Markel Capital Ltd v Gothaer Allgemeine Versicherung AG & Anor

The claimant reinsurer (to whom I refer as “Markel”) applies for summary judgment against the defendant reinsureds, two German insurance companies, Gothaer Allgemeine Versicherung AG and Continentale Sachversicherung AG (“Continentale”), either upon the whole claim or upon certain issues, and the defendants make similar applications against Bloemers & Partners Limited (“Bloemers”), who are Lloyd’s brokers and against whom the defendants have brought a part 20 claim. The trial is listed for hearing in December this year, and witness statements have been exchanged.

Markel sues as a representative member of Lloyd’s Syndicate 702 for the year 2000, and seeks a declaration that it is not liable to the defendants under a contract of reinsurance (the “reinsurance contract”). (The first defendant was not in fact originally reinsured under the reinsurance contract, but acquired its rights from Gothaer Versicherungsbank VVaG by a portfolio transfer under German law that took effect on 30 June 2001, but that is not relevant in these proceedings. In this judgment, I refer to the two companies simply as “Gothaer” without distinguishing them, and I refer to Gothaer and Continentale together as the “Reinsureds”.) The reinsurance contract is a proportional reinsurance of DEM 24 million of the Reinsureds’ proportion of an insurance of directors’ and officers’ liability of West Deutsche Landes bank Gironzentrale (“WDLB”), the leading underwriter on the original insurance being Chubb Insurance Company of Europe SA (“Chubb”). The claim that gives rise to this dispute arises from alleged liabilities of the members of WDLB’s Management Board in relation to dealings with a customer called Box Clever. Chubb settled the Box Clever claim (as I shall call it) in 2006 for Euros 14.75 million, plus costs, and the Reinsureds have paid Chubb their share.

Markel contends that it is not liable under the reinsurance contract to indemnify the Reinsureds in respect of the Box Clever claim because a condition precedent to its liability was not satisfied. The Reinsureds dispute this and bring a counterclaim against Markel. They also claim in part 20 proceedings against Bloemers, who broked the reinsurance contract to Markel on their behalf.

The relevant principles governing the summary determination of claims and issues are, unsurprisingly, not controversial. It is for the applicant to demonstrate that the respondent has no real prospect of success in his claim or defence or on the issue, as the case may be, and a “real” prospect of success is one that is more than fanciful or merely arguable. It is not suggested on these applications that if Markel shows that the Reinsureds have no real prospect of success there is another compelling reason why the case or issue should be disposed of at a trial. Bloemers accept that if and to the extent that Markel succeeds in its application against the Reinsureds, the Reinsureds will succeed in their application against Bloemers.

In outline Markel contends that it is not liable under the reinsurance contract in relation to the Box Clever claim because:

Gothaer and Continentale are members of a pool of German and Dutch insurance companies that writes directors’ and officers’ liability business, and the manager of the pool is VOV, a company incorporated by the pool members. VOV, according to Mr. Harald Böttcher of Continentale, acts as general agents for the pool in relation to writing and reinsurance of pool business, and handling the claims on pool business. The WDLB risk was first offered to the pool, but it fell outside its business guidelines and the pool declined to write it. Gothaer and Continentale were willing to do so outside the pool arrangement provided VOV could obtain reinsurance for them, and VOV approached Bloemers to place it.

The reinsurance contract was made on 16 June 2000when Ms Francesca Bristo, a directors’ and officers’ liability underwriter with Markel, subscribed to a slip presented by Bloemers. The slip provided that no formal policy was to be issued, and it contained the standard wording: “Whereas the Reinsured, specified in the slip to which this slip contract is attached, has paid the premium to Us, the Underwriters, who agree to reinsure the Reinsured’s interest as set out in the slip and its attachments and/or endorsements applicable thereto, The Underwriters … hereby bind themselves …”.

