DUNLOP HEYWARDS (DHL) LTD V ERINACEOUS INSURANCE SERVICES LTD

[2009] EWCA Civ 354, Court of Appeal, Lord Justice Rix, Lord Justice Wilson and Sir Peter Gibson, 28 April 2009

Insurance (professional indemnity) – Instructions to renew given by producing brokers to placing brokers – Policy confining cover to Commercial Property Management – Claim by assured against producing brokers – Whether insurers should be joined to proceedings – Whether policy should be rectified – Claim by producing brokers against placing brokers – Whether claim for indemnity or contribution should be struck out

Producing brokers entered into arrangements with placing brokers for renewal of the assured’s excess liability cover: the placing brokers were appointed following a presentation to the producing brokers but the appointment was in effect made by the assured. The policy obtained by the placing brokers contained a restriction on cover to Commercial Property Management activities, a restriction which had not appeared in the earlier documents passing between the parties leading up to the slip on which the policy was based; draft wording had been sent to the producing brokers by the placing brokers but no objection was raised. Claims were made against the assured in respect of allegedly fraudulent valuations. The assured did not make any claim against the insurers but instead claimed against the producing brokers. The producing brokers sought to have the insurers joined to the proceedings under CPR 19.2, an application contested by the insurers. The producing brokers also sought indemnity and contribution from the placing brokers, and the placing brokers sought to have the claim against them struck out. Field J held at first instance that the slip had replaced any earlier agreements so that there was no basis for rectification of the wording, and although there was an argument to be had on coverage it was not appropriate to join the insurers to the proceedings unless a claim was actually made against them. Joinder was thus refused. As far as the placing brokers were concerned, Field J held that the claim should not be struck out. It was arguable that the placing brokers were in breach of their contract with the producing brokers, in that they had undertaken to renew the insurance on no less favourable terms than the expiring cover. Field J also held that it was arguable that the placing brokers had assumed a direct responsibility in tort towards the assured even though there was no contractual relationship between them. The Court of Appeal upheld the producing brokers’ appeal against Field J’s refusal to order the joinder of the insurers. The Court of Appeal was satisfied that there was at least a good arguable case that the producing brokers had shown the existence of a common intention that the entirety of the assured’s activities should be covered and not just commercial property management. There was also an argument that the common intention had survived into policy. The authorities held that where one contract had been superseded by another and the later contract had a number of altered terms, it was difficult to show that an earlier prior intention was continued into the final contract. However, in the present case there was a renewal, there had been an assumption that cover was intended to continue on the same basis, there were no material changes and the renewal made no commercial sense. Accordingly the rectification argument was not too weak a basis for joining the excess insurers. If they were not made parties to the trial, it would not be possible to obtain disclosure and their evidence and they would not be bound by the result. The existence of the construction defences also made it desirable for the insurers to be joined.