCD of 10 October 2002, and on the signing slip there was a further reference to an NCD dated 2 January 2003.

On 20 November 2002 Mr Nigel Dorning of Amlin scratched the draft slips for the Encia and AIG Southern risks in the forms in which they had been amended in manuscript by Mr Dyer of TMA when he had quoted for 25% the previous day. Mr Dorning scratched each of the slips on the bottom right hand corner, indicating on each of them that Amlin would take a 25% line “sub South and North placed with current uws”.

On 2 December 2002 and on 10 December 2002 Mr Dorning’s colleague Mr Craig Chater of Amlin scratched both the Encia and the AIG Southern amended quote sheets. The initial scratch on 2 December 2002 which appears in the bottom right hand corner of both documents was for a 25% line FON. On 10 December 2002 this line was amended, next to the original scratch on the quote sheets to read, on the Encia sheet, “line 25% + xs layer line or 33 1/3 & no xs layer line”, and on the AIG Southern sheet “line 25% 33 1/3% no xs layer line or 25% + xs layer line”. On 23 January 2003, on the two signing slips produced by Heaths, Mr Chater scratched “33 1/3 % FON – ref & submission”. He also scratched the amended quotation sheet for AIG Southern, drawing an arrow from his initials to the part of his previous scratch noting “no xs layer line” and marking it “FON”. The following day his colleague Mr Simon Potts put down Amlin’s stamp for that percentage on the Encia and AIG Southern 2002-2003 signing slips.

On 10 December 2002 Mr Chater also wrote a 15% line on each of the quote sheets for the 2002/2003 £5 million excess of £5 million policies for Encia and AIG Southern. This was subsequently crossed out in both cases on an unknown date and the words “Amlin on primary” were added on both sheets. The excess layer quote sheets scratched by Brit for Encia and AIG Southern on 10 December 2002 both stated, under “Information”, that the proposal form dated 27 June 2002, had been seen and noted by underwriters.

Mr Nick Evans of Mitsui had, in the meantime on 3 December 2002, scratched the back of the Encia slip and the AIG Southern slip. On the Encia slip he noted “will agree as over except only AGG + 1 RTC @ terms as attached over;” on the AIG Southern slip he noted “Agree as over but only AGG + 1 RTC only as prem as over.” He was indicating agreement to write them at the rates quoted but only if the reinstatements were reduced from three to one. He did not, at that stage, scratch the percentage of the risks that he was willing to accept. Mr Evans scratched firm order noted for 33 1/3% on the left hand side bottom half of each of the Encia and AIG Southern slips on 12 December 2002. On 23 January 2003 Mr Evans’ colleague Mr Rob Ward scratched the two Heath signing slips and put down Mitsui’s stamp for both the Encia 2002-2003 policy and the AIG Southern 2002-2003 policy. On each slip he noted “NE” referring to the fact that Mr Evans had, in each case, written the risk in question. Below the stamp the words “Copy Proposal” were scratched in pencil on both slips.

Mr Greg Condon of Brit underwrote 8 1/3 % of the primary layer of each of the Encia 2002-2003 and the AIG Southern 2002-2003 policies. Brit had already, on 5 December 2002, subscribed as leader to 33 1/3 % of the £5 million excess of £5 million policies for both Encia and AIG Southern. Both excess layer quote sheets referred, under “Information”, to the AIG Southern proposal form dated 27 June 2002.

On 12 December 2002 the Brit underwriter, Mr Condon, scratched the primary layer quotation slips for the Encia risk and the AIG Southern risk, noting on the left hand side of each “Agree 8 1/3% sub line on x/s layer”. Brit stamped and scratched the signing slips for the Encia 2002-2003 primary layer policy and the AIG Southern 2002-2003 primary layer policy on 23 January 2003.

On 22 January 2003 Mr Condon had stamped and scratched the Heaths slip for the excess layer of £5 million excess of £5 million. The primary slip for Encia referred to the proposal form dated 5 November 2002. The excess layer slip scratched by Brit for Encia referred to the proposal form dated 27 June 2002.

Mr James Russell of Heath Lambert assembled copies of the documents submitted to underwriters for each of the underwriters who subscribed to the primary and excess layer Encia and AIG Southern 2002-2003 Policies for their records. The Insurers do not admit that all of the documents provided to them by Mr Russell, in particular the AIG Group Corporate Brochure, were shown to them before placing their stamps on the 2002-2003 AIG Southern slip.

Encia’s professional indemnity insurance for the 2002-2003 policy year (“the 2002-2003 Encia Policy”) was placed on the terms of a market wording known as “EC4 00/01”.

The EC4 00/01 wording is headed “Environmental Consultants Professional Indemnity” and contains, inter alia, the following terms:

The Assureds were Encia Group Ltd, Encia Consulting Limited and Encia Remediation Limited. By endorsement No. 7 Robinson Fletcher Environmental Consultants Ltd was named as a joint Assured.

Each of Trenwick, Mitsui and Amlin continued to provide professional indemnity insurance to Encia after the expiry of the 2002-2003 policy at issue in this action. They were the subscribers to the 2003-2004 Encia policy which incepted on 12 December 2003.

This was on the EC4 wording and the policy schedule defined the business of the Encia companies as “Environmental Consultants and as more fully declared in the proposal form(s) referred to below and any accompanying information submitted with the proposal form(s).” The proposal form dated 19 November 2003 was on a form for “CONSULTING ENGINEERS and other Professions in the Construction Industry PROFESSIONAL INDEMNITY”. The covering letter dated 28 November 2003 defined Encia’s Professional Business as follows:

“The business of the firm – the predominant speciality of the business is that of environmental consultants. However, in addition to providing environmental consultancy advice, they offer other services including civil (and limited structural) design, due diligence, layout design services, land and topographical survey services, environmental health and safety systems and IPPC permit generation. A significant element of the work involves the project coordination and supervision of demolition, landfill construction and remediation contracts. The business description also needs to include Geotechnical & Environmental Consultant (including waste management & landfill design), Civil Engineers (design & construction of roads, sewers, layouts, house foundations) and Specialist Remediation Contracts (including demolition & removal of underground structures and foundations, removal of contaminants, earthmoving and re-engineering (including ground infill) to correct engineering requirements).”