The reinsurance was for a period of 36 months from 1 January 2000 (“and/or as original or dates to be advised Slip Leading Underwriter only”). The slip described the “Reinsured” in the following terms: “Gothaer Versicherungsbank VVaG and Kontinentale Versicherungs-AG as per VOV GmbH”. The “Interest” was “To indemnify the Reinsured for their participation in the Original Policy and/or as Original”. There was “Reinsured’s Retention” of “DEM 1,000,000 part of the original limit (0.4pct)”. One of the “Conditions” read “Claims Co-operation Clause (wording to be agreed)”.

Ms Bristo’s evidence is that her practice at the time was to insist upon a CCC in reinsurance covers that she wrote, and that she would have had in mind what she called the “SCOR” wording. Indeed, she had written “SCOR wording” on one slip relating to the WDLB risk that she had initialled in March 2000 by way of a “hold covered” arrangement before subscribing to the reinsurance contract. No CCC was agreed by Ms Bristo at the time that she wrote the risk in June 2000. When Lloyd’s Policy Signing Office (“LPSO”) processed the slip in order to collect the premium, the four pages of the slip were stamped but, as far as the evidence goes, no CCC was then stamped.

Markel contends that the CCC was agreed in January 2001 when a copy of it was scratched by Mr. Patrick White, Ms Bristo’s deputy underwriter. (It has an alternative case that the wording of a CCC had already been agreed before Ms Bristo subscribed to the risk in June 2000, but it does not seek summary determination of that contention and it is therefore irrelevant for present purposes.) Later in November 2002, the reinsurance contract processed by LPSO included a copy of the CCC scratched by Mr. White. He cannot recall scratching the clause, but says that he might have agreed a clause in relation to a risk written by Ms Bristo, if, for example Ms Bristo was not available to scratch it. The date of the scratch is unclear: it could be either 10 or 16 January 2001. Mr. White says that it looks to him more like 10 January.

The clause reads as follows:

“Notwithstanding anything contained in the Reinsurance Agreement and/or Policy wording to the contrary, it is a condition precedent to any liability under the policy that-

(a)

the Reinsured shall upon knowledge of any circumstance which may give rise to a claim against them, advise the Reinsurers immediately, and in any event no later than 30 days;

(b)

The Reinsured shall co-operate with the Reinsurers and/or their appointed representatives in the investigation and assessment of any loss and/or circumstances giving rise to the loss;

(c)

No settlement and/or compromise shall be made or liability admitted without prior approval of the Reinsurers.”

The copy of the clause that was included in the reinsurance contract processed by LPSO was not on Bloemers’ headed paper, it does not bear the number of the slip policy, and Mr. White’s scratch is not an original initial but a photocopy. (The original document is not in evidence and apparently has not been found.) It is amended in manuscript, the word “or” in clause (c) being an alteration from “and”, and it is marked with a manuscript arrow pointing to sub-clause (c). Mr. White’s evidence is that the alteration is not his manuscript, and the handwriting was not recognised by Ms Jane Cant, a director of Bloemers, who therefore believes that it is not that of a past or present employee of her company. (Markel has made it clear that it might argue at trial that Ms Cant’s evidence should not be admitted, but accepted that I should consider it for the purpose of these applications.)

The slip was processed by LPSO on 28 November 2002. Mr. John van der Hoff, who was employed by Bloemers from around November 2002 on a freelance basis to deal with a backlog of risks placed in the London market that had not been finalised, gave evidence about the LPSO procedure, distinguishing what he called “phase 1”, when at the time that the risk is written LPSO processes the premium and allocates an LPSO signing number, from “phase 2”, when the broker submits the policy or the wording and broker’s slip to be signed and embossed by LPSO. Mr. van der Hoff explained that, when dealing with the “phase 2 process” in November 2002, he saw the slip scratched by Ms Bristo. At some point he wrote the words “Slip Policy” on its front cover. Mr. van der Hoff also observed pencil markings on the slip, including an asterisk against the provision “Claims Co-operation Clause (wording to be agreed)”, and since it was his practice when reviewing policies to mark in pencil points for further consideration, he thinks that these might be his marks: he might have made the asterisk when he checked the slip and found no CCC, reminding himself that it needed to be agreed before sending the policy to LPSO. He explains that, if he was dealing with the matter, he would have spoken to the brokers to establish the position about what CCC the underwriters intended to include in the reinsurance contract, and when a clause was agreed, he would have sent the slip and the wording to LPSO. Mr. van der Hoff believes that he would in these circumstances have spoken to Mr. Pim van der Drift, who was handling the risk, if he was available; but Mr. van der Drift has no recollection of such a conversation, and did not, as far as the evidence goes, speak to any underwriter about a CCC for the risk.

