Beazley Underwriting Ltd & Ors v The Travelers Companies Incorp.

A contractual deeming provision extending an indemnity for a continuing series of related events does not convert a post-completion claim caused solely by the buyer’s own negligence into an indemnified claim. The relevant events must form a continuing series which began before completion and which amounts, or would have amounted, to an indemnified claim. A relatively strong causal connection is required. An exclusion for liabilities arising from the buyer’s own negligence remains effective and is not displaced by a general direction to construe the indemnity favourably to the buyer.

In insurance placement, a subscription made subject to reinsurance, satisfactory proposal forms and a questionnaire is ordinarily a qualified acceptance. No contract arises until the subjectivities are satisfied or waived.

Travelers sought US $20 million under primary and excess professional indemnity policies subscribed by the claimants. The claim arose from Travelers’ settlement of Aon’s liability to Standard Life concerning the 1998–2001 professional indemnity policy arranged by Aon. The underlying policy contained an excess applying to each claim and/or claimant, preventing aggregation of numerous small claims.

Travelers alleged that Aon’s liability was covered by a 1997 deed of indemnity because earlier Minet employees had repeatedly failed to appreciate the significance of that wording, and because the 1998 placement occurred within 12 months of completion. The issues were whether Travelers was liable to Aon under the deed and, if so, whether the insurance policies responded.

1. The claim under the deed failed. Clause 4.14 applied only where a continuing series of related events straddled completion and amounted, or would have amounted, to an indemnified claim. It did not encompass several earlier placements which could have generated separate claims, followed by a new placement involving different limits, insurers and brokers. The relevant indemnified claim was the negligent broking of the 1998–2001 policy: [2011] EWHC 1520 (Comm), paras 110–115.

2. Even if the earlier failures formed a qualifying series, clause 2.4.2 excluded liabilities arising from Aon’s own negligent act or omission. The court declined to read into that provision a requirement that the liability arise exclusively from Aon’s negligence, or to treat clause 4.14 as overriding the exclusion. Aon’s liability arose from its own post-completion negligence in arranging the 1998–2001 policy: paras 116–119, 133–141.

3. The phrase “arising out of” allowed a weaker causal connection than proximate cause, but still required a relatively strong causal relationship in this contractual context. Minet’s earlier failures did not significantly cause Aon’s liability, which was eclipsed by Aon’s own failures in 1998: paras 120–132.

4. The insurance policies were construed consistently with the deed. They covered Travelers only for liability connected with claims against the Minet companies for wrongful acts committed by Minet or its employees before the date of sale, including related events deemed to precede that date. They did not cover Aon’s post-sale negligence or transform a claim against Aon into a claim against Minet: paras 150–164.

5. As an additional finding, the underwriters’ scratches subject to reinsurance, satisfactory proposal forms and a Y2K questionnaire were qualifications of acceptance. They did not create binding conditional or held-covered contracts. The relevant insurance contracts were not concluded before 16 May 1998, and the subjectivities were not satisfied until the later placing process: paras 165–189, 194.

6. Travelers was therefore not liable to Aon under the deed and was not entitled to indemnity under the contracts of insurance. The insurers were entitled to declarations that they were not liable to indemnify Travelers. Counsel were invited to draft the order: paras 195–196.