Insurance—Contract of insurance—Legal expenses insurance

Court of Appeal, Civil Division, Rix, Moore-Bick LJJ and Bennett J, 6 April 2009

Without clear language giving an insurance broker the right to continue to act on the insurance company’s behalf, pursuant to the agreement between them but after the termination of that agreement, the broker would have no right to conduct the run-off against the insurance company’s wishes.

Christopher Butcher QC, Timothy Saloman QC and Jonathan Hough (instructed by Stevens & Bolton LLP) for the claimant. Andrew Popplewell QC and Harry Matovu (instructed by Barlow, Lyde & Gilbert LLP) for the defendant.

The claimant insurance broker specialised in legal expenses insurance. Acting under the authority of a binder, it provided insurance through intermediaries, mainly solicitors whose clients required cover against the risk of incurring liability for defendants’ costs in proceedings conducted under conditional fee arrangements.

In December 2005, the claimant entered into a binder with the defendant company. By s 1 of the binder, the defendant appointed the claimant as its agent to write various classes of legal expenses insurance on its behalf and to issue certificates of insurance to policyholders evidencing cover in respect of insurances bound under the agreement. The binder was expressed to continue in force for three years, unless terminated in accordance with its terms. Section 10 of the binder provided: “Upon and following the giving of any notice of termination...[the claimant] shall have authority to extend insurances already bound (or which may be bound during the period of such notice). Upon Termination ... [the claimant] shall immediately cease and shall have no further authority either to bind or offer to bind insurances or to renew any insurances but shall have authority to cancel, extend, amend or alter any insurances already bound.”

In August 2006, after relations had deteriorated, the claimant served notice to terminate the binder. It was common ground between the parties that the termination took effect, at the latest, in December 2006.

In January 2007, the defendant wrote to the claimant stating that it would assume all claims handling functions relating to policies which it had underwritten, including the run off (the January letter). It also wrote to a number of coverholders asking them to deal directly with it in future. The claimant disputed the defendant’s authority to manage the run-off and the matter was referred to arbitration. The adjudicator held that the claimant’s authority to manage the run-off had effectively been terminated by the January letter. On the claimant’s appeal, the judge upheld the adjudicator’s decision, and the claimant appealed.

Moore-Bick LJ:
The defendant submitted that the word “insurances” in s 10 of the binder should be read as referring to the coverholder agreements and the judge agreed, but in his lordship’s view that was not consistent with the way in which the word was used elsewhere in the binder. The binder did not simply authorise the claimant to delegate underwriting authority to coverholders; it authorised the claimant itself to underwrite on behalf of the defendant and, almost as an ancillary matter, conferred authority on the claimant to delegate that function to coverholders. There was nothing surprising, therefore, about the use of the word “insurances” in s 10 to mean policies of insurance since that was consistent with the terms of s 1 of the binder. On termination, the claimant could neither write new policies itself nor could it delegate authority to new coverholders to write new policies on behalf of the defendant.

Section 10 intended to give the claimant the degree of authority it would need to enable it to continue managing the business after its authority to underwrite had been withdrawn. It also provided the authority needed to enable the claimant to comply with its obligation to ensure that the defendant was not committed to insurances which incepted after termination. The claimant, however, proceeded on the footing that if it was granted authority to act in relation to existing policies after termination of the binder, it had to have a right to continue exercising that authority, even if the defendant wished to revoke it and had purported to do so.

In his lordship’s view it was impossible to spell a right of that kind out of the language of s 10. Section 10 provided that the claimant’s obligations in relation to the run-off remained in force save to the extent that the defendant chose not to require it to perform them. However, that was quite different from saying that the claimant had a right to manage the run-off contrary to the defendant’s wishes. Section 10.2.2 was worded in terms of the claimant’s obligations and obligations were the converse of rights. If Temple had a legally enforceable right to manage the run-off , it had to be found somewhere other than in s 10.2.2. The claimant relied heavily on the implication to be drawn from the continuation of authority, but that was no more than an adjunct to the performance of the obligations to which s 10.2.2 referred. If the defendant were to release the claimant from the obligation to manage the run-off , in whole or in part, the authority granted by for that purpose would to that extent cease to have any content and would lapse.

His lordship concluded that the binder did not give the claimant the right to insist on conducting the run off against the defendant’s wishes. It would be unusual, and uncommercial, for any principal who had employed an agent to manage some aspect of his business to be obliged to allow that agent to continue to act on his behalf once the necessary degree of trust and confidence had been lost. At the very least, clear language would be required to bring about such a result and no such language was to be found in the binder in the instant case. The appeal would therefore be dismissed.

Bennett J agreed and Rix LJ delivered a concurring judgment.