Accordingly, Mr. van der Hoff’s evidence is that if he wrote the asterisk, he would expect that the CCC was agreed in November 2002, between the time that he started working for Bloemers and the time that the slip was processed by LPSO. However, against this Mr. van der Hoff also commented on the quality of the copy of the CCC that is bound with the slip. Bloemers’ usual practice, he said, was to have a neatly typed copy without manuscript amendments and bearing the policy number and an original underwriter’s signature. He does not believe that, if provided by a broker with a copy of such poor quality as that in evidence in this case, he would have bound it into the slip policy and sent it to LPSO.

It seems that thereafter Bloemers considered that the terms of the reinsurance contract were those which had been processed by LPSO. Thus, when Mr. van der Drift was asked for the reinsurance slip by VOV in November 2004, he supplied it in the form bound by LPSO, including the CCC. However, the Reinsureds and Bloemers now contend that the CCC that in November 2002 was processed through LPSO as a term of the reinsurance contract was agreed by Mr. White not in relation to the WDLB risk but in relation to a different risk broked to Markel by Bloemers, namely facultative excess of loss reinsurance of Aachener und Munchenen Versicherung AG and other reinsureds in respect of a policy of directors’ and officers’ liability insurance for BASF Aktiengesellschaft (the “BASF” risk). The broker with Bloemers who dealt with the BASF risk was Ms Karen Saddington, who died in 2004, and she was responsible for completing the placing of the risk with overseas insurers, namely Munchener-Ruckversicherungs-Gesellschaft (“Munich Re”) and Liberty International Insurance Company of Ireland (“Liberty”).

The excess of loss cover for the BASF risk was structured in two layers, a layer of DM230 million over DM140 million and a layer of DM230 million over DM370 million. The lead underwriter on the first layer was, it appears, Hiscox, whose stamp on the slip is dated 10 January 2001. Markel’s stamp is immediately beneath it on the slip. It is undated, but the slip was sent by fax from Bloemers to Munich Re and to Liberty on 11 January 2001, with a request to confirm that they would write cover. Accordingly there is evidence that Markel subscribed to the first layer on 10 or 11 January 2001. Mr. White wrote next to the stamp that he subscribed to the first layer “Subject to lead underwriter” (that is to say, to the conditions that applied to Hiscox’s participation) and “Claims cooperation clause”. As for the second layer of reinsurance of the BASF risk, Markel’s is the only stamp on the slip that is in evidence and Markel apparently led the layer. Again, Markel subscribed to the layer subject to certain conditions recorded in a manuscript note of Mr. White on the slip, including a CCC.

There is in evidence a page of what appears to be a quote slip for the second layer for the BASF risk, scratched and annotated by Mr. White with a date of 9 January 2001. Since the annotation refers to conditions for the first layer, it seems that he also initialled a quote slip for the first layer on or before 9 January 2001. The slip and the annotation do not refer to a CCC.

