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Cite as: [2001] EWHC 499 (Comm)

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[2001] EWHC 499 (Comm)
Case No: 2001/630


Royal Courts of Justice
Strand, London, WC2A 2LL
3 August 2001

B e f o r e :



- and –



Mark Howard QC and Mr Neil Calver (instructed by Norton Rose for the Claimant)
George Leggatt QC and Mr Simon Salzedo (instructed by CMS Cameron McKenna) for the Defendant
Mr Robin Knowles QC for the Society of Lloyd’s as intervenors in the litigation



Crown Copyright ©

    Mr Justice Thomas:


  1. There is before the Court a short issue as to whether the Claimants (Syndicate 1242) had granted a binding authority to the Defendants (MRS), Lloyd’s brokers, enabling them to write or to authorise others to write travel insurance business for the general public in the United Kingdom.
  2. This short issue arises in the context of litigation commenced in June 2001 by Syndicate 1242 which was the subject of two case management conferences by Cresswell J in the course of which this litigation was designated “The Travel Insurance Litigation”.
  3. The reason why it was so designated and the future conduct of the litigation is considered at paragraphs 77 and following below. The background is as follows.
  4. Background

  5. The binding authority which MRS claimed had been granted by Syndicate 1242 had authorised The Management Company (London) Limited (TMC) to bind or authorise other intermediaries to bind travel insurance for the general public.
  6. TMC had been arranging travel insurance schemes for other intermediaries, known as scheme administrators, for some years prior to 1999; the scheme administrators had arranged schemes under which tour operators and others were able to make travel insurance available to the public, for example in connection with a holiday. The disputed binding authority covered the period from August 1999 and, as will subsequently appear, there was also a question as to whether the syndicate had granted a further binding authority for the period commencing January 2000. To understand the nature of the specific dispute presently before the court, it is necessary to explain in outline:
  7. (1) The way in which travel insurance is written through agents and sub agents.

    (2) The events immediately preceding August 1999.

    The way in which travel insurance is written through agents.

  8. Under the Insurance Companies Act only authorised insurance companies or Lloyd’s syndicates can write insurance business; it is a penal offence for others to do so. By its very nature, travel insurance business is often provided for a limited period, such as a holiday of a short duration, and the premiums are small. Travel insurance is therefore often provided by authorised insurance companies or Lloyd’s syndicates through agents or sub-agents who are authorised to act for them under the terms of agency contracts known generally as binding authorities.
  9. When a member of the public obtains travel insurance from an agent or sub-agent of an insurance company or Lloyd’s syndicate, the member of the public is provided with a certificate or policy of insurance in the name of the insurer. If a Lloyd’s syndicate is the insurer, then the member of the public receives a certificate so stating. That certificate is the contract between the individual member of the public and the insurer and the document upon which the member of the public relies when he makes his claim. It is in every sense his security for what is recognised to be a very important protection to him when he travels or goes on holiday.
  10. It has always been understood by insurers that entering into insurance contracts through agents or sub-agents authorised under the terms of binding authorities creates well known risks to insurers:
  11. Within Lloyd’s for many years prior to the 1970s there was a system, then known as “tribunalisation”, for approving those to be authorised to enter into contracts of insurance under binding authorities granted by Lloyd’s syndicates. In 1978, as a result of events surrounding a binding authority granted by the Sasse syndicate, a working party was set up by the then Committee of Lloyd’s to determine new and improved procedures; it recommended the use of a standard form binding authority agreement known as LPO 228. The Lloyd’s Insurers Brokers Committee recommended that all Lloyd’s brokers should use this format and that existing contracts should be amended to include the safeguards contained in LPO 228, though its use never became mandatory. Subsequently, in 1994 the wording was reviewed and remains in use.
  12. Furthermore, when as a result of the events of the 1970’s and the perceived need for tighter regulatory control at Lloyd’s a new Lloyd’s Act was enacted in 1982, the Council of Lloyd’s, using its new powers, passed Byelaws carefully regulating the use of binding authorities. The current regulatory regime is contained in Binding Authorities Byelaw No.9 of 1990, as amended, Binding Authorities Regulation No.5 of 1990 (as amended), and a Code of Practice in relation to the operation of binding authorities and the Binding Authorities Registration Scheme of 4 October 1990 made under paragraph 7 of the Binding Authorities Regulation No.5 of 1990. This sets out a stringent regulatory regime for the grant and operation of binding authorities.
  13. The events prior to August 1999

    The early binding authorities

  14. In 1997, TMC operated travel insurance schemes under binding authorities placed with Lloyd’s syndicates through other Lloyd’s brokers, T.L. Dallas which became part of Paul Group International (Insurance Brokers) Limited (Paul Group International). Two binding authorities were led by the Busbridge Syndicate and one was led by Mr Ian Slater of the R.A. Edwards Syndicate 219 (ACE Syndicate 219) which was managed by ACE.
  15. The individual broker who was responsible for the binding authorities at T.L. Dallas and at Paul Group International was Mr Graham Evans; he was a broker of 30 years experience, being active in the London insurance market since 1968.
  16. In 1998, Syndicate 1242 was formed with Mr Philip Armstrong as the active underwriter; the syndicate was managed by Marlborough Underwriting Agency Limited. Mr Philip Armstrong had been a class underwriter on the Brockbank syndicate and had got to know Mr Evans quite well. Syndicate 1242 subscribed to the binding authority led by ACE Syndicate 219 in respect of TMC business in 1998.
  17. ACE Syndicate 219 renewed its binding authority for 1999, taking a line of 100%.
  18. The binding authority written by ACE Syndicate 219 for 1999

  19. In February 1999, TL Dallas and Paul Group International became insolvent and Mr Evans joined MRS as a broker with two colleagues, Mr Mark Hooper and Mr Colin Milne. On 4 May 1999, ACE Syndicate 219 put its line down for 100% on a new binding authority with MRS named as the coverholder. The terms of the binding authority included:
  20. ““and such additional coverholders as may be agreed by the Leading Underwriter only”

    The cancellation of the binding authority written by ACE Syndicate 219.

