Brit Syndicates Ltd & Ors v Grant Thornton International & Anor

An insurance extension covering an umbrella organisation for claims arising from claims against member firms requires the underlying member-firm claim to fall within the policy’s substantive ambit. The word insured means covered; it is not merely descriptive of a firm named in the schedule. The extension is parasitic on an otherwise covered claim and does not create independent cover for all wrongs of member firms. A member firm’s failure to notify a claim or other breach of condition does not automatically prejudice the umbrella organisation’s cover. However, valid avoidance means that no existing cover exists for the relevant claim, so the umbrella organisation’s claim cannot arise from an insured claim.

Insurers brought proceedings against an international umbrella corporation and an Italian member firm. The policy named the member firm as an assured and extended cover to the umbrella corporation solely for claims arising from claims against an insured member firm. The insurers obtained default judgment against the Italian member and validly avoided cover as against it for non-disclosure. Langley J, in the Commercial Court, gave summary judgment dismissing the insurers’ claim against the umbrella corporation on 3 March 2006. The appeal concerned the proper construction of extension 3, including whether the reference to an insured member firm was merely descriptive and whether avoidance or a member firm’s breach of conditions affected the umbrella corporation’s cover.

Lord Justice Waller gave the judgment, with Lord Justice Jonathan Parker and Lord Justice Wilson agreeing. The appeal was allowed and Brit was granted the declaration sought.

1. Construction of extension 3. The reference to a member firm being insured qualified the underlying claims, rather than merely identifying a firm listed in the schedule. Insured naturally meant covered. The underlying claim therefore had to fall within the substantive ambit of the policy. Extension 3 was parasitic upon an otherwise covered member-firm claim and did not place the umbrella corporation in the same position as a member firm under the policy’s second limb or provide broad independent cover for domestic wrongs of member firms (paras [34]–[35]).
2. Effect of ordinary non-compliance. The proper construction was that the underlying claim had to be within existing cover, with the insurer bound to pay subject to the member firm’s compliance with the policy terms. A member firm’s failure to notify a claim, or other breach of condition by that firm, did not by itself deprive the umbrella corporation of cover under extension 3 (para [36]).
3. Effect of avoidance. Valid avoidance against the member firm meant that there was no existing cover for the relevant claim. The umbrella corporation’s claim consequently did not arise from a claim insured under the policy (para [37]).
4. Qualification. The court left open the possibility that a policy term, such as an exclusion for fraud or dishonesty by an assured firm, might operate directly against the umbrella corporation. That point had not been argued and was not decided. The court also resolved the appeal on construction without deciding whether the Italian member would otherwise have had a recoverable claim.

• Court of Appeal (Civil Division): Allowed the appeal from the summary judgment and granted Brit the declaration sought. [2006] EWCA Civ 1661.
• Queen’s Bench Division, Commercial Court: Langley J gave summary judgment in favour of GTI, dismissing Brit’s claim against it, on 3 March 2006.