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The
Court of Appeal has overturned the controversial decision made in the
High Court in this case last year. It has now ruled that brokers are
obliged to make available to underwriters, where reasonably necessary,
documents shown or made available to underwriters at the time the insurance
was placed or claims made under it. Underwriters may have a valid need
to re-examine those documents at a later date in order to evaluate their
exposure. The Court of Appeal held that such a term had to be implied
into insurance contracts between underwriters and assureds in order
to promote business efficacy. The decision also supports market practice.
The proceedings concerned "viatical" companies, which purchased
the life assurance policies of the terminally ill or those over 65 at
a discount, with a view to receiving sums under the policies which would
exceed the remaining premiums payable. To guard against the possibility
of a shortfall, however, the purchasers obtained insurance. The business
was unprofitable and was in run-off. For the purposes of assessing its
position, Goshawk sought placing documents, claims documents and premium
accounting documents from the Defendant's broker, Tyser. Tyser declined
to re- disclose this information without the consent of its assureds.
Tyser's position was upheld at first instance.
Goshawk had submitted, in the High Court, that there was an implied
contract based on long established market practice and custom that brokers
would allow underwriters access to information which they had seen but
not retained. On appeal, they focussed on the contention that there
was an implied term in the contract of insurance under which the assured
was required to authorise the brokers to release the relevant documents
to the underwriters. This was upheld by the Court of Appeal on the basis
that such an implied term was required for the purposes of business
efficacy and also in fulfilment of the assured's duty of utmost good
faith. The scope of the implied term was limited to documentation that
was necessary and reasonable for the ascertainment of the underwriter's
position, provided that there was no obligation on the brokers to provide
documentation which they had not retained. Furthermore, the underwriters
would not need to apply to the assureds directly for this information,
as such a procedure would hinder business efficacy. The disclosure would
take place via the Lloyd's brokers, in London.
After 20 December 2001, the regime governing the relationship between
underwriters and brokers was replaced with a Terms of Business Agreement
(TOBA, pursuant to the Lloyd's Broker Byelaw 17/2000). This gave Goshawk
a right of access to the documents in question provided, as stated in
Clause 2.2 of TOBA, that nothing in the agreement, "overrides the
Broker's duty to place the interests of its client before all other
considerations." Clause 8 of TOBA specifies the disclosure obligations
on the brokers, namely to allow the underwriters to inspect and take
copies of accounting records pertinent to premiums, claims and contract
documentation and such other documents as may be in the possession of
the broker relating to the making and placing of the proposal and any
claims subsequently made under it.
In the Court of Appeal, Rix LJ held that Clause 8 merely formalised
the position which had gone before and that Clause 2.2 was not operative
because there was no conflict of interest. On the other hand, Rix LJ
did comment that "it may after all be easier to give Clause 2.2
a full and proper content, while at the same time giving effect to Clause
8, than vice versa", which appears to indicate sympathy with the
view taken in the High Court that Clause 2.2 does indeed "trump"
Clause 8. This point may be of significance for the other obligations
set out in TOBA and more litigation may yet be generated to clarify
this interpretation further.
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