Some agents had policies against which there were likely to be various calls, either because several claims were being pursued against the same agents by different Lloyd’s Names, or because the policies were group policies covering several agents against each of which claims were being pursued, by different Lloyd’s Names. The essential issue was whether each claim ascertained as against an agent exhausted the agent’s insurance cover pro tanto, or whether all claims falling individually within a policy’s scope ranked or could be treated as ranking pari passu against the policy in whatever order they were ascertained against the insured agent or agents.
Held: Lloyds claims are to have priority of payment according to time of orders. The statutory transfer under the Act occurred notwithstanding that the insured’s liability to the third party had not yet been extinguished. The statutory transfer to the third party of the insured’s right against his insurer takes place at the moment of his bankruptcy.
Phillips J said: ‘In a situation of solvency, the ranking of claims against the EandO underwriter depends upon the order in which the third party Names establish liability against the assured by judgment, arbitration award or settlement, thereby giving rise to a vested right on the part of the assured to indemnity in accordance with the terms of the cover. The same is true in a situation of insolvency. If the insolvency occurs after third party Names have established quantified liability, the right or rights to indemnity that were thereby established in the assured agent will be transferred to the Names upon the assured becoming formally insolvent. If quantified liability has not been established at the date of insolvency, a third party Name asserting a claim will have transferred under the Act merely an inchoate or contingent right. If before that Name establishes a quantified claim, other quantified claims are established which exhaust the cover, his contingent right will be rendered nugatory.’ Phillips J summarised the relationship between the insurers and the solicitors acting: ‘Where underwriters instruct a solicitor to conduct the defence, they thereby create the relationship of solicitor and client between the solicitor and the assured . . The normal consequence of this is that the assured becomes liable to pay the solicitor’s costs, even if the underwriters were also liable for those costs . . Those costs are properly deemed to be incurred by the assured, even if they are funded by underwriters. . .’
Judges:
Phillips J
Citations:
Times 27-Jan-1995, [1995] 2 Lloyd’s Rep 437
Cited by:
Appeal from – Cox v Bankside Members Agency Ltd and Others CA 16-May-1995
Successful Lloyds names were entitled to enforce their claims in the normal time sequence. The transfer of the rights of the insured against the insurer under section 1(1) the 1930 Act takes place on the event of insolvency, even if the insured’s . .
Cited – Centre Reinsurance International Co and Another v Curzon Insurance Ltd ChD 12-Feb-2004
It was a necessary part of the system of statutory transfers of insurance obligations under the Act, that the rights should be transferred before exhaustion of any policy excess, and notwithstanding the insolvency. The rights (inchoate at this . .
Cited – First National Tricity Finance Ltd v OT Computers Ltd; In re OT Computers Ltd (in administration) CA 25-May-2004
The company had gone into liquidation. They had sold consumer policies as extended warranties on behalf of the claimant. The company had insured its own joint liability under the contracts, and the claimant sought information from the company’s . .
Cited – Law Society of England and Wales and others v Shah and others ChD 30-Nov-2007
Solicitor firms had been made bankrupt leaving a shortfall after thefts from client accounts of over 12 million pounds. The thief had diappeared, and the other partners were now discharged form bankruptcy. The Law Society accepted that it could not . .
Cited – Teal Assurance Company Ltd v WR Berkley Insurance (Europe) Ltd SC 31-Jul-2013
An international engineering company had several layers of professional indemnity insurance. The top later did not cover claims originating in the US or Canada. The several insurers now disputed apportionment of liability between them. The . .
Lists of cited by and citing cases may be incomplete.
Litigation Practice, Insolvency, Insurance
Updated: 19 May 2022; Ref: scu.79586
