Civil procedure – Joinder of parties – Claimant property consultants instructing defendant to renew professional indemnity insurance – Defendant engaging sub-broker to obtain excess insurance cover – Dispute as to whether cover applying to claimants’ valuation activities – Claimants suing defendant for negligence in obtaining limited cover – Whether excess insurer to be joined – Whether arguable case that claimants entitled to rectification – Defendant’s appeal allowed
The claimants property consultants undertook commercial property management, surveying and, in particular, valuations; the second claimant had taken over the first claimant’s business following a merger of two groups of companies in 2004. Following the merger, the defendant insurance broker was instructed to renew and consolidate the expanded group’s insurance. Previously, a professional indemnity insurance had been in place providing primary cover for the first claimant’s group generally, together with excess cover of £10m for the first claimant owing to its valuation business. The defendant engaged a sub-broker to procure the necessary new cover. A quotation was obtained on the basis of £10m excess cover for the claimants, and a firm order noted (FON) endorsement was obtained. However, the final cover slips, rather than being specific to the claimants, covered the entire group, limited to its “commercial property management activities only”.
A dispute arose concerning the activities covered by the excess policy. The policy’s underwriter maintained that it did not cover valuations because they did not constitute “commercial property management activities”. The claimants brought claims against the defendant in negligence or breach of contract, alleging a failure to obtain cover as instructed. The defendant disputed any breach and argued that the claimants had suffered no loss since they would be entitled to rectification of the excess policy to provide the required cover. It also brought Part 20 claims against the sub-broker for an indemnity or contribution should any liability be found.
The defendant applied, under CPR 19.2(2), to join the excess underwriter as a defendant so that it would be required to participate by way of disclosure and evidence and would be bound by the decision, including any ruling as to the meaning of the excess policy. Refusing that application, the judge held that the claim in rectification was weak, since the changes between the FON and the cover slip indicated that the latter constituted a fresh contract, and that even if the construction point had a reasonable prospect of success, it was still not “desirable” in terms of CPR 19.2(2) to join the underwriters. The defendant appealed.
Held: The appeal was allowed.
Owing to the relative formality with which the quotation sheet and the FON endorsement had been dealt with and because a FON endorsement was, at that stage, assumed to be a binding, albeit conditional, contract, it was arguable that the defendant had crossed the first hurdle for rectification of proving the necessary prior common intention as to the provisions of the agreement. The difficulty arose in showing that the intention had continued up to the time of execution of the relevant instrument, namely the policy. The critical stage for those purposes was the transformation from FON to cover slip. The supersession of one contract (the assumed contract of the FON) by another (the slip) did not necessarily preclude rectification of the later contract to reflect the common intention established by the earlier one. Where the term sought to be rectified was not the only change between the two contracts, and many new terms were introduced into the superseding contract, evidence of a fresh negotiation in the intervening period might make it difficult for the claimants to prove that the prior common intention had survived into the later contract. However, the fact that a disputed term differed from the prior agreement could not, without more, represent a deliberate superseding of that prior agreement so as to prevent rectification. The judge had erred in proceeding upon that basis: HIH Casualty & General Insurance Ltd v New Hampshire Insurance Co [2001] EWCA Civ 735; [2001] 2 Lloyd’s Rep 161 and Pindos Shipping Corporation v Raven (The Mata Hari) [1983] 2 Lloyd’s Rep 449 considered.
Although the difficulties of proving rectification were formidable, various factors favoured the defendant. Those included an established prior common intention in the form of a binding, albeit conditional, contract and evidence that a mistake had been made and that the lead underwriter had considered that the slip continued on the same basis as the FON, namely as providing excess cover for the claimants. For those reasons, the judge had erred in holding that he could deal with the necessarily fact-based issue of rectification summarily without a trial. The case was not so weak as to render it undesirable to join the underwriter. If it was not a party, the same issues would have to be investigated without the discipline, in matters of disclosure and evidence, of its presence as a party. Moreover, the construction claim, which the judge had found to have a real prospect of success, overlapped with and raised much of the same factual material as the claim for rectification.
Adam Fenton QC and Julia Dias QC (instructed by Cayton & Co) appeared for the defendant; David Railton QC and Sioban Healy (instructed by Kennedys) appeared for the underwriters.
Sally Dobson, barrister