Question 8 of the proposal form asked for a breakdown of fees, while question 10 asked for the details of the five largest contracts where construction has commenced during the past 6 years.

The agreed facts relating to the presence or absence of documents on the brokers’ and underwriters’ files are set out in Appendix 1.

In 2001 AIG Remediation Ltd entered into a contract with Shepherd Homes Ltd (“Shepherd Homes”) to provide civil engineering works including the design and carrying out of piling works and project management for a residential development to be constructed on reclaimed land at Eden Park in West Hartlepool.

In 2003 properties constructed on the site began to show signs of cracking due to settlement and Shepherd Homes notified Encia of a potential claim for negligent design, which notification Encia passed on to its professional indemnity insurers on 20 May 2003. The Shepherd Homes claim was a claim first made and notified during the period of the 2002-2003 Encia Policy.

In October 2005 Shepherd Homes commenced proceedings against Encia (Claim No. 5T-00595) in the Leeds District Registry, Technology and Construction Court (“the Eden Park Project Action”).

In the Eden Park Project Action:

Encia contends that Shepherd Homes’ claim in the Eden Park Project Action is covered by its professional indemnity policy which provides cover for claims for negligence (including negligent breach of contract) in the professional conduct of Encia’s business of civil and environmental engineering.

On 6 May 2005, APC Associates, acting on behalf of Insurers, confirmed that underwriters were rejecting the claim on the basis that it arose from issues of “defective and faulty workmanship on the part of the Insured and their sub-contractor… In the unlikely event of the insured seeking to pursue a claim under the Professional Indemnity policy it will be considered at that time on its merits subject to the terms and conditions of the policy.” On 8 February 2006 Watson Burton confirmed that Insurers were declining the claim because it did not come within the ambit of the policy. By a letter from Watson Burton to Addleshaw Goddard of 15 March 2006, Insurers contended that Shepherd’s claim in the Eden Park Action was excluded by Exclusion 2.

Shepherd Homes’ claim against Encia in The Eden Park Project Action is due to go to trial in June 2007. Encia commenced these proceedings in order to obtain a decision on coverage in advance of the trial of the Eden Park Project Action.

The following list of principal issues (refined during the course of the trial) was agreed between the parties.

Encia does not pursue its arguments in relation to estoppel by representation and estoppel by convention set out in paragraph 12C of the Re-amended Particulars of Claim.

Encia does not seek to rely on the change of wording of exclusion 2 of the 2001-2002 AIG Engineering Group policy to support the argument that the parties had come to an agreed meaning of the Assured’s Business in the 2001-2002 policy and thereafter, as set out in paragraph 12A(2) of the Re-amended Particulars of Claim.

Encia does not seek to rely upon the arguments which have been responded to in paragraphs 91-108 of Mr Evans-Tovey’s written opening under the heading “Agreed Meaning”.

A great deal of the evidence from the witnesses was relevant to the alternative claim for rectification, but inadmissible in relation to issues of interpretation.

Mr Stevenson was responsible, as Finance Director of the claimant, for obtaining professional indemnity cover for the Encia Group and its subsidiaries for the 2002/2003 policy year. From 1993 until the 2001/2002 policy year, he was responsible for obtaining professional indemnity cover for the AIG Engineering Group Ltd, AIG Consultants Ltd and AIG Remediation Ltd, in conjunction with Mr Steve Cook, who was the Managing Director of AIG Engineering Group Ltd.

Mr Stevenson dealt with the process of obtaining professional indemnity insurance, insurance renewals/proposals in previous years, further notification of business activities, the management buyout and the 2002/2003 renewal, design and construct projects notified under the 2002/2003 professional indemnity cover, insurance renewal 2003/2004 and the Shepherd Homes claim.

Mr Russell was employed at the material time by Heath Lambert Ltd as a professional indemnity broker. Mr Russell said that Mr Adam Burton was the account handler, and that his colleague Janos Tokok saw the leading underwriters on the layers for the 2002/2003 risks. Mr Russell broked on the basis of the information provided to him. Mr Russell said “I believe it was treated as … a renewal … one firm that had now become two firms, so not strictly a renewal but … treated as a renewal because it had the same renewal date as the original one firm … we [were] basically looking at two businesses arising from the same entity.” Mr Russell added that each risk was presented as an individual risk.

Mr Critchlow was employed by Creamer Group Plc as an Account Handler. He joined Creamer in July 2001 and was concerned as Account Handler by October 2001.

In October 2001 Mr Critchlow had little or no previous experience of professional indemnity insurance. He was unaware of design and construct policy wordings. He was unaware of the need for Encia to state in the proposal form or in the covering letter that they did contracting. Further, in October 2001 he did not forward the corporate brochure to APIA. As he accepted in his witness statement it appears, from the number of pages referred to on the front, that the corporate brochure was not attached to his fax to Mr John Lund of Heaths of 11 October 2001. He said that in his view this was a renewal of existing professional indemnity cover.

In relation to 2002 Mr Critchlow said in his witness statement: -

“Details of the business activities of the AIG Group had previously been provided to APIA in various corporate brochures including that submitted together with the Southern AIG proposal form in July 2002. On this basis, I expected that APIA would present the risk on the basis of the information provided to them previously as to AIG Group’s business activities, and that professional indemnity cover would continue to be placed, which covered all professional services provided by Encia Group.”

In cross-examination Mr Critchlow said that he expected that APIA would have a profile of AIG Group’s risks.

Again in cross-examination Mr Critchlow said that he probably first learned that there was D & C cover available in the market on the 2005 renewal.

