Markel International Insurance Company Ltd v Surety Guarantee Consultants Ltd & Ors

Express financial limits in a binding authority or management agreement govern the agent’s authority to issue bonds. A side agreement concerning allocation of risk does not override those limits without very clear words. A principal’s representative has ostensible authority only to the extent represented by the principal; the representative cannot create that authority by statements about his own powers.

Individuals named to operate an underwriting agency may be sub-agents owing fiduciary duties directly to the underwriters where they are entrusted with power to bind the underwriters. Dishonesty is assessed objectively, while taking account of the individual’s knowledge, experience and circumstances. Reckless disregard of the underwriters’ rights may amount to dishonest breach of fiduciary duty.

Two insurers and a managing general agency brought separate claims against an underwriting agent and individuals involved in its business. The claims arose from surety bonds issued in the insurers’ names for sums exceeding agreed financial, territorial and other limits. The insurers alleged breach of contract, breach of fiduciary duty, dishonest assistance, conspiracy and procurement of breach of contract.

The defendants relied principally on an alleged silent co-surety arrangement with another insurer and on the alleged knowledge, approval or authority of the insurers’ underwriter. The court determined the construction of the agreements, the effect of the alleged arrangement, the authority of the underwriter, the fiduciary status and liability of the individuals, and the resulting remedies.

1. Construction and authority. The binding authority and management agreement imposed clear financial limits. The side agreements dealt with allocation between insurers and Templeton; they did not vary those limits. Very clear words would have been required to do so.
2. Mr Smith had authority only to agree variations expressly contemplated by the agreements. The insurers had not held him out as having general authority to waive the financial limit per bond. His own statements could not create ostensible authority.
3. SGC issued bonds outside the agreed limits, misstated its bordereaux and failed to account for resulting premium. Mr Higgins and Mr Felstead conspired to obtain secret profits. Mr Williams was not party to that conspiracy, but acted dishonestly and recklessly, and was liable for procuring breaches of contract and breach of fiduciary duty. Mr Brunswick was also party to the fraud and liable for procuring breach and dishonest assistance.
4. The named individuals were sub-agents owing fiduciary duties to the underwriters. Mr Higgins, Mr Williams and Mr Felstead breached those duties, subject to Mr Felstead’s removal from the QBE/Amalfi schedule.
5. The defendants were liable for losses on unauthorised bonds and, as appropriate, secret profits. The court ordered inquiries as to damages, an indemnity against future losses, and tracing and accounting remedies for identifiable proceeds.