  21. On 21 July 1999, Mr Slater gave a 30 day notice of cancellation of all the schemes under the binding authorities written by ACE Syndicate 219 to MRS (and the earlier brokers) in respect of TMC schemes; the reason given was the poor performance on the 1998 year and the deterioration on the 1997 year. The notice expired on 25 August 1999, as ACE Syndicate 219 confirmed on 29 July 1999. It is clear Mr Evans understood that no certificates could be issued after that date; he so informed TMC. It was Mr Evans’ evidence that he was not concerned about the cancellation of earlier schemes, but only about the two schemes administered by JLT Travel Services (Jardines) which had attached at 1 January 1999 and ran till 31 December 1999 and the Journeys’ scheme which had attached at 1 May 1999 and ran until 30 April 2000.
  22. Attempts were made by Mr Evans with the help of figures produced by TMC and Journeys to persuade Mr Slater and his deputy, Ms Hilary Doodes, to withdraw the notice. It was Mr Evans’ evidence that the figures produced by TMC were not such as to make Mr Slater change his mind and that Journeys had not explained the deterioration in the figures for the earlier year. He said he was told by Mr Slater on 3 August 1999 that the notice stood and that he believed that he was told that day by Mr Slater that he had handed his notice in and was leaving ACE Syndicate 219. On 18 August 1999, Mr Evans was informed by Ms Doodes that the notice of cancellation stood and Mr Evans informed TMC that no new certificates were to be issued after 25 August 1999.
  23. It was Mr Evans’ evidence that he made clear to TMC the position and there was no doubt at TMC of the gravity of the position they faced as there would be no insurer to continue to underwrite the Jardines and Journeys schemes, unless either ACE Syndicate 219 changed its mind or he found a new underwriter.
  24. I am quite satisfied that when the notice of cancellation was issued on 21 July Mr Evans realised the seriousness of the position and that after the meeting of 3 August 1999, he knew that there was little chance that Mr Slater would change his mind. He had therefore begun to interest Mr Armstrong in the business.
  25. The approach by MRS to Syndicate 1242 in the summer of 1999

    Initial discussions

  26. Because ACE Syndicate 219 had written 100% of the binding authority for 1999, Syndicate 1242 had not had a line. Mr Evans, however, kept in touch with Mr Armstrong and learnt from him of Mr Armstrong’s continued interest in writing this business. It was the evidence of Mr Evans that he had heard that Mr Slater might leave ACE Syndicate 219 and that, if he did, then the binding authority might be lost. His evidence was that he met Mr Armstrong on 14 and 15 July 2000 at which they discussed the possibility of Mr Slater leaving ACE Syndicate 219 and of Mr Armstrong writing travel business for the year 2000; Mr Evans also said that he believed that it was at this time that he discussed the possibility of Mr Armstrong taking over the binding authorities written by the Busbridge Syndicate.
  27. After the receipt of the notice of cancellation from ACE Syndicate 219, Mr Evans’ evidence was that he met Mr Armstrong again on 29 July 1999 and brought him up to date with developments. His evidence was that Mr Armstrong was positive about writing the business.
  28. The preparation of a new binding authority

  29. Sometime at the end of July or the beginning of August 1999, Mr Hooper was asked by Mr Evans to prepare a new binding authority with an inception date of 1 August 1999. Mr Hooper did not give evidence before me. The binding authority was also to incorporate the terms of LPO 228, but was on significant points very different to that which had been granted by Mr Slater:
  30. “And such additional coverholders as may be agreed by the Coverholder”
    This meant that instead of control over those who were authorised vesting in the leading underwriter (as it had done in the binding authority granted by ACE Syndicate 219), it vested in MRS.
  31. When prepared, this draft binding authority, in accordance with the provisions of the Regulatory Regime to which I have referred, was taken to the authorities at Lloyd’s and stamped “CABAC checked”. Furthermore a Binding Authorities Registration Document (CD4 and CD4A) was registered at Lloyd’s; this set out the coverholders and additional coverholders and was stamped to show that they were registered at Lloyd’s. Mr Hooper was recorded as the name of the Lloyd’s broker contract manager or senior person responsible. The completion of this form and its stamping by Lloyd’s was a pre-condition of the brokers being able to obtain from a Lloyd’s syndicate a commitment to write a line on the binding authority.
  32. The meeting at Rushlake Green