Mr Critchlow was unclear as to when he first became aware of the terms and effect of exclusion 2 in the EC400/01 wording, but added that this was possibly in 2003.

Mr Critchlow’s evidence is not admissible in relation to the construction of the policy. It does however have a bearing on the claim for rectification.

Mr Dyer was the underwriter at Trenwick Managing Agents (“TMA”) who set the original terms for the Encia risk for 2002/2003. (These terms were subsequently amended by Mr Hyne). Mr Dyer also set the original terms for the AIG Southern risk for 2002/2003.

Mr Dyer was previously the underwriter for Trenwick International Limited (“TIL”) which wrote the AIG Group risk for 2001/2002. The extensions to the 2001/2002 risk were written by Mr Dyer as an authorised signatory of the run-off of TIL.

TIL was owned by the Trenwick Group in the United States, which at that time also owned the Lloyd’s operation Chartwell Managing Agents Limited, syndicate 839. TIL wrote business in the companies market. The professional indemnity arm of TIL had a box on the third floor of Lloyd’s. The third floor housed insurance companies (not Lloyd’s syndicates). Thus TIL had access to Lloyd’s brokers without being a Lloyd’s syndicate. Chartwell syndicate 839 wrote business at Lloyd’s. Chartwell became TMA and, after a management buy-out of the Trenwick Group’s Lloyd’s business, Canopius took on TMA’s operations and created syndicate 4444 (out of the old syndicate 839). Canopius is now handling the run-off of the 2002 and 2003 years of account of 839. When TIL ceased underwriting professional indemnity business in 2002, the TIL team moved to TMA.

Mr Dyer did not remember the broking of the Encia risk or the AIG Southern risk in November 2002 (and did not remember the placement of the AIG Group risk in October 2001).

Mr Dyer accepted that Mr Hyne would have had regard to materials relating to both AIG Southern and Encia before scratching the quote sheets with alternative quotes on 29 November 2002. This concession was in my view both inevitable and of significant importance.

To the extent that Mr Dyer purported to give evidence of “the practice in the market” this was inadmissible. No expert evidence was called.

Mr Evans is the Class Underwriter for professional liabilities at Mitsui Sumitomo syndicate 3210. Mr Evans joined Mitsui in February 2002. He was the Mitsui underwriter of the Encia risk for 2002/2003 and of the AIG Southern risk for 2002/2003. He was not involved in writing the risk for 2001/2002. In an internal document dated 3 March 2003 Mr Evans wrote of the Encia risk: -

“Not actually a new account. This is an offshoot of an existing account, AIG Consultants. A part of the risk has set it self up separately. Still doing the same stuff – Environmental work. No claims.”

Mr Russell, Mr Dyer and Mr Evans had (understandably) no or limited recollection of the presentation of the Encia risk (to the extent that they were involved). In my opinion the best guide to what probably happened is found in the contemporary documents.

5. THE SUBMISSIONS OF THE PARTIES

The purpose of taking out professional indemnity cover in addition to the other insurances which Creamer were instructed to place was to give Encia insurance cover in respect of claims for negligence, or negligent breach of contract in respect of the professional services performed by Encia viz: advice, design, supervision, project management. Encia does not contend that it applied for or obtained insurance from its professional indemnity insurers in respect of pure “building” or “contracting” risks. It is plain from the descriptions in the corporate brochures and accounts that Encia’s business was that of providing reclamation solutions which covered all stages from design through to execution.

Three general points should be borne in mind. First, the Shepherd Homes claim arises out of contracts entered into by the AIG Group in 2001 and 2002, prior to the MBO whereby AIG’s business was split between the Northern Encia and Southern AIG offices. This litigation would never have occurred if the Shepherd Homes claim had been first made and notified under any of:

As to Issue 1 “Business” is used in two roles in the insurance contract.

“Business” in the Schedule includes all business activities whereas the insuring clause and definitions clause 4 are limited to the professional elements of that business. If Business set out in the Schedule has the narrow sense of excluding any non-professional activities the modification to exclusion 2 which occurred when the wording changed from EC3 to EC4 (i.e. the last part of exclusion 2 “unless defined in the Business as stated in the Schedule”) would be rendered otiose.

Encia’s business as set out in the Schedule included everything encompassed within the ordinary meaning of Civil Engineering i.e. designing, building and maintaining complex structures. It included everything encompassed within the ordinary meaning of Environmental Engineering. This does not mean that Encia had insurance cover for all such business activities.

The dictionary definitions of “civil engineering” all include constructing as well as designing: See, for example:

The first step is to interpret the words “civil and environmental engineering” alone, to see if they have an ordinary and natural unambiguous and sensible meaning. They do. It includes designing, constructing and maintaining structures such as roads, bridges etc.

It is permissible then to have regard to the policy, proposal form and accompanying information, to ensure that there is nothing in these documents which dictates that the words “Civil and Environmental Engineering” where they appear in the Schedule should have some different meaning.

The words “and as more fully declared” used in the Schedule are expansive, as indicated by the use of “and”.

The content of the 5 November 2002 proposal form similarly has a two-fold impact on the meaning of Business in the policy:

The 6 November 2002 fax impacts both the policy schedule wider definition of Encia’s business, and the narrower sense of professional services/conduct of business for which Encia is insured.

The “information” section of an insurance slip is not part of the insurance contract. Items stated therein are, at most, a representation by the broker which, if wrong, could give rise to an entitlement to avoid the insurance policy. They are not terms of the insurance contract. Highlands v. Continental [1987] 1 Lloyd’s Rep. 108 per Steyn J.; Sirius v. Oriental [1999] 1 Lloyd’s Rep. IR 343 per Longmore J.