On 16 January 2001 at 18.50 German time (or 17.50 UK time) Munich Re sent to Bloemers signed copies of the placement slips and also asked for a copy of the CCC “as requested by” Markel. According to Mr. White, he would probably not have been available at that time in the evening to agree a CCC in response to Munich Re’s request and would have remembered if a request had been made at that hour. On 17 January 2001 Ms Saddington sent to Munich Re what she called “the claims co-operation clause as requested by” Markel: what she sent was a provision identical to that bound into the reinsurance contract. When the slips for the BASF contracts were processed by LPSO, they included a CCC in the terms sent to Munich Re by Ms Saddington, but typed on Bloemers’ headed paper with the original initial of the leading underwriters and bearing a reference number. (The source and significance of the reference number is something of a mystery. Ms Cant does not recognise it and therefore does not believe that the document initialled by Mr. White came from Bloemers’ system or was printed in their office.) However, Bloemers’ risk contract file includes an exact replica of the CCC as it appears in the reinsurance contract as processed by LPSO.

Markel seeks summary determination of the issue whether the wording of a CCC was agreed as a term of the reinsurance contract by Mr White scratching a clause presented to him by Bloemers in January 2001. (The wording of the issue refers to the slip being presented “on or about” 16 January 2001, but it is not suggested that it does not cover the possibility of the CCC being scratched on about 10 January. In its application notice, Markel also sought summary determination of an argument by the Reinsureds about rectification of the reinsurance contract as processed by LPSO, but in view of the way that the argument developed, that does not call for separate consideration.)

Markel submits that the Reinsureds have no real prospect of defeating its case that the CCC that Mr. White agreed in January 2001 and that was included in the slip policy that LPSO processed in November 2002 was agreed by the parties as a term of the reinsurance contract. There is no dispute that the reinsurance contract that Ms Bristo agreed on 16 June 2000 provided that the parties should agree upon the wording of a CCC. It would be expected that the parties should act on that agreement, but the Reinsureds’ position, it is observed, would apparently mean that they did not do so. Bloemers proceeded on the basis that the clause scratched by Mr. White was a term of the reinsurance contract, submitting it to LPSO on that basis, and Bloemers have no explanation for why this was done unless it was an agreed term of the reinsurance contract. Markel argues that the evidence of Bloemers, and in particular that of Mr. van der Hoff, confirms that someone acting for Bloemers believed that the clause was a term of the reinsurance cover: it would not otherwise have been sent to LPSO. Although Bloemers responds that it is not clear that Mr. van der Hoff submitted the risk to LPSO, the CCC was clearly submitted to LPSO because someone at Bloemers believed that it had been agreed by Markel as a term of the reinsurance contract.

What then of the argument that the clause scratched by Mr. White relates to the layers of the BASF risk and not to the WDLB reinsurance? Markel argues that it is unlikely that he scratched it on 10 January in relation to the BASF risk: if the CCC was agreed at or before the time that he subscribed to the risk, he would not have annotated the slips with a condition about agreement of a CCC, and if the clause were presented shortly after he had subscribed, the usual practice, according to Mr. White, would have been to delete the condition from the placement slip. The slips were sent to Munich Re on 11 January 2001 without any suggestion that the wording of a CCC had been agreed. It is also said to be unlikely that Mr. White scratched the CCC as a term of the BASF layers on 16 January 2001 in response to Munich Re’s request: this would mean that Mr. White is wrong in his belief about the date that he wrote. There would have been no reason to agree the wording of a CCC outside normal broking hours in response to Munich Re’s enquiry, and on 17 January 2001, Ms Saddington sent Munich Re a copy of the CCC “as requested” by Markel, without indicating that it had already been agreed. This communication, Markel submits, is consistent with Markel proposing in relation to the BASF layers a CCC in the same terms as it had by then agreed for the reinsurance contract.

Markel puts forward further arguments that the CCC was not agreed for the BASF risk. First, Mr. White wrote on a copy of the second layer slip policy an endorsement “Agree Stage one”, which, he explains, informed LPSO that it was authorised to accept premium even though the terms of the reinsurance contract had not been fully agreed. Further, on 29 March 2001 Ms Bristo annotated conditions of the slip policy issued by LPSO for the second layer that include the words “Claims Co-operation Clause CAC/L0101174.01”, and on the same day initialled the CCC attached to the slip policy. It is said that if Mr. White had already initialled a CCC, that version would have been submitted to LPSO. Thirdly, in relation to the first layer of the BASF risk a CCC initialled by Hiscox on 4 October 2001 was submitted to LPSO: Hiscox were not asked to sign the clause that Mr. White had scratched: it is suggested that this was because Mr. White had not agreed the CCC as a term of the BASF risk.