  33. It was Mr Evans’ evidence that after the meeting with Mr Slater on 3 August 1999, he gave a copy of the proposed binding authority to Syndicate 1242. He then met Mr Armstrong at the Horse and Groom, Rushlake Green, East Sussex and had dinner. Mr Armstrong agreed that this meeting had taken place. It was Mr Evans’ evidence that they discussed the binding authority and that, when he asked Mr Armstrong whether he would have the binding authority, he said he would “have it”. He said that he would have to get Mr Stuart Newcombe involved as he was the class underwriter for Syndicate 1242 for personal accident business (which included travel insurance), “but he assured [Mr Evans] that he would put down his line for such a [binding authority], and it was simply a matter of sorting the formalities out with Mr Newcombe”. Mr Armstrong did not accept this account. He said that he made it clear to Mr Evans that he would not commit the Syndicate without satisfactory underwriting statistics being provided and Mr Newcombe being satisfied as to the terms for underwriting the binding authority.
  34. Mr Newcombe was the class underwriter for personal accident business of Syndicate 1242 which he had joined in September 1998; travel insurance was therefore his particular responsibility, though he was answerable to Mr Armstrong, as the active underwriter of the syndicate. Mr Newcombe had subscribed to the T.L. Dallas binding authority in 1998 when he was at another syndicate and had dealt with Mr Evans then. He knew that there had been considerable difficulties with the payment of premium and, when he joined Syndicate 1242, he continued to have to deal with the binding authority for 1998 as Syndicate 1242 had subscribed to it, as set out at paragraph 13. His evidence was that he had declined to participate in the binding authority for 1999 when he was offered it by Mr Evans. He was glad he had done so, as he learnt of the deterioration in the results for 1998 in mid 1999, recalling being told that the loss ratio was 130% for the 1998 year.
  35. The involvement of Mr Newcombe

  36. After Mr Evans had seen Mr Armstrong, he approached Mr Newcombe with the draft binding authority and the CD4 and CD4A. Mr Newcombe’s evidence was that he was told by Mr Evans that Mr Slater had gone to a different company and his syndicate was not prepared to carry on with the scheme; he mentioned difficulties with the amount of premium income they had received. He told Mr Newcombe that the binding authority was for a block of travel insurance business including Journeys and Jardines; he requested Mr Newcombe to lead the binding authority.
  37. Mr Newcombe told Mr Evans that the 1998 figures had ruined his personal accident account at his last syndicate and that was why he had declined to continue in 1999. He told him he was not keen to write the binding authority. He told Mr Evans that if he wanted him to consider it, he needed a full brokering pack, including properly triangulated figures, development figures and details of how to improve the scheme and how to make it profitable. He also told him that Mr Armstrong would have to make the decision as he was not keen to lead the risk. He kept the draft binding authority pinned to the wall in his office in case there was any further action.
  38. Although Mr Newcombe left the insurance industry after the collapse of Syndicate 1242, I am satisfied that he was a competent underwriter and knew that to write the binding authority without up to date underwriting information would have been irresponsible and a dereliction of his duty to the members of the syndicate. He was also in my judgment a man of clear integrity and an honest witness. I accept his evidence about this meeting and in every case where his evidence conflicts with that of Mr Evans, I prefer the evidence of Mr Newcombe. It follows therefore that I find that Mr Evans’ account to him of why ACE Syndicate 219 was not continuing with the binding authority was untrue. I also find that Mr Evans knew that Mr Newcombe would not write the binding authority without information and would have sent him immediately away and had nothing further to do with the proposal, if he had told him the true reasons for the cancellation.
  39. Mr Newcombe then spoke to Mr Armstrong about the proposed binding authority; he was told by Mr Armstrong that he had referred Mr Evans to him to carry out an underwriting assessment and he had given no commitment to write the binding authority. Mr Evans’ evidence was that he was told by Mr Armstrong that he was happy that Syndicate 1242 should put a line down, but that he wanted the figures.
  40. I am satisfied that Mr Evans knew as a result of these conversations that Syndicate 1242 had given no commitment to write the binding authority and that Syndicate 1242 would not commit itself until the information requested was provided.
  41. The events of the autumn of 1999

  42. On the evidence before the court, it was clear, even though the notice of cancellation by ACE syndicate 219 took effect and there was no authorised insurer who was providing insurance, travel insurance went on being provided to the public under the Jardines and Journeys schemes. A large number of members of the public were being sold travel insurance and being provided with certificates of insurance, without there being an authorised insurer who was providing cover. This was in clear contravention of the Insurance Companies Act, as one the primary purposes of the Act was to prevent this happening, particularly in the case of consumer insurance. The trial of the issue before the court was not concerned with how this happened or who was responsible; the court was only concerned with the knowledge of the parties directly before it. It is clear that, at some time during the autumn Mr Evans became aware this was happening; on the evidence before the court, I cannot determine when he knew this, but he certainly knew this by the end of the year, as he was asking for and receiving figures in respect of certificates being issued for that period. Others at MRS must have known this as well. I consider the knowledge of Mr Newcombe and Mr Armstrong below.
  43. During the course of the autumn, when Mr Evans made his frequent visits to the box of Syndicate 1242 in connection with other matters, he asked Mr Newcombe whether he would write the binding authority. He was told by Mr Newcombe that he would not until the figures he had requested were available. Mr Evans told him that they were working on it.
  44. Mr Evans also pressed Mr Armstrong on such visits to put his line down, but he was told by Mr Armstrong that he would not commit his syndicate until the information requested by Mr Newcombe was provided. It was Mr Evans’ evidence that he pressed TMC to provide the information; he made it clear to TMC that Syndicate 1242 would not write the binding authority unless the figures were provided. He put the point to TMC in the clearest terms of the vernacular.
  45. Mr Evans’ evidence was that as time went by he became more and more insistent; he put his approaches in terms of asking Mr Armstrong to honour his promise and his evidence was that he was told by Mr Armstrong not to worry.
  46. The meeting between Mr Evans, Mr Newcombe and Mr Armstrong in January 2000

  47. Sometime in late December 1999 or early January 2000, Mr Evans visited Mr Newcombe with a specific request to him to “pick up” Syndicate 1242’s line on the scheme. He had with him two pages with some figures in manuscript. These set out:
  48. i) the estimated premium income for the Journeys scheme for 1998 and the Jardines scheme; this totalled £1,025,000;

    ii) the total incurred losses for both these schemes of £1,037,5000

    iii) the incurred loss ratio of 101.22%

    These figures therefore showed that the two schemes had made a loss in 1998; in order to try and induce Mr Newcombe to look more favourably on the business, there were included other schemes with much better figures. If the results on these were added in, the loss ratio became 82.78%.