The impact of the accompanying information on Encia’s “Business as stated in the Schedule” includes the fact that Encia’s past business (for the purposes of the Schedule, and exclusion 2) included all that described within the brochure, the proposal form and 3 July 2002 covering letter. It made clear that the former AIG Group business included the Essen, Germany contract explicitly described in the AIG Southern proposal form as “design build and remediation scheme”. It included all that business of AIG Remediation set out at that company’s page of the brochure. Encia’s business stated in the schedule was not limited to professional services but included contracting or building, albeit that those elements of the business per se were not insured under the insuring clause of the professional indemnity policy.

The factual matrix includes the fact that the risk for the Encia 2002-2003 policy was presented alongside or simultaneously with the AIG Southern 2002-2003 policy, as a renewal of the 2001-2002 policy to which Amlin, Mitsui and Mr Dyer of Trenwick Managing Agents had subscribed. The fact that Mr Dyer had two hats, one for TIL and TMA, does not prevent the circumstances relating to TIL from being relevant factual matrix.

The factual matrix also includes:

The insurance provided by the policy covers liability for negligent act, error omission or breach of contract in the professional conduct of the professional services of Encia’s business. This does not mean to say that Encia’s business described in the policy Schedule only includes professional aspects.

Exclusion 2 does not say that the Assured has to list every conceivable type of contract where he might agree to manufacture, construct, erect, install or supply materials in order to have professional indemnity cover for the advice, design and specification element of any such contract. It would be wholly impracticable to list every conceivable type of contract in the information presented to insurers when the risk is written. On insurers’ case, the information would have to include not only contracts which the insured has entered into the past, but also future contracts, which might as yet be unknown, which could give rise to a claim during the period of the insurance.

Moreover, exclusion 2 is an exclusion of the cover for the professional conduct or service of providing advice, design or specification which would otherwise exist under the insuring clause of the policy. The burden is on the insurers to show that it is applicable, and any ambiguity in the clause is to be resolved against the party seeking to rely on it. Additionally, the exclusion forms part of the standard market wording EC4 which is the Defendant’s wording. It is also for that reason that if there are two potential meanings it is to be construed against the Defendant. See Union Camp Chemicals v. ACE Insurance [2003] Lloyd’s Rep. IR 487 at 495 paragraph 38.

If, contrary to Encia’s case, the Court were to conclude that it was necessary to identify the precise type of contract to manufacture, construct etc then Encia says sufficient information about reclamation and remediation contracts was given in the proposal form, covering letter and the AIG corporate brochure to encompass the type of contract with Shepherd Homes. There is certainly no warrant for suggesting that the insured is required specifically to mention “piling” as opposed to other types of landfill, reclamation or remediation solution.

The burden of proof falls upon insurers as to the whole of exclusion 2. It is for insurers to establish that contracting to manufacture, construct etc falls outside the business defined in the Schedule. This is part and parcel of the exclusion. It is not an exception to an exclusion of the type considered in Rowlett Leakey v. Scottish Provident [1927] Ch 55 on which the defendant relies.

The central issue between the parties is whether Insurers’ liability to indemnity under the insuring clause in respect of defective design is excluded by Exclusion 2.

In the 2002/2003 Encia Policy “Business” appears in two places:

The question for the court is: was contracting to construct or install materials or equipment, in this case piles and ring beams, defined in “Civil & Environmental Engineering and as more fully declared in the proposal form(s) referred to below and any accompanying information submitted with the proposal form(s)”?

It would be wrong to interpret the words “Civil and Environmental Engineering” without taking proper account of the words which follow.

“Civil and Environmental Engineering” was a short-form expression used to describe for the purpose of the Policy those business activities expressly identified in the Proposal Form and the Fax. “And” has many meanings; in this context it is simply used as a joining word. The words “Civil and Environmental Engineering” state in short form what has been declared in the proposal form and the information accompanying it and the additional words “and as more fully declared in the proposal form” serve to direct the reader to where a fuller declaration of the business is to be found

While “engineer” is itself a broad term, when it is preceded by the word “civil”, this generally connotes the design and supervision of the work, and not the construction work itself. See Hudson’s Building and Engineering Contracts (11^th edition, London, Sweet & Maxwell 1995), Emden’s Construction Law, Keating on Construction Contracts (8^th edition, London, Sweet & Maxwell, 2006). The words “Civil and Environmental Engineering” in the context of an environmental consultants professional indemnity policy, referred to professions and the occupation of or work normally done by professional consultant civil and environmental engineers.

In the Encia Proposal Form there was no mention or hint of contracting to manufacture construct erect install or supply materials or equipment or anything similar, or more particularly contracting for piling works.

The “accompanying information submitted with” that proposal form was simply contained in the Fax.

It was Encia’s business to specify properly, in or by way of the proposal form, the full and true nature, scope and therefore the prospective definition of Encia’s business for the purpose of the 2002/2003 Encia Policy. The place for this was Q2 in the proposal form. Mr Stevenson addressed the point by stating “see attached covering letter dated 5 November 2002”. Descriptions of Encia’s fields of service were given in the fax. Those descriptions defined Encia's business.

The 2002/2003 AIG Southern submission documents did not fall within the description of “any accompanying information submitted with the proposal form”. The AIG Southern documents were not Encia’s documents. The “proposal form(s)” referred to in “any accompanying information submitted with the proposal form” was a reference to the 2002/2003 Encia Proposal form. The documents demonstrate that Creamer (as producing broker) never intended the AIG Southern documents to be part of any accompanying information submitted with the 2002/2003 Encia proposal form. The documents also demonstrate that Heaths never intended the AIG Southern documents to form part of any accompanying information submitted with the Encia proposal form.

The defendant’s case is that on the true construction of the insurance contract Encia’s business as stated in the Schedule comprised professional services only. The words “Civil and Environmental Engineering” meant professional services. Those words should be interpreted by reference to the policy as a whole and/or the proposal form and/or accompanying information submitted with the proposal form being the fax of 6 November. The words “and as more fully declared” used in the Schedule explained the meaning of “Civil and Environmental Engineering”. The proposal form and the fax of 6 November 2002 evidenced that “Business” meant professional services. The “accompanying information submitted with the Proposal Form” did not include the AIG Southern proposal form dated 27 June 2002 or the 3 July fax or the AIG Engineering Group corporate profile. The words “in the professional conduct of the Assured’s Business” in the insuring clause fall to be interpreted by reference to “Business” in the definitions section of the policy (i.e. “the professional services arising out of the business activities which are listed in the Schedule.”).

In Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, 912H-913E Lord Hoffman summarised the principles by which contractual documents are construed as follows:

“‘(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2)

The background was famously referred to by Lord Wilberforce as the “matrix of fact”, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3)

The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4)

The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax.

(5)

The “rule” that words should be given their “natural and ordinary meaning” reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. … .”

In relation to principle (2) Lord Hoffman confirmed, in BCCI v Ali, [2002] 1 AC 251, 269[39], that

“When … I said that the admissible background included “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man”, I did not think it necessary to emphasise that I meant anything which a reasonable man would have regarded as relevant.

I was merely saying that there is no conceptual limit to what can be regarded as background. It is not, for example, confined to the factual background but can include the state of the law (as in cases in which one takes into account that the parties are unlikely to have intended to agree to something unlawful or legally ineffective) or proved common assumptions which were in fact quite mistaken. But the primary source for understanding what the parties meant is their language interpreted in accordance with conventional usage: “we do not easily accept that people have made linguistic mistakes, particularly in formal documents”. I was certainly not encouraging a trawl through “background” which could not have made a reasonable person think that the parties must have departed from conventional usage”.

In BCCI v Ali [2002] 1 AC 251, 259[8] Lord Bingham said: -

“In construing … any other contractual provision, the object of the court is to give effect to what the contracting parties intended. To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties’ relationship and all the relevant facts surrounding the transaction so far as known to the parties. To ascertain the parties’ intentions the court does not of course inquire into the parties’ subjective states of mind but makes an objective judgment based on the materials already identified.”

In The ‘Tychy’ [2001] 2 Lloyd’s Rep 403, 409[29]. Lord Phillips MR said: -

“Before taking extrinsic evidence into account, it is important to consider precisely why it is said to assist in deciding the meaning of what was subsequently agreed and to consider whether its relevance is sufficiently cogent to the determination of the joint intention of the parties to have regard to it.’ It is also important, though not always easy, to identify what is extrinsic to the agreement and what forms an intrinsic part of it. When a formal contract is drawn up and signed, care must be taken to distinguish between admissible background evidence relating to the nature and object of the contractual venture and inadmissible evidence of the terms for which each party was contending in the course of negotiations.”

In Sirius International Insurance Co. v FAI General Insurance Ltd and others [2004] UKHL 54, Lord Steyn said at paragraph 19: -

“There has been a shift from literal methods of interpretation towards a more commercial approach. In Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, 201, Lord Diplock, in an opinion concurred in by his fellow Law Lords, observed: “if detailed semantic and syntactical analysis of a word in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.” In Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, 771, I explained the rationale of this approach as follows:

“In determining the meaning of the language of a commercial contract … the law … generally favours a commercially sensible construction. The reason for this approach is that a commercial construction is more likely to give effect to the intention of the parties. Words are therefore interpreted in the way in which a reasonable commercial person would construe them. And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language.”

The tendency should therefore generally speaking be against literalism. What is literalism? It will depend on the context. But an example is given in The Works of William Paley (1838 ed), vol III, p 60. The moral philosophy of Paley influenced thinking on contract in the 19^th century. The example is as follows: the tyrant Temures promised the garrison of Sebastia that no blood would be shed if they surrendered to him. They surrendered. He shed no blood. He buried them all alive. This is literalism. If possible it should be resisted in the interpretative process. This approach was affirmed by the decisions of the House in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, 775E-G, per Lord Hoffmann and in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 913D-E, per Lord Hoffmann.”

The court may not look at the subsequent conduct of the parties to interpret a written agreement (Lewison, The Interpretation of Contracts Third Edition, paragraph 3.12 and the cases there cited).

Where a document contains technical terms which the court does not understand, the court may discover the meaning of such terms through the use of an appropriate dictionary, unless the meaning of the term is in dispute, in which case it seems that the court can only proceed upon evidence. (Lewison, paragraph 5.07).

In construing an insurance policy (i) the words used must be considered in the context of the particular clause as a whole, (ii) the clause must in turn be considered in the context of the policy as a whole, (iii) which must in its turn be set in its surrounding circumstances or factual matrix. (see Clarke LJ in MDIS v Swinbank [1999] Lloyd’s Rep I & R. 516 at 521 para 13).

The Encia policy provided professional indemnity cover in respect of professional services only. It is not suggested (nor could it be suggested) that the policy covered construction as such. The central issue in broad terms is whether in the case of a design and build contract, the design element was or was not insured.

It is convenient to repeat the material terms of the policy.

In construing an insurance policy (i) the words used must be considered in the context of the particular clause as a whole, (ii) the clause must in turn be considered in the context of the policy as a whole, (iii) which must in its turn be set in its surrounding circumstances or factual matrix.

The following points should be noted. First, the words in the insuring clause “in the professional conduct of the Assured’s Business, stated in the Schedule …” mean in the light of Definition 4):

“in the professional conduct of the Assured’s professional services arising out of the business activities … listed in the Schedule …”

Thus “the professional services” are narrower than and not the same as “the business activities … listed in the Schedule.”

Second, the ordinary meaning of the words “Civil and Environmental Engineering” covers a wide range of activities. In this connection I refer to Jackson & Powell on Professional Liability 6^th edition at paragraph 9-003 where in footnote 6 reference is made to Dr Edmund Hambly’s description (in his 1994 Presidential Address to the Institution of Civil Engineers) of the range of activities undertaken by civil engineers as follows:

“Civil engineers manage the conception, innovation, promotion, design, construction, operation, maintenance and eventual removal of the amenities of modern civilisation. These amenities range from water supply to offshore energy, transport systems to buildings, land reclamation to municipal services and industrial production to environmental improvement.”

