UK: Insurance Law Quarterly – Spring 2006 – What Can I See?

The Court of Appeal’s recent ruling in Goshawk v Tyser & Co. Ltd (2006) has confirmed that, at least in the Lloyd’s Market, brokers must make available to underwriters placing and claims documentation previously shown to them and premium accounting documents which are necessary to the operation of the contract.

In the Lloyd’s market, underwriters often call for the broker’s placing and claims files. The Commercial Court decision in Goshawk v Tyser (2005) severely curtailed this. The Court of Appeal has recently overturned this ruling and therefore the old market practice once again prevails. This is a significant decision and seemingly vindicates practice which was common in the Lloyd’s market. The original decision by the Commercial Court had surprised some in that market as it called into question the legal basis of such requests. The Court had held that brokers had an overriding obligation to act in the best interests of their client, the insured. Without client consent, a broker could not hand over documentation to underwriters. This overriding obligation to the client effectively trumped any counter obligations to underwriters. It also trumped the express provisions of the Terms of Business Agreements ("TOBAs") between the brokers and the Lloyd’s Syndicate managers which specifically required the broker to produce documents to underwriters on request.

The Court of Appeal’s decision has confirmed that brokers are generally required to accede to requests for placing and claims documentation - as many in the market long believed. Goshawk involved the insurance of so-called "viatical" business between 1999 and 2002. In December 2001, the brokers and Lloyd’s syndicate managers entered into a TOBA, containing the standard terms outlined above. The syndicates later went into run-off and the run-off managers asked the brokers to release to them the broker placing file and claim files and, in addition, material relevant to premium accounting. The brokers could not contact or get responses from many of their client insureds and therefore felt unable to comply.

The underwriters in Goshawk did not seek to appeal the first instance ruling that there is no universal custom and practice in the Lloyd’s market which entitles underwriters to obtain documents. The appeal was argued on the quite different ground that the agreement between broker and insured contained an implied term to the effect that the broker would disclose, on demand, placing and claims documentation which he had previously shown to underwriters and also allow them the right to take copies. The Court of Appeal accepted that a term to this effect should be implied as a matter of business efficacy. In effect, therefore, the insured had given pre-consent to the documentation held by its broker being made available.

In reaching its decision, the Court of Appeal was persuaded that business in Lloyd’s could not be operated effectively or safely if placing documents held by brokers and not retained by underwriters were not to be made available subsequently to underwriters, particularly where those documents formed a part of the contract or formed a part of the duty of good faith. The Court of Appeal also emphasised that what was requested was not production for the first time of private documentation which might reveal non-disclosure, but re-production of documents originally disclosed as part of the duty of good faith.

With regard to claim files, the Court of Appeal emphasised that the information being sought had already been seen by underwriters and it was quite possible to contemplate that future claims might not be capable of resolution without the opportunity to re-view previously seen claims information. The implied term allowing access to the brokers files was, however, held to be subject to a requirement permit unnecessary or unreasonably wide requests. The width of this limitation will no doubt be explored in future cases.

As regards accounting documents, it was held to be both reasonable and necessary for premium accounting documents to be made available to the underwriters, although only to the extent that they were necessary to the operation of the contract. Again, we will need to seek guidance as to exactly what in context is "necessary" from future cases.

The Court of Appeal also considered whether there was any contract between brokers and underwriters. To the legal purist, this is a startling proposition, as the broker is the agent of the insured and surely cannot serve two masters. The Court, however, held that there was. It confirmed that the brokers were contractually bound to provide documentation to underwriters under the standard TOBA and that this obligation was not trumped by any obligation owed to the insured. However, more radically, the Court implied a contract between broker and underwriter in the pre-TOBA era by which an underwriter could require the production of such documentation. This meant that underwriters could pursue their claims for the production up of documents directly against the brokers as well as against the insureds themselves. The Court of Appeal cited, with approval, the comment in the Zephyr (1983) that "a broker carrying out instructions on behalf of an intending assured may have to undertake obligations to others in order to perform his mandate."

The Court of Appeal’s decision is of obvious practical significance. When a potential dispute arises, the first reaction of many underwriters is to seek production of the placing and claims files. At least in the Lloyd’s market, the Goshawk decision will make such requests hard to refuse - although care will still be needed as regards the precise documents to be handed over. Although the decision is confined to the Lloyd’s market and, to that extent, it is limited in its scope, this is an issue which is sure to arise at some stage in a non-Lloyds’s setting. It will be interesting to see the extent to which Goshawk is followed. It also remains to be seen whether the House of Lords will add its opinion to the mix. If the House of Lords grants permission to appeal, we may hear yet further on this subject. In the meantime, to the extent that working practices have been altered as a result of the first Goshawk decision, these will obviously need to be further reviewed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.