    No 1999 figures were included.

  49. Mr Newcombe’s evidence (which I accept) was that he needed far more information. He was also concerned about the premium income that it might generate for 1999, given the time of year. He was being pestered (as he put it) by Mr Evans to write the binding authority, but was not prepared to do so.
  50. He therefore arranged a meeting with Mr Evans and Mr Armstrong which took place in January 2000. Mr Armstrong was only present at the beginning and end of the meeting which lasted between quarter and half an hour. At that meeting or a short while before, there had been discussion about dividing the binding authority into two periods - one to cover the 1999 year from 1 August 1999 and one for the year incepting on 1 January 2000; this was to facilitate the acceptance by Syndicate 1242 in view of the fact that it was approaching its premium income limits. A further binding authority was therefore prepared by MRS for the period incepting on 1 January 2000. The terms were similar to those in respect of the binding authority Mr Evans had been pressing Mr Newcombe and Mr Armstrong to accept for the period incepting 1 August 1999. It was common ground that this binding authority for the period incepting 1 January 2000 was never accepted by Syndicate 1242 and it is therefore not necessary to refer to it in more detail.
  51. Mr Newcombe wrote out a note of the minimum information he wanted, particularly that which he needed, if the scheme was to be backdated to 1 August 1999. He wanted to be sure that the Syndicate was not going to be accepting a known loss, as by this time the business for the 1999 year had, with one possible exception, already been written. The note therefore set out the information he required in respect of 1999:
  52. i) complete figures for all business bound from 1 August 1999 to 31 December 1999. He wanted to know how the account had actually performed as the business had already accrued.
    ii) inception dates for accounts proposed to be transferred; he wanted information as to the inception dates of the other schemes and details of such other schemes as were to be transferred. He understood these to be more profitable than the Journeys and Jardines schemes and that they had been written under the binding authority written by the Busbridge syndicate. He did not know what these were in detail.
    iii) estimated final premium for 1999 up to 1 February 2000.
    iv) He also included a statement that he wanted a warranty in terms to be agreed as to the payment of premium.
  53. The note also set out his requirements as to minimum terms for the year 2000, including a 30 day notice of cancellation, a rate review at any time, bordereaux within 30 days, payment within 30 days of bordereaux and an external audit. These were new requirements which he considered necessary in view of the failure of Mr Evans’ clients to provide the information he was seeking; these were much tougher terms than those on the draft binding authorities provided by MRS.
  54. To emphasise, in the face of the pressure from Mr Evans, that no cover had been given and to make clear these requirements were merely points for discussion and minimum requirements, he wrote on the note:
  55. “Not binding / No cover given”
  56. Mr Newcombe explained all these requirements to Mr Evans. His evidence was that no commitment had been given and he was not prepared to grant any cover until his requirements had been met and proper information provided. I am satisfied that Mr Evans, as an experienced broker, fully understood what was required and that there was no commitment by Mr Newcombe to write the binding authority at all. As an experienced broker, Mr Evans must have known that the information was required to enable Mr Newcombe to make a proper underwriting assessment. He knew at the meeting that Mr Newcombe had added the words “not binding / No cover given” and appreciated what they were intended to convey.
  57. Mr Evans’ evidence was that he told Mr Newcombe that what was required was not practicable and that it was unrealistic; he was annoyed and told Mr Newcombe that he was moving the goal posts. I accept that Mr Evans was annoyed and probably very angry with Mr Newcombe.
  58. Mr Evans’ evidence was that he saw Mr Armstrong on the way out and expressed his annoyance to him and that the requests for more figures could not go on; he reminded Mr Armstrong of his promise to write the business and was told by Mr Armstrong not to worry. Although Mr Armstrong accepted that he saw Mr Evans at some stage after the meeting and that Mr Evans was angry as more information was being sought, he denied he gave any such assurance. His evidence was that he said that he was interested in writing the binding authority, but that Mr Evans had to provide satisfactory information.
  59. Sometime later in January 2000, Mr Evans returned to see Mr Newcombe with figures on a single sheet of paper; Mr Armstrong was present. The figures were wholly inadequate and Mr Newcombe told him so. Mr Evans did not approach him again.
  60. The meeting between Mr Evans and Mr Armstrong in February 2000 and the writing on the binding authority.

  61. Instead, Mr Evans approached Mr Armstrong. Mr Newcombe described Mr Evans’s broking style as “divide and conquer”. He no doubt appreciated that he would get no further with Mr Newcombe.
  62. It was Mr Evans’ evidence that he had not at first noticed that the note given to him by Mr Newcombe had had written on it “Not binding / No cover given”, but when this was pointed out to him by his colleague, Mark Hooper, he resolved to get written confirmation of the cover from Mr Armstrong; it was his evidence that he could not go on having Mr Armstrong reassuring him that a line would be put down and Mr Newcombe saying something different.
  63. Prior to seeing Mr Armstrong he carried out some calculations with Mr Hooper about premium income; these suggested that the premium income written after the cancellation notice issued by Mr Slater under the Jardines and Journeys schemes could be covered by an agreement by Mr Armstrong to write £750,000 of premium income.
  64. At a date during February 2000 which could not be identified with any precision, Mr Armstrong and Mr Evans had a meeting during which Mr Armstrong wrote in pencil on the binding authority, the following:
  65. “H/C [Held covered]100% to 1242
    -Income no more than £750,000
    -SN [Stewart Newcombe] requirements met
    -Advise signing”

    Mr Armstrong added the initials of the Syndicate in pencil under these words, but did not append the stamp of Syndicate 1242. Mr Newcombe was not aware of the meeting; he was not told of it by Mr Armstrong or Mr Evans and was not told of what had been written on the binding authority by Mr Armstrong in the name of Syndicate 1242. The Syndicate retained no copy of the binding authority so annotated.