Accordingly, Markel submits that on the evidence that is available, there is no real prospect of the trial judge rejecting its contention that Mr. White agreed the CCC for the reinsurance contract. Moreover, it is said, there will not be further relevant evidence at trial and cross-examination will not assist in determining it.

I see force in the points made by Markel, but I am unable to accept its submission that there should be summary judgment upon this issue. Since this is a question of fact that will shortly be determined after a trial, I should, I think, only give brief reasons that I take this view and not make detailed comments about the evidence.

Undoubtedly Bloemers proceeded in November 2002 and afterwards on the basis that the CCC had been agreed in relation to the WDLB risk. However, it seems that the reinsurance contract that was presented to LPSO was not drawn up in accordance with Bloemers’ usual practices and the documentation was not of their usual standard. This prompts the question whether Bloemers might have made some mistake in its procedures that led to the CCC being included in the reinsurance contract.

Bloemers argues against this background that it is more probable that Mr. White agreed the CCC in relation to the BASF risks than the reinsurance contract. There is no obvious reason that the parties should agree upon the wording of a CCC for the reinsurance contract in January 2001, during the busy renewal period. There was apparently no other activity in relation to the WDLB risk at around this time; it had been written by Ms Bristo over six months before and there is no suggestion that the parties had done anything in the intervening period to agree the wording; and the slip policy and wording were not submitted to LPSO until October 2002. On the other hand, whatever the precise timing surrounding the placing of the BASF covers, it would be natural for Mr. White to agree a CCC for them in January 2001.

Miss Fiona Sinclair, who represents Bloemers, argues that Mr. White might have scratched the CCC on 16 January 2001 in relation to the BASF risks. She points out that, while Mr. White’s evidence in his statement of 30 July 2008 is that the date of his scratch appears to him to be 10 January 2001, the case initially pleaded by Markel was that it was dated 16 January 2001. Mr. White would, no doubt, be cross-examined at a trial about this and also about his evidence that he would not have scratched a CCC in the evening of 16 January 2001 after Munich Re asked for a copy of the CCC, and I am not persuaded that the terminology of Ms Saddington’s response to Munich Re on 17 January 2001 is necessarily inconsistent with this.

I cannot accept that this issue should be decided summarily or that there is no real prospect of the Reinsureds succeeding upon it. I consider that the trial judge might well be assisted in deciding it by oral evidence from Mr. van der Hoff and Mr. White.

There are two issues before me about whether the knowledge of VOV triggered the condition precedent in sub-clause (a) of the CCC. They are formulated as follows:

“Is the definition of the Reinsured … an agreement between the Claimant and the Defendants that VOV would act as the Defendants’ agent for all purposes in connection with and relating to the Reinsurance?

Alternatively …, did VOV when receiving and giving notice of the Box Clever claim have ostensible authority to act as the Defendants’ agent for that and all purposes in connection with and relating to the Reinsurance by reason of the definition of the Reinsured in the Reinsurance?”

On the first of these issues, Markel submits that upon its proper construction sub-clause (a) of the CCC stipulated a condition precedent to its liability that it was advised within 30 days of VOV having knowledge of any circumstance that might give rise to a claim against it. It argues that the description of the “Reinsured” in the slip as Gothaer and Continentale “as per” VOV is to be understood as a definition of the meaning of “Reinsured” that applied whenever the term was used in the reinsurance contract; that the only natural meaning of the expression “as per” VOV is that the Reinsureds were acting by VOV for all purposes connected with the reinsurance and that VOV was their agent for all such purposes; and accordingly the use of the term “Reinsured” in sub-clause (a) of the CCC means that knowledge of VOV is knowledge triggering the condition precedent. Thus, as the argument runs, it is irrelevant whether VOV had actual (or apparent) authority to receive information of behalf of the Reinsurers: the contractual arrangement was that VOV’s knowledge should be treated as that of Gothaer and Continentale in relation to the reinsurance.