I find that because of the split of business following the MBO, the AIG Southern risk 2002/2003 and the Encia risk 2002/2003 were at all times broked side by side on the same occasions with all underwriters concerned. In arriving at this finding I have had regard to all the contemporary documents, to the matters referred to in the relevant parts of the statement of facts and to Appendix 1. Among the contemporary documents is Mr Russell’s manuscript aide memoire in response to the Insurers’ requests for copy submissions. It is significant that this consists of a single list for both “AIG & Encia”, named in that order, with “Copies of both proposal forms, copies of NCDs, copies of additional faxes re claims and subsidiaries, copies of all endorsements iro extensions to 11/12/02. Copies for all 7 u/ws”. Further, Mr Dyer accepted that Mr Hyne would have had regard to materials relating to both AIG Southern and Encia before scratching the quote sheets with alternative quotes on 29 November 2002.

I find that all underwriters concerned knew and appreciated that what had in 2001/2002 been one risk, became in 2002/2003 two risks. As to past contracts, the newly incorporated Southern companies were to retain liability for claims arising out of contracts worked on by the AIG Southern offices, and Encia was to retain liability for claims arising out of contracts worked on by the AIG Northern offices. It would make no commercial sense (with the risks being broked side by side) for the cover in respect of the former to differ from the cover in respect of the latter.

In the circumstances described above, where what had been one risk in 2001/2002 became two risks broked side by side in 2002/2003, the matrix of fact included the materials presented in relation to the AIG Southern 2002/2003 risk and the background of the 2001/2002 risk. In particular the AIG Southern proposal form dated 27 June 2002, the 3 July fax and the AIG Engineering Group corporate profile formed part of the surrounding circumstances or factual matrix to the Encia policy, including paragraph 3 of the Policy Schedule.

In my opinion the words in paragraph 3 of the Policy Schedule (BUSINESS: Civil and Environmental Engineering and as more fully declared in the proposal form(s) referred to below and any accompanying information submitted with the proposal form(s)) when considered (i) in the context of the particular clause as a whole and (ii) in the context of the policy as a whole and (iii) when set in the surrounding circumstances or factual matrix, included all Encia’s business activities in the field of civil and environmental engineering and embraced design and build contracts (as well as design contracts). The words “and as more fully declared” are not, in my opinion, words of limitation.

The proposal form of 5 November 2002 was a proposal form in relation to “Financial & Professional Risks – Environmental Consultants – Professional Indemnity Insurance.” Thus, for example, question 2 (Professional Business of the Firm) was directed to the professional activities of the firm for the purposes of professional indemnity insurance. The declarations in the proposal form did not serve to narrow the meaning of the words “Civil and Environmental Engineering.” The same answer obtains in relation to the fax of 6 November 2002.

It would make no commercial sense, where in relation to past or continuing contracts (i) north and south risks formed part of the same risk in 2001/2002; (ii) following the management buyout those risks were divided between AIG Southern and Encia for the purposes of the 2002/2003 risks; and (iii) the two risks were broked side by side on the same occasions, that there should be any difference in the extent of cover between one set of risks and the other set of risks.

In my opinion exclusion 2 requires the definition of Encia’s business as stated in the Schedule to include contracting to manufacture, construct, erect, install or supply materials or equipment generally. Exclusion 2 contemplates that the Insured may contract to manufacture, construct, erect, install or supply materials or equipment. Encia’s “Business as stated in the Schedule” (“Civil and Environmental Engineering …”) was in my opinion on its true construction wide enough to include contracting to manufacture, construct, erect, install or supply materials or equipment. In particular the definition of Encia’s business (“Civil and Environmental Engineering …”) was wide enough to include the contract with Shepherd Homes. This conclusion does not turn on the burden of proof and so it unnecessary to consider the same.

It is common ground that the professional conduct of the Encia’s Business does include:

It is common ground that the professional conduct of Encia’s Business does not include contracting to construct or install a system of piling or piles. It is also common ground that the burden of proving that a particular liability comes within the insuring clause is on Encia.

It is common ground that the ascertainment of liability of Encia (if any) in respect of the Shepherd Homes claim and the nature and proximate cause(s) of such liability does not fall to be determined at this trial. That is a matter for the Shepherd Homes action.

It is common ground that the insuring clause provides an indemnity in respect of Shepherd Homes’ claim in the Eden Park Project Action as ascertained where one or more of the proximate causes of Encia’s liability (either for the whole of the loss or for a distinct part of the loss) comes within the professional conduct of Encia’s business, but the other proximate cause does not come within the insuring clause.

It is common ground that the insuring clause does not provide an indemnity in respect of Shepherd Homes’ claim in the Eden Park Project Action as ascertained where there are two or more proximate causes of Encia’s liability (either for the whole of the loss or for a distinct part of the loss) one of which comes within the professional conduct of Encia’s business, but the other of which is excluded from coverage under the insurance policy.

Further, it is common ground that if at trial or by settlement the only proximate cause of any part of Encia’s liability to Shepherd Homes is that the workmanship and/or materials were not of a high standard or free from defects or fit for their purpose (and such matters were not proximately caused by negligent acts, errors or omissions or negligent breach of contract in the professional conduct of Encia’s business) that part of Encia’s liability does not fall within the insuring clause.