  66. On the apparent face of the wording and leaving out of account the background to which I have referred, the ordinary meaning of the annotation in pencil is that Syndicate 1242 had agreed to hold covered the binding authority and the insurance contracts accepted thereunder for a line of 100% on terms that the premium income was to be no more than £750,000, that Mr Newcombe’s requirements had been met and that Syndicate 1242 was to be notified if its line was signed down. The fact that the line was in pencil did not matter; by the time of the trial, it was accepted by Mr Armstrong and Syndicate 1242 that a Lloyd’s syndicate could commit itself by a line in pencil.
  67. Although looking at the binding authority and the annotation in the name of Syndicate 1242 against the background which I have outlined, there might be several possible interpretations upon the meeting between Mr Armstrong and Mr Evans and the annotation by Mr Armstrong, the Syndicate 1242 and MRS put forward two alternative cases:
  68. I am only concerned to decide which of the two cases advanced before me is correct on the evidence I have heard. It is important to record that there was no evidence before the court that any person outside the Syndicate 1242 or MRS had seen the annotation until after the dispute arose in July 2000. There was the possibility it may have been shown to TMC, but there was no evidence to that effect.

  69. Mr Evans’ evidence was that Mr Armstrong knew that Mr Newcombe’s requirements had not been met, but he felt he needed to give comfort to Mr Evans and to honour his previous assurances that he would write the business. The notations on the binding authority reflected this; Syndicate 1242 was giving cover by holding covered for 100%; the premium income limit would be sufficient to cover the Jardines and Journeys schemes from the time of the cancellation by ACE Syndicate 219 and Syndicate 1242 would be informed in the event of signing down. Mr Armstrong had insisted adding the words “SN requirements met”; this was to make clear that for the purposes of the agreement Mr Newcombe’s requirements were to be treated as met. Although there was some contradiction in Mr Evans’ statement, I understood his evidence to be that although the information requested by Mr Newcombe would be provided before the “ink would go down” and the authority stamped by Syndicate 1242, the commitment was binding without the provision of that information.
  70. Mr Armstrong’s evidence was that he reiterated the requirements that his syndicate had made and that, if these were met, then his syndicate would write a maximum line of £750,000. When he was asked to put down a line, he put it down in pencil, as a held covered line conditional upon Mr Newcombe’s requirements being met. His evidence was that he clearly explained that Mr Newcombe’s requirements had to be met before Mr Newcombe could make an underwriting decision. In his cross examination he made clear that it was his recollection that he reiterated the requirements of the syndicate had to be met before the cover would have effect. His evidence was that it would not have made commercial sense for him to have written the binding authority without seeing the figures. He said it was perfectly clear to him and to Mr Evans that there was no coverage until Mr Newcombe’s requirements were met. His explanation for writing the annotation was that he thought it would assist the broker by giving him an indication that he would write 100% of the stated premium figure if the information was provided and was satisfactory.
  71. Before setting out my conclusion, it is necessary to refer to subsequent events.
  72. Subsequent events

    The binding authority for the year commencing 1 January 2000

  73. The evidence of Mr Evans was that it was necessary for TMC to provide the information that Mr Newcombe required and to agree to the terms proposed by Mr Newcombe for the binding authority for the period commencing 1 January 2000; it was his evidence that once this information was provided and the terms agreed, the premium income would be allocated between the two binding authorities and both binding authorities would be stamped together. Once stamped, the binding authorities would then have been processed through the LPSO in accordance with the regulatory requirements. Without the stamp of Syndicate 1242, the binding authority which Mr Armstrong had signed could not be processed.
  74. Although, according to Mr Evans, TMC were informed of the fact that Syndicate 1242 had put down its held covered line in pencil, it is not clear what happened as between TMC and MRS. For example, in a letter to Syndicate 1242’s solicitors dated 7 June 2001, CMS Cameron McKenna on behalf of MRS stated that no travel insurance schemes were bound by MRS under the binding authority and no confirmation was given to TMC or anyone else that there was cover for a travel insurance scheme; they had not authorised the issue of policies under the binding authority. No one from TMC or MRS, other than Mr Evans provided any evidence to the court.
  75. Attempts to obtain the figures

  76. Mr Evans’ evidence was that he and Mr Mark Hooper continued to chase TMC for the information; on 7 April 2000, Mr Evans sent a fax to TMC in which he pressed for information about:
  77. i) the premium income for the Jardines and Journeys schemes for the period 1 August to 31 December 1999, the claims for that period on the Jardines scheme (he already had that on Journeys). This was the information that Mr Newcombe had said that he wanted before considering whether he would write the binding authority.

    ii) The list of schemes which would be written by Syndicate 1242. The fax explained that they were working on supplying Syndicate 1242 with other schemes “to smooth out the Jardines/Journeys position”. The fax went on to state:

    “I need to provide [Mr Armstrong] with a list of all the schemes he is writing/accepting from 1st August which means that I need to be able to show him the total incurred premium that he will receive during this period (1.8-31.12.99) and the total incurred claims which will prove how profitable the overall account is, up to the point chosen by him, being 31. 12. 99 ”
    The fax then set out a list of the other schemes, including Eurostar 99 scheme, TIA 99 scheme, the Longstay 99 scheme, Travelstaff 99 scheme and the Co-op 99 scheme.

