Feature
Why take the chance, why not just do it? When is a broker obliged to clarify terms with the underwriter? Andrew Horne and Nick Frith, Minter Ellison Rudd Watts it sought, on which none of the 12 underwriters’ defences succeeded. Against the remaining two underwriters, Ark and Advent, the Bank was unsuccessful on the basis that certain of Edge’s statements during the underwriting process gave rise to an estoppel, the result of which was that the Bank could not rely upon the TPC against those two.
T
he English High Court repeated the question “Why take the chance, why not just do it?” when assessing whether an insurance broker, Edge, was obliged to clarify unusual policy terms with underwriters in order to protect its client (Bank) from a coverage dispute. The judgment runs to over 1,000 paragraphs and the evidence and submissions were extensive, even though they were largely conducted via Zoom because of COVID-19. The short answer to the second question is that, in certain circumstances, a broker is obliged to raise unusual proposed terms proactively with underwriters to avoid the risk of a later dispute as to whether cover exists as the broker (and client) expected. If that duty is breached, the broker may be liable not only for the loss suffered due to the unavailability of indemnity (if the underwriters succeed), but also for the client’s costs of suing the underwriters (sometimes even where the underwriters lose). The focus of this article is upon brokers’ duties where underwriters dispute cover. The facts
Edge placed a marine cargo policy for the Bank which was 16
June 2021
underwritten by 14 underwriters. It contained an unusual “Transaction Premium Clause” (TPC) which the Bank asserted provided cover for losses suffered as a result of a customer’s payment default on cargo transactions in the absence of physical loss or damage to cargo. The Bank suffered significant losses totalling some £5 million. The underwriters declined cover under the policy. The main issue was whether the policy provided the cover sought and/or whether the underwriters had other coverage defences. There were disputes over the proper interpretation of the policy, claims for rectification and/ or estoppel, misrepresentation and non-disclosure by the Bank. The Bank sued Edge to the extent that its claims against the underwriters failed and for its costs of having to sue the underwriters. Its primary claim was that Edge ought to have taken further steps to ensure that the cover it sought was clear, unambiguous and did not subject the Bank to an unnecessary risk of coverage disputes with underwriters. Fortunately for Edge, the Bank was largely successful against the underwriters. The Bank succeeded against 12 of the 14 underwriters on its policy interpretation argument, that the TPC provided the cover
Brokers’ duties restated
The scope of brokers’ duties was not in dispute: … Edge owed duties of reasonable skill and care to the Bank: to procure the insurance cover required by the Bank; and to procure cover that clearly and indisputably met the Bank’s requirements, and so did not expose it to an unnecessary risk of litigation. The extent of cover, if any, provided by the TPC was clearly in dispute as the Bank had been required to sue its underwriters in pursuit of indemnity. Indeed, two of the underwriters succeeded in their defences. Edge’s defences and the Court’s findings
Edge’s primary grounds of defence, and the Court’s findings in respect of them, were as follows. Any claim ought to lie against the Bank’s lawyers and not Edge, as they were relied upon to secure the relevant cover by preparing draft clauses for inclusion in the policy wording. The Court disposed of this argument shortly. Edge had admitted that it was under a contractual duty to arrange cover that “clearly and indisputably” met the Bank’s requirements.