I add two footnotes. First, the presentation materials for the 2002/2003 AIG Southern Policy were the proposal form of 27 June 2002, the covering fax of 3 July 2002, the AIG Engineering Group corporate brochure and for the later presentations, information relating to job quantities and individual contract information provided by Creamer on 27 November 2002 (in order to obtain retrospective cover) as well as a no claims declaration dated 2 January 2003. These documents appear together attached by a clip in the Heaths file entitled “AIG Engineering Group”, which states on its cover, “cross check with AIG Consultants Ltd and Encia Group”. I find that all of these documents including in particular the AIG Engineering Group corporate brochure, were shown to Insurers before they placed their stamps on the 2002/2003 AIG Southern slip. Further, paragraph 10 of the AIG Southern proposal form (in answering the question – “Please detail your five largest environmental contracts commenced during the last five years”) stated under the heading “Extent of Service provided” – “Design, Build and Remediation Scheme”. In the above circumstances it is in my opinion clear that if the Shepherd Homes claim had, upon the division of the business following the MBO, fallen to be dealt with under the AIG Southern policy, AIG Southern would have been covered in respect of the professional services arising out of the Shepherd Homes contract. As pointed out above it would make no commercial sense that there should be any difference in the extent of cover between one set of risks and the other set of risks, when the two sets of risks were broked side by side on the same occasions.

I add a second footnote. I refer to the agreed facts in Appendix 1 relating to the presence or absence of documents on the underwriters’ files. The fact that on some underwriters’ files, AIG Southern documents appear on the Encia file and/or Encia documents appear on the AIG Southern file, provides further support for the conclusion that the AIG Southern risk 2002/2003 and the Encia risk 2002/2003 were at all times broked side by side on the same occasions with all underwriters concerned, and that all underwriters concerned knew and appreciated that what had in 2001/2002 been one risk became in 2002/2003 two risks. I do not accept the contention that the position of such documents on particular files was due to error.

The conditions which must be satisfied if rectification is to be granted on the grounds of common mistake are as follows:

In the light of my conclusions set out above it is not necessary to consider the alternative claim for rectification.

Mr Evans-Tovey for the Insurers accepted that if (as I find) the defendant loses on exclusion 2:

It is common ground that the Insurers’ obligation to pay costs has been triggered by the making of Shepherd Homes’ claim and is not postponed until the ascertainment of any liability in the Shepherd Homes action.

It is also common ground that if, as ascertained, any liability of Encia for the Shepherd Homes claim falls outside the coverage of the insurance policy, the Insurers are entitled to be reimbursed in respect of any expenditure in costs which they have incurred in respect of such liability.

Creamer have disclosed three placing files. The files bear the following titles:

“AIG + Encia Broking File 1 2001/2002 incud. MBO negot.” (“Creamer File 1”);

“AIG + Encia Broking File 2 2001/2002 includes MBO negotiation” (“Creamer File 2”); and

“Encia: MBO to Renewal 2003” (“Creamer File 3”).

Creamer have been unable to locate the 2000/2001 placing file.

Creamer File 1 contains the original covering letter of 10 October 2001 from AIG Remediation Ltd to Creamer and the 8 October 2001 proposal form (although the two are not attached to each other). File 1 also contains the original letter of 27 June 2002 from Mr Tony Tompkins to Creamer and the proposal form of the same date. In a separate clip is a copy of the AIG Engineering corporate brochure that was provided to Creamer with that proposal form.

Creamer File 2 contains the 2 December 2002 e-mail from Mr Adam Burton of APIA to Critchlow of Creamer attaching lead indications from underwriters for both Encia and AIG Southern as two Microsoft Word documents.

Creamer File 3 is the only Creamer file which contains the 6 November 2002 covering fax and the 5 November 2002 proposal form for the placement of the Encia 2002/2003 risk. It also contains the 6 November 2002 fax from Creamer to XL seeking an initial quotation. The file does not contain the AIG Southern presentation documents or any corporate brochure. Creamer File 3 also contains a copy of the perfected Encia Policy for 2002/2003.

In addition, Creamer possess and have disclosed a colour version of the corporate brochure sent to them by AIG Remediation in October 2001. That document had become separated from the Creamer files prior to disclosure, but it is likely that it came from Creamer File 1.

Three APIA/Heaths’ placing files have been disclosed. The files bear the following titles:

The Heaths AIG Group File does not contain a copy of the AIG Engineering Group corporate brochure sent by AIG Remediation Ltd to Creamer on 10 October 2001. It contains two copies of the version of the Corporate Brochure passed to Heaths by Graham Smerdon of Creamer in October 2000. One copy is attached to the October 2000 AIG proposal form. The other is a colour version towards the back of the file attached to the faxes of 26 May 2000 and 13 June 2000 and special endorsement 3. The file does contain the fax of 11 October 2001 attaching the 10 October 2001 covering letter from AIG and the proposal form of 8 October 2001. The fax runs to ten pages.

The Heaths Encia File contains a clip of presentation documents for the 2002/2003 Encia policy, as described above, behind a Heaths PI order form. The Heaths Encia File does not contain a copy of the AIG Southern letter of 3 July 2002, the proposal form of 27 June 2002 or the corporate brochure. It contains the final Encia 2002-2003 slip stamped and scratched by underwriters and a perfected policy including the completed schedule. The file also contains the 2002/2003 AIG Southern amended quote sheet and the 2002/2003 Encia amended quote sheet scratched by each insurer and the scratched quote sheets for the excess layer in respect of both risks. These documents appear towards the back of a large clip, below and between documents relating to the 2003/2004 renewal. The Heaths Encia File also contains both the Northern and Southern “crib sheets” attached together at the back of the same large section as the initial quote sheets for both risks scratched by TMA and Amlin. This clip of documents runs from 4 October 2002 to 22 January 2004. On the back of the Southern crib sheet is another page of manuscript showing premium indications for both Southern and Northern marked “Wed – 1pm 11/12/02” in the top right corner. The Northern “crib sheet” appears on the facing page to the Southern.