    Mr Evans concluded by stating:

    “ Sorry to be so longwinded, but I cannot proceed with [Mr Armstrong] without the above information which I must say that up to now I thought we had.”

    Thus at 7 April 2000, the information required had not been provided. It was not clear on the evidence before me (including the response by TMC on 11 April 2000 to the fax of 7 April 2000) which insurer or syndicate (if any) had been insuring during the period 1 August to 31 December 1999 the schemes other than Jardines and Journeys mentioned in the fax. It would appear that either the position was similar to that in respect of Jardines and Journeys and no insurer had in fact written the business (in breach of the Insurance Companies Act) or MRS and TMC were contemplating transferring from an insurer who had written this apparently profitable business to Syndicate 1242 to compensate that syndicate for taking the Jardines and Journeys schemes (as foreshadowed in the figures shown to Mr Newcombe as set out in paragraph 35 and the information requested by Mr Newcombe referred to at paragraph 38.)

    Syndicate 1242’s decision to cease accepting any further business in May 2000

  78. Nothing had, however, been provided to Syndicate 1242 by May 2000 when it ceased to write any further business. There had been a question, since the beginning of 2000, over whether Syndicate 1242 should continue to write further business in view of the projected loss on the 1998 account. This question had caused Mr Armstrong considerable anxiety. Mr Armstrong ceased to be the active underwriter in May 2000 and left the Syndicate on 23 May 2000.
  79. After the Syndicate had ceased writing any further business, Mr Evans visited the box and saw Mr Newcombe. He asked about the scheme. Mr Newcombe told him that there was no scheme as no stamp had been put down, there had been no acceptance and none of the requirements had been met. Mr Evans said nothing to him about the pencilled annotation initialled in the name of Syndicate 1242 by Mr Armstrong.
  80. It is not clear what happened within MRS during the rest of May or June. At the time Syndicate 1242 ceased to write further business, they had taken no steps to process the alleged agreement in respect of 1999 and it was common ground that Mr Armstrong had made no agreement in respect of 2000. However travel insurance had continued to be offered to the public during 2000 through the TMC schemes. How this had happened was not a matter on which there was any evidence before the court.
  81. The enquiries within MRS in July 2000 and the notification to the Regulators

  82. On 6 July 2000, Mr Ray Watson, the compliance officer of MRS, and Mr Allen of MRS telephoned Mr Pain of MRS to arrange a meeting on 7 July 2000 to discuss the position in relation to the travel insurance business. The note of the meeting of 7 July 2000 records the following in respect of the alleged agreement:
  83. “Although not having an inked stamp, [Syndicate 1242] have a pencilled line for £750,000 of premium income subject to meeting certain syndicate criteria.
    [Mr Evans] advises that this slip was to cover two specific schemes where the [net premium income] would appear to fall just below the £750,000 and thus providing the slip is properly stamped, there would appear to be no problem.”

    The note went on to record Mr Evans’ account of matters; that the binding authority for 2000 had been prepared, as Syndicate 1242 did not want the premium income falling into 1999 and the premium income on the balance of the schemes (£3.8m) would be written into the 2000 year; that although Mr Armstrong had verbally committed his syndicate to this binding authority for the period incepting 1 January 2000, there was no written commitment by Mr Armstrong.

  84. The note also recorded a visit by Mr Watson and Mr Allen to Mr Armstrong to ask him his recollection; the note states:
  85. “[Mr Armstrong] confirmed that he had committed the syndicate to the first period but had never bound the second slip and that due to the size of the premium income compared with his [personal accident stamp] capacity could not have written it any way”
  86. The note further recorded the position as to what MRS thought TMC had been told.
  87. It was also noted that, as Syndicate 1242 had not been bound for 2000, immediate steps should be taken to place the 2000 year. The Regulatory Authorities at Lloyd’s were not told at this stage, despite the fact that MRS’ compliance officer was involved and that it must have been appreciated that schemes were in operation for 2000 and travel insurance was being sold to the general public for which there was no insurer. None of those at MRS involved in these discussions gave evidence to the court.
  88. On 12 July 2000, there was a meeting between Mr Evans and Mr Watson of MRS and Mr Reynolds, the deputy underwriter of Syndicate 1242. Mr Reynolds provided a statement to the court; he was not required to attend for cross examination and his statement was not challenged by MRS. He had learnt that Syndicate 1242 had not retained any documents other than a copy of the binding authority (without the annotation) and Mr Newcombe’s note of the information required; he had also learnt of the contact between Mr Armstrong and MRS about the binding authority after he had left Syndicate 1242. Mr Reynolds was given a copy of the binding authority with the annotation in pencil at the meeting on 12 July 2000 and was asked to “firm it up”. Mr Watson and Mr Evans concentrated on the figures and the development of the account; they appreciated that they were asking Syndicate 1242 to backdate the cover to August 1999. They told him the premium income was £770,000 and expressed the view that the account was doing well. Mr Reynolds did not understand how the binding authority could operate from August 1999 to July 2000 without an insurer being on risk, but did not mention this. He said he would consult the newly appointed manager for the run off of Syndicate 1242. The note of this meeting written by Mr Watson contains an account by Mr Evans of the reasons why he approached Syndicate 1242 to write the risk in August 1999.
  89. On 25 July 2000, Syndicate 1242 informed MRS that they would not accept the binding authority. On 28 July 2000, the chairman of MRS, Mr Rupert Murden, notified Lloyd’s Regulatory Department of their concern that a binding authority:
  90. “may not have been effectively written in the market. Consequently we are concerned that third parties have been given to believe that it had been so underwritten, resulting in Lloyd’s paper being issued and blank paper issued without Lloyd’s authority”

    Notification was also given to Lloyd’s Regulatory Department by CMS Cameron McKenna, acting on behalf of ACE Global Markets, the E&O underwriters of MRS. Both letters stated that MRS and their E&O underwriters were working to attempt to secure the return of Lloyd’s blank paper for the benefit of the market as a whole. Lloyd’s very shortly thereafter notified the Financial Services Authority and the Department of Trade and Industry. What happened thereafter and how travel insurance through these schemes continued to be sold to the general public for a considerable period of time after August 2000, in contravention of the Insurance Companies Acts and the regulatory system is not a matter relevant to the issue before the court.