I am unable to accept that the description of the Reinsured in the slip has the meaning and effect for which Markel contends: that it is a definition of Reinsured that is to be imported into the reinsurance contract wherever the term is found. This meaning simply does not fit some of the uses of the word “Reinsured” in the slip contract. For example, the agreement was to reinsure the “Reinsured’s” interest, and the interest is to indemnify “the Reinsured”. In these contexts, the role of VOV is nothing to the point: it was the Reinsureds, not VOV or the Reinsureds acting through VOV, who were to be indemnified.

Further, as I understood the argument of Ms Rebecca Sabben-Clare, who represents Markel, its primary submission is that the words “as per VOV” are to be understood to provide that the Reinsureds were to act through VOV (and only to act through VOV) in respect of all matters relating to the Reinsurance. Indeed, the basis of her argument is that “as per VOV” means that the Reinsured will always act through VOV. However, this argument has absurd results. As far as sub-clause (a) of the CCC is concerned, for example, it would mean that the condition precedent was not triggered if the Reinsureds themselves knew of a relevant circumstance but VOV did not, and it would mean that the condition precedent would not be satisfied if the Reinsureds, not VOV, advised Markel of relevant circumstances. The Reinsureds would be in an impossible position if VOV ceased to exist or their business relationship with VOV otherwise ended during the currency of the reinsurance contract.

The Reinsureds submit that the words “as per VOV” in the description of the “Reinsured” refer only to the fact that VOV acted for the Reinsureds in connection with the placement of the reinsurance contract, in that VOV gave instructions to Bloemers. Markel argues that this interpretation is to be rejected because it means that the words “as per VOV” do not contribute to the meaning and effect of the contract. I accept that observation as far as it goes, but it does not seem to me unnatural for a slip contract of this kind to specify that the Reinsured is entering into it through an agent, and I cannot give great weight to Markel’s argument of surplusage in this context.

Markel also says that VOV recognised that it was the agent of the Reinsureds when it learned of the Box Clever claim: in a communication to Bloemers dated 23 November 2004 it said that Chubb had informed “us” of the Box Clever claim and referred to itself, VOV, as having “participated” in the reinsurance, writing, “Could we kindly ask you to inform the other participants of the reinsurance on behalf of our part, as we will keep you informed as soon as we receive some news”. This correspondence is not a proper aid to interpreting the reinsurance contract, but in any case I am unable to attribute significance to the terminology used by VOV.

I therefore conclude that the contractual description of the Reinsured does not mean that VOV’s knowledge triggers the condition precedent in sub-clause (a) of the CCC.

The second issue about the knowledge of VOV before me reflects another argument of Markel based upon the description of the Reinsured in the reinsurance contract: that thereby Gothaer and Continentale held VOV out as having their authority to receive information on their behalf and so VOV’s knowledge is to be treated as their knowledge because of the ostensible authority thereby conferred on VOV. I am unable to accept the description of the “Reinsured” bears such a meaning for the reasons that I have already explained. Further, there is no evidence that Markel relied upon the statement of the Reinsured as having this meaning. I reject the argument of ostensible authority.

It does not follow that VOV’s knowledge of a relevant circumstance cannot start time running under the CCC for advising Markel of relevant circumstances. That question, as I see it, depends upon whether VOV in fact had such knowledge in the capacity of the Reinsureds’ agent, and it is not before the court on these summary judgment applications.

I decline to give summary judgment for Markel on any of the issues before me or on its claim, and therefore decline to give summary judgment for the Reinsureds against Bloemers. I invite submissions as to what order I should make in light of this judgment, including what determination I should make about the proper meaning and effect of the description of the Reinsured.