As to Heaths AIG Southern File, the 3 July 2002 letter from Creamer to APIA, the 27 June 2002 proposal form and the AIG Engineering Group corporate brochure are to be found on Heaths’ AIG Southern file as part of the clip of presentation documents. The clip also holds an e-mail from Creamer with the job values of the AIG Southern offices and lists of contracts to be retrospectively insured with AIG Southern, both dated 27 November 2002 and a no claims declaration of 2 January 2003. The file also contains the final AIG Southern 2002-2003 slip stamped and scratched by underwriters. It does not contain the 6 November 2002 covering fax or the 5 November 2002 proposal form. The Heaths AIG Southern file does contain Encia’s perfected excess policy for the 2002/2003 year.

Mitsui’s Encia file for 2002/2003 contains copies of the original quote sheets for both the AIG Southern and Encia risks scratched and amended by Mr Dyer of Trenwick on 19 November 2002, and scratched by Mr Dorning of Amlin on 20 November 2002, stating “sub South and North placed with current uws”. In addition, Mitsui’s Encia File contains both the AIG Southern 27 June 2002 proposal form and the Encia 5 November 2002 proposal form. It does not contain a copy of the corporate brochure.

Mitsui documents relating to the Encia risk as initially disclosed on the first disclosure exercise, before Encia re-amended its case in relation to AIG Southern, contained a copy of the corporate brochure. Mitsui’s claims department had copied scanned and e-mailed documents to Watson Burton from Mitsui’s Encia file and AIG Consultants/AIG Engineering file (Mitsui’s AIG Southern File). It was understood that these documents had come from the Encia file only when that was not the case. When Mr Anthony Brown of Watson Burton, Insurers’ solicitors, came to inspect the original files on 15 February 2007, he found that the corporate brochure was only on the AIG Southern File. It is accepted that the corporate brochure only appeared on the disclosed Mitsui Encia file as a result of an error in copying and/or scanning documents for disclosure in this matter.

Mitsui’s AIG 2002/2003 file contains the AIG Engineering Group corporate brochure. It also contains both the AIG Southern 27 June 2002 proposal form with the 3 July 2002 fax and the Encia 5 November 2002 proposal form with the covering letter of 6^th November 2002.

It is Insurers’ case that the AIG Southern documents that appear on the Encia file and the Encia documents that appear on the AIG Southern file are there due to misfiling on the part of Mitsui’s underwriting assistant. Encia does not accept this. Encia’s case is that the insurers made reference to documents relating to AIG Southern and Encia in writing both risks.

The Amlin Encia file 2002-2003, which is an electronic file, contains a PI Risk/Renewal Information sheet for Encia describing the risk as “Civil + Environmental Eng”. It remarks that “AIG Consultants have split into two separate [sic] entities. Encia is the old Northern section of this Group.” There is then an S2000 Underwriting Entry Form which describes the risk as new, and the business as “Civil + Environmental Engineer”. The Amlin Encia File also contains the 3 July 2002 letter from Creamer to Heaths, the 27 June 2002 proposal form for AIG Southern and the AIG Engineering Group corporate brochure. The file does not contain the 6 November 2002 letter or the 5 November 2002 proposal form relating to Encia.

The Amlin AIG Southern 2002-2003 file (again electronic) contains a PI Risk/Renewal Information sheet for AIG Southern, again, describing the risk as civil and environmental engineers. The document notes: “Income reduced due to MBO of Northern Section. We still write both sections. Encia ref …”. There is also on the file the letter from Creamer to Heaths of 6 November 2002 and the Encia proposal form dated 5 November 2002. A copy of the amended quote sheet for Encia also appears on the file. It does not contain the AIG Southern 3 July 2002 fax, 27 June 2002 proposal form or the corporate brochure.

It is Insurers’ case that the Encia and AIG Southern documents have been saved under the wrong electronic reference due to misfiling. Encia does not accept this contention.

The first page of TMA’s Encia file is a risk information form marked “R” for renewal.

TMA’s Encia file contains the signing slip stamped and signed by Mr Hyne. It contains the 6 November 2002 covering fax from Creamer and the proposal form for Encia dated 5 November 2002. It also contains an amended Encia quote sheet scratched by all insurers and NCDs of 23 December 2002 and 30 January 2003. It does not contain AIG Southern presentation documents. The Encia file also contains detailed claims information, including statements of case, in relation to the Wivenhoe Quay claim. That was a claim arising out of an AIG Southern contract pre MBO.

The TMA AIG Southern file contains a risk information form marked “R” for renewal. The AIG Southern file contains the signing slip stamped and signed by Mr Hyne on 23 January 2003. It contains the 3 July 2002 covering fax from Creamer and the proposal form for AIG Southern dated 27 June 2002 with the AIG Engineering Group corporate brochure directly behind it. The file contains the lists of contracts from the Wolverhampton, Basildon and London offices provided by Creamer to APIA on 27 November 2002. It also contains an AIG Southern amended quote sheet scratched by all insurers and a NCD of 2 January 2003. The file does not contain the Encia presentation documents.

The Brit AIG Southern file contains a quote sheet for the AIG Southern £5m excess £5m layer signed by Brit, which identifies the proposal form of 27 June 2002 as having been seen and noted by underwriters, and also notes that the premium on the primary layer is £24,000. The Brit AIG Southern file also contains the Southern “crib sheet”, referring to the business as “Environmental Consultants + as per Northern”. Following that document is a partial copy of the 5 November 2002 proposal form for the Encia risk.

The Brit Encia file contains the Encia primary layer signing slip, stamped and scratched by three of the four insurers, and scratched by Mr Chater of Amlin “33 1/3 % FON – ref & submission”. It contains a quote sheet for the Encia £5m excess £5m layer signed by Brit, which identifies the proposal form of 27 June 2002 as having been seen and noted by underwriters, and also notes that the premium on the primary layer is £68,000. The Encia file contains the Northern “crib sheet” and a partial copy of the 5 November 2002 proposal form and the 6 November 2002 covering fax. On the Northern “crib sheet” business was identified as “Environmental Consultants +” and below “BIO: Structural/Civil Engineering Design + see highlighted”. The paragraph in the covering fax dealing with question 2 on the proposal form was highlighted.