  91. On 4 August 2000, MRS expressed their surprise at the position taken by Syndicate 1242 as it was their understanding that Mr Armstrong shared their view that he had bound Syndicate 1242. On 7 August 2000, Mr Armstrong wrote to Syndicate 1242 (with a copy to Mr Watson of MRS) setting out his understanding:
  92. “It was my intention that the Syndicate should participate in this scheme, but that our involvement was subject to an income limitation and, more importantly to the requirements of Stuart Newcombe being met. I had also requested that the broker advise us of the final signing as I would have preferred our line sign down. I had various discussions with Graham Evans about the facility but had left the detailed underwriting work to [Mr Newcombe] as the coverage fell under his particular area of expertise.
    I believed that [Mr Newcombe]’s requirements were close to being met and when asked, I agreed to pencil our hold covered agreement with our subjectivities. This was only in respect of the 1999 year and I had no part in any discussions concerning any period thereafter. ”

    The claim for an air ambulance on 16 February 2000

  93. There is one other matter to which it is necessary to refer. Sometime shortly before 15 February 2000, Mrs C who had been issued with a travel policy under the Jardines scheme after August 1999 was taken ill on a cruise in the West Indies. She needed an emergency air ambulance to take her to Florida for treatment at a cost of approximately $13,900. On 15 February 2000, TMC authorised the expenditure. On 16 February 2000, Mr Evans spoke to Mr Armstrong and faxed details of the claim to him. Mr Newcombe and Mr Armstrong recalled the claim being made; their evidence was that they rejected the notification on the basis that Syndicate 1242 was not on risk. Mr Newcombe’s evidence was that they made it clear to Mr Evans that Syndicate 1242 was not on risk and that the claim was not for Syndicate 1242. Mr Newcombe had asked who was on risk, as that insurer on risk should be paying the claim.
  94. This event was of potential significance. In the ordinary course of events, a broker would not send to the active underwriter of a syndicate with a premium income of about £37.5m a notification of a claim for $13,900. The claim was only sent to him as a significant issue had arisen; I infer that it must have been sent to Mr Armstrong because it related to the issue of whether there was cover. However although the sending of the claim can be precisely dated as 16 February 2000, the meeting between Mr Armstrong and Mr Evans at which Mr Armstrong wrote on the binding authority in February 2000 cannot. If the meeting took place before 16 February, then the rejection of the claim on the basis that there was no cover would have been powerful support for the position of Mr Armstrong. If the meeting took place after, it would explain why Mr Evans was pressing for a commitment and it would have made it obvious to Mr Armstrong that there was no underwriter on risk and that insurance was being written in contravention of the Insurance Companies Act and required him immediately to report the state of affairs to the regulators at Lloyd’s. However there was no evidence, despite enquiries made, that assisted on timing; therefore it was common ground this event does not materially assist in the resolution of the dispute.
  95. My finding in respect of the alleged agreement

  96. As I have set out, Mr Evans did not give oral evidence because of his medical condition. Having seen the medical reports, I am satisfied that although the nature of his illness prevented him giving oral evidence, it did not affect the quality of his recollection. I approach his evidence therefore on the basis that there were good reasons why he could not give evidence orally and his statement represented his account as he recalled it; that evidence, however, has not been tested by cross examination.
  97. Mr Armstrong’s evidence was tested by cross examination. Although his honesty was not called into question, his evidence was criticised as being unsatisfactory. There is some force in that criticism. He did not have any actual recollection of many of the conversations and he was at times evasive. He had said in his statement that it was the practice at Lloyd’s to put a line down in pencil when no commitment was made and that he had done this himself. He had to abandon his evidence on Lloyd’s practice. He had no satisfactory explanation as to why he did not use the term “subject to” if he had intended that the acceptance be conditional.
  98. However the crucial question is whether at the meeting with Mr Evans he orally agreed that Syndicate 1242 would only be committed to the binding authority if the information requested by Mr Newcombe was provided. As I have indicated, the wording on its face is not consistent with such an agreement having been reached and therefore clear and convincing evidence is needed that there was such an agreement and that Mr Evans clearly understood the position.
  99. I am, however, satisfied that there is clear and convincing evidence that he did make such an agreement and that Syndicate 1242 was not to be contractually committed until the information had been supplied. I am also entirely satisfied that Mr Evans fully understood this. The notation on the binding authority “SN requirement met” was intended to express the condition that the requirements were to be met before there was cover; I have no doubt that Mr Evans clearly understood this. My reasons are as follows:
  100. (i) for an active underwriter to have taken the view that the provision of essential underwriting information was to be treated as a mere formality to be dealt with by the class underwriter would have been a serious dereliction of his duty to the members of the Syndicate. Mr Newcombe had experience of the binding authority in 1998 and wanted to be sure that steps had been taken to make it profitable. He needed detailed underwriting information before he could make any decision.

    (ii) As Mr Evans’ statement made clear, he had told TMC that if the figures could not be provided then Syndicate 1242 would not write the binding authority.

