Professional indemnity insurance - Defendant seeking indemnity under deed of insurance

Beazley Underwriting Ltd and ­another v Travelers Companies Incorporated: Queen’s Bench Division, Commercial Court (Mr Justice Christopher Clarke): 17 June 2011

The claimants were companies subscribing two policies of primary and excess professional indemnity insurance (the contracts of insurance) to the defendant company.

In 1995, M, a group of insurance companies, acquired a firm of insurance brokers that had previously dealt with insurance for the firm SL (the insurance).

The original policy excess between the parties was written so as to permit the aggregation of claims arising from a common cause or source.

However, when the insurance was renewed for 1995/6, the excess provision was amended so as to read ‘claim and/or claimant’. In May 1997, the defendant sold M to A Ltd.

A deed of indemnity relating to the sale was made (the deed), under which the defendant agreed to indemnify A Ltd, M and other companies relating to M and their subsidiaries against any loss, liability, claim or cost arising out of any event occurring prior to the date of completion of the sale.

Subsequently, SL received a very large number of small claims, made in relation to mortgage endowment policies.

Interpreting the terms of the insurance contract, the court found that SL was unable to make any recovery at all under the terms of its insurance.

The court further held that A Ltd was liable in negligence to SL, as it had been aware of SL’s requirement for insurance cover in respect of a large number of such claims and had procured unsuitable cover for it.

A Ltd claimed against the defendant under the deed, on the basis that the words ‘claim and/or claimant’ had been added by the lead underwriter in 1995, when it had been well known that SL had required cover for a large number of small claims.

A Ltd contended that the negligence involved fell within the deed.

The defendant settled A Ltd’s claim and sought an indemnity under the original contracts of insurance subscribed by the claimants.

The claimants issued proceedings, submitting that even if A Ltd’s claim under the deed was valid, the contracts of insurance did not respond to the defendant’s claim.

Two issues arose, among other things: (i) whether the defendant was liable to A Ltd under the deed, and (ii) whether the defendant’s claim fell within the scope of the contracts of insurance.

The court ruled:(1) On the true construction of the deed, it did not deal with recoveries under A Ltd’s insurance, because any claim brought under that insurance would be for A Ltd’s own negligent acts and hence would be outside the ambit of the defendant’s liability under the deed by reason of the indemnity exclusion.

A Ltd could be expected to claim on its own insurance in respect of its own negligence.

Furthermore, in the event of proceedings for an indemnified claim, the contract expressly permitted the defendant to make a contribution claim on A Ltd (see [147]-[148] of the judgment).

The defendant would not be liable to A Ltd under the deed (see [149] of the judgment).

(2) On the true construction of the contract, the cover provided by the policy was, as far as relevant, in essence concerned with liability in relation to claims made against M for breach of duty, arising out of and in the course of the actions of the claimants in respect of wrongful acts committed prior to the date of sale by M or any of its employees.

It was plain that such a breach had to have been committed by an employee of M, not only because the claim had to be made against an employee of M itself, but because the insuring claim had to be read as a composite whole, so that the claim in respect of the wrongful act had to be one for which M was responsible, and the act had to be committed by someone fitting the description in the contract at the time that it was committed.

Furthermore, the insurance provided for events occurring during the 12 months after the date of sale which were related to a wrongful act deemed to have occurred prior to the date of sale, even though related events might occur in the following year. In the present case, the claim was not of that sort, being a claim in respect of A Ltd after the date of sale (see [158], [159] of the contract).

The claimants would be entitled to appropriate declarations to the effect that they were not liable to indemnify the defendant under the contracts of insurance (see [195] of the judgment).

Dominic Kendrick QC and Josephine Higgs (instructed by Clyde & Co) for the claimants; Sioban Healy QC and Jessica Sutherland (instructed by Freshfields Bruckhaus Deringer) for the defendant.