It has long been the accepted practice of the London insurance market that underwriters restrict their share of the liability on a policy to a percentage of the total risk. However, the workings of this practice were called into question by the case of Wace v. Pan Atlantic Group Inc. and Others which revolved around the correct construction of the expression “for 12.22% of limits hereon”. In fact it is probably true to say that if the contentions advanced on behalf of the defendants had been sound, the consequences of the case could have had a disastrous impact upon Lloyd’s and the insurance industry generally.

In his reserved judgment delivered on May 21, 1981, in the Queen’s Bench Division Commercial Court, Mocatta, J., described the action as “a case of some complexity and interest”. Unfortunately the interesting parts of the case are buried beneath a mass of dry detail concerning the contractual arrangements of the various parties. Unavoidably these have to be gone into if the case is to be properly discussed.

The action arose in the following way. J. H. Minet, the well-known London insurance brokers, operated a professional negligence insurance scheme for company officers and directors. In common with most insurance schemes, Minet’s policy had independent financial backing, in this case 33 Lloyd’s underwriters. Among this group was a Mr P. Cameron-Webb, acting through P. Cameron-Webb Agencies Ltd., on behalf of various Lloyd’s syndicates, who ultimately signed in 1973 for 12.22% of the total risk.

In turn, Mr Cameron-Webb required reinsurance—in other words the risks he had underwritten were themselves to be covered by another insurance company or underwriter. And, after considering the performance record of a similar scheme Minet had operated in the past, Mr Cameron-Webb reached the conclusion that he needed to reinsure three layers of liability, including the layer $750,000 in excess of $250,000.

As a result of negotiations with Minet, the first defendants, the Pan Atlantic Group Inc., entered the picture as potential reinsurers for the Cameron-Webb syndicates. Pan Atlantic were an overseas company that had opened an office in the United Kingdom in 1972 with the intention of getting reinsurance business from the London insurance market. The group itself consisted of 13 overseas companies (who were ultimately to be the other defendants in the case), probably the best known name among them being the Nissan Fire and Marine Insurance Company of Japan.

There was however a hitch, for Mr Cameron-Webb thought that the security of Pan Atlantic as reinsurers of his 12.22% was inadequate, so consequently an attempt was made to obtain an acceptable reinsurer to “front” for Pan Atlantic.