    (i) As Mr Armstrong explained, underwriting information was required, because, as the business had largely been written, Syndicate 1242 would be committing itself to a guaranteed loss. Only a reckless underwriter would have bound his syndicate in such circumstances without the figures.
    (ii) There was nothing temporary about “holding covered”; the business had been substantially written and this was the retroactive acceptance of a block of insurance business that had been sold to the general public without an insurer being at risk and responsible for paying the claims.
    (iii) Mr Newcombe knew that ACE Syndicate 219 had cancelled; when he had enquired of Mr Evans as to who was writing the business in the period after the cancellation, he was told it was “in hand”. He did not understand that any new insurer was on risk for that period. As he had not had to make an underwriting decision or a decision on the terms of the binding authority, he had not thought through the implications of the serious contravention of the Insurance Companies Act involved.
    (iv)Mr Armstrong’s evidence (which I accept) was that he thought that the risks were being covered by an extension from the previous underwriter or by obtaining alternative coverage. I accept his evidence that, if he had realised that they were not so covered, he would have had to report the matter to the regulatory authorities, as doing so was the only course of conduct consistent with honesty and integrity. I do not consider that Mr Armstrong focussed on the position; I am sure that if Mr Armstrong, when he annotated the slip, had been committing his syndicate unconditionally, he would have had to make more careful enquiries about the period after the cancellation by ACE Syndicate 219 and the position would have become clear to him, as it did to Mr Reynolds at the meeting of 12 July 2000.
  101. I reached this clear conclusion without in any way relying on the terms of LPO 228, the origins of which I have mentioned at paragraph 9 and which was to be the form on which the binding authority was to be written. The form was not before the court during the hearing and so neither Mr Newcombe nor Mr Armstrong were asked about it. When a copy was provided to me at my request, I asked for submissions on it. Syndicate 1242 contended that it supported their position, as the form set out clear steps that the broker needed to take, including for example provisions that the agreement did not take effect until the coverholders had confirmed in writing that they accepted the terms of the binding authority and provisions requiring approval by the underwriter of the wording of the certificates to be issued to the insured. None of those steps was taken by Mr Evans. These are powerful points, but MRS have taken the point that this issue was not investigated during the evidence and had the point been raised earlier, they would have wished to adduce evidence on it and in particular on the question of whether the terms of LPO 228 had been complied with in respect of the other binding authorities brokered by MRS where there was no dispute as to cover. In view of the very short time that was allowed for the preparation for this trial, I understand why the issue was not investigated and I therefore have not taken into account the arguments made by Syndicate 1242 with respect to LPO 228.
  102. I was also asked by Syndicate 1242 to take into account the fact that no one from MRS had been called to support the account of Mr Evans or explain what had happened. It was submitted on behalf of Syndicate 1242 that they had not done so because either their evidence was inconsistent with that of Mr Evans or that they would be exposed to having to tell the truth about their actions in allowing consumer insurance to be provided to the public when in the last months of 1999 they knew there was no insurer at risk for the Journeys and Jardines Schemes. It was submitted on behalf of MRS that as the essential issue was what had been agreed between Mr Armstrong and Mr Evans, the other persons at MRS could not take the matter further. It was not necessary for me to take into account Syndicate 1242’s submission on this, given the clear conclusion to which I have come. In the circumstances, I will express no view on the reasons why they were not called, as it would be fairer to those involved at MRS to leave consideration of their actions to those who are conducting the wider ranging enquiry into these events and their regulatory implications.
  103. Conclusion on the issue before the Court

  104. I therefore find that Syndicate 1242 never became a party to the binding authority for the period commencing 1 August 1999.
  105. It was common ground that Syndicate 1242 never became party to a binding authority in favour of MRS for the year commencing 1 January 2000.
  106. The further conduct of the Travel Insurance Litigation

  107. The issue which I have determined arose in proceedings designated the Travel Insurance Litigation by Cresswell J. At case management conferences held by him in June 2001 and attended by many of those involved or connected with the schemes written through TMC, the Court was told in summary that:
  108. Cresswell J ordered the issues between MRS and Syndicate 1242 be tried in the last week of July and reserved further time in September for the hearing of any other matters that might arise. Notice to those interested was posted at Lloyd’s and on the web sites of the Commercial Court and of Lloyd’s
  109. When the matter came before me, the position had changed:
  110. In the circumstances, Lloyd’s announced shortly after the conclusion of the trial, with, if I may say so, commendable speed, in an exemplary manner and in accordance with their very high reputation for honouring claims, that they were providing a fund from which innocent members of the public would have their claims paid, pending the resolution of responsibility for what has happened, either by agreement, arbitration or further litigation.
  111. In view of this action by Lloyd’s, it was my provisional view that no useful purpose would be served by the court attempting to hold a further hearing in September, unless those interested in the litigation so wished. Notice was given accordingly in the same manner as the original notice had been given. The Court received notification from Jardines and from Voyagers Assistance Limited and an associated company; having considered those notifications and the arguments of the parties before the court, I intend, subject to any further representations, to vacate the period reserved in September and terminate the present litigation as there is no further issue presently before the court for determination and no party presently wishes to seek a determination.
  112. It will, of course, remain open to any party to bring such further proceedings as they may be advised and the court will then consider how any such litigation be managed. It is to be hoped, however, that given the very public spirited action by Lloyd’s in providing funding to satisfy the claims of the innocent members of the public that a very serious attempt will be made by those concerned (and their E&0 underwriters) to agree upon their respective responsibilities, or if they cannot, to submit it for speedy resolution. It would be a credit to those involved in dealing with the consequences of these very regrettable events if they were now able ensure that any further disputes are resolved without the protracted and expensive litigation or arbitration so characteristic of such disputes in the past.

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