Neutral Citation Number: [2009] EWHC 2900 (Comm)
Case No: 2007 Folio:1059
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 19/11/2009

Before :

MR JUSTICE HAMBLEN
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Between :

	(1)	DUNLOP HAYWARDS (DHL) LTD 
(formerly known as DUNLOP HEYWOOD LORENZ LTD) (in liquidation)
(2)	ERINACEOUS COMMERCIAL PROPERTY SERVICES LTD 
(formerly known as DUNLOP HAYWARDS LTD) (in administration)
(3) NATIONWIDE BUILDING SOCIETY	Claimants	
	- and -		
	(1) BARBON INSURANCE GROUP LIMITED (formerly known as ERINACEOUS INSURANCE SERVICES LTD formerly known as HANOVER PARK COMMERCIAL LIMITED)
(2) MSI CORPORATE CAPITAL LIMITED
(3) D. A. CONSTABLE & OTHERS (sued on his own behalf and on behalf of all underwriters participating in Lloyd’s Syndicate 386 for the 2005 year of account)
(4) WÜRTTEMBERGISCHE VERSICHERUNG AG
(5) W.R. BERKLEY INSURANCE (EUROPE) 
(6) MARKEL INTERNATIONAL INSURANCE COMPANY LIMITED
(7) ACE EUROPEAN GROUP LIMITED	Defendants

	
	- and -		
	LOCKTON COMPANIES INTERNATIONAL LIMITED (formerly known as ALEXANDER FORBES RISK SERVICES UK LIMITED)	Third Party	

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Mr Alistair Schaff QC and Mr Michael Holmes (instructed by Fulbright & Jaworski International LLP) for the Claimants
Mr Adam Fenton QC and Ms Julia Dias QC (instructed by Cayton & Co) for the 1st Defendant
Mr David Railton QC and Ms Siobán Healy (instructed by Kennedys) for the 2nd to 7th Defendants
Mr George Leggatt QC and Mr Nicholas Craig (instructed by Simmons and Simmons) for the 3rd Party

Hearing dates: 7-8, 12-15, 19-21, 26-29 October, 3-5 November 2009

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Judgment

Mr Justice Hamblen:

Introduction

1.	The First and Second Claimants were part of the Erinaceous Group of companies (“the Group”) which, prior to its liquidation, provided a wide range of property services. The First Claimant (“DHL”) had originally been part of the Hercules Group of Companies and was acquired by the Group in October 2004.  At the time of the acquisition and until 1st January 2006, DHL carried on business as property consultants, which included significant commercial property valuation work. DHL’s business was subsequently acquired and carried on by the Second Claimant (“DH”).

2.	In March-April 2006, DHL and DH received a number of claims from various lenders – including the Nationwide Building Society (“Nationwide”) and Cheshire Building Society (“Cheshire”) – said to arise from the provision of negligent and/or fraudulent valuation reports carried out by Mr Ian McGarry, a director of DHL and later of DH.  

3.	The Group had professional indemnity insurance on a ‘claims made’ basis and duly gave notice of such claims to its insurers. The Third Claimant (“Nationwide”) suffered loss in reliance on a number of McGarry valuation reports and is the assignee of DHL and DH’s rights against the Defendants in respect of the renewal of the indemnity cover for the relevant 2005/2006 year.

4.	The relevant cover for the 2005/6 year, commencing 1st May 2005, had been obtained for the Group by the First Defendant (“HPC”), a general insurance broker specialising in commercial and property insurance which was itself a subsidiary company of the Erinaceous Group.  HPC had been instructed to assimilate and renew the existing insurance programmes for the (now expanded) Group, including for the newly acquired Hercules companies such as DHL.

5.	The Part 20 Defendant (“Forbes”) was the placing broker used by HPC in connection with the 2005/6 renewal. HPC and Forbes already had a good business relationship and HPC had used Forbes for the placement of the 2004/5 Erinaceous covers. 

6.	The cover was placed in two layers, a primary layer of £10 million and an excess layer of £10 million excess of £10 million. For the outgoing 2004/5 year, the Hercules Group had obtained professional indemnity cover of £10 million for the Group as a whole, with a top excess layer of £10 million excess of £10 million which had been in place for DHL alone. The rationale for this additional (DHL only) layer lay in the significant commercial valuation work of DHL which could have exposed DHL to sizeable liabilities.  

7.	The McGarry claims were accepted by those underwriters who subscribed to the Group’s primary £10 million layer of professional indemnity insurance; a full £10 million indemnity was provided in early 2007. 

8.	However, the McGarry claims were rejected by the Second to Seventh Defendants (“Excess Insurers”), in their capacity as underwriters on the excess £10 million layer of cover, it being maintained that the excess contract of insurance with the Group did not include cover for liabilities arising from valuations.  This position was adopted on the basis that the excess policy as issued defines ‘the Assured’ as “Erinaceous Group PLC and as per primary policy” and contains an endorsement 1 which provides (the “Limiting Condition”):
“It is hereby understood and agreed that: 
1.	The indemnity provided by this Policy is limited to liability arising from the Assured’s commercial Property Management activities only.”

9.	The excess cover obtained by HPC for 2005/6 was therefore in its terms different from the 2004/5 excess cover, purporting to cover the Group generally (and not just DHL) and purporting to limit the scope of the insured activities to ‘Commercial Property Management activities’ (rather than having no restriction on the class of activities insured). 

10.	It was common ground between the Claimants and HPC that it was not instructed by the Group to obtain excess cover for the Group as a whole and in respect of a limited class of activities, namely “Commercial Property Management activities”, but rather that it was instructed to obtain excess cover which protected DHL on the same or equivalent terms as the prior DHL cover. 

11.	As a consequence of Excess Insurers’ denial of liability for the valuation claims, the Claimants brought the present action against HPC in June 2007, suing HPC in contract and/or tort. The Claimants’ case is that, in breach of its contractual or common law duties owed to the Group, HPC obtained excess cover which, in its terms, did not accord with the Group’s instructions; and having done so, HPC repeatedly overlooked the terms of the cover, including the terms of the Limiting Condition, and failed to draw it to the attention of the Group or to explain its significance.

12.	HPC contends that either as a matter of construction or by a process of rectification the policy does in fact cover DHL’s valuation activities.  This is disputed by Forbes and Excess Insurers.  HPC also alleges that the Group was contributorily negligent and that some reduction should be made in the Claimants’ recoverable damages. This is based on the fact that Mr Davis, the Group Finance Director, failed to read and notice the Limiting Condition amongst various attachments sent to him by HPC by email on 22nd April 2006.

13.	HPC joined the placing broker, Forbes, as a Third Party alleging that it was responsible for how the wording came to bear its ultimate form, contrary to the instructions provided by HPC, and claiming damages and/or a contribution from Forbes. Forbes’ case is that it was not instructed by HPC to procure excess insurance for DHL alone in respect of all of its activities, but rather to obtain excess insurance for the Erinaceous group as a whole, but limited to its commercial property management activities.  Although Forbes erroneously obtained an initial quotation for the excess insurance on the basis that it was to cover DHL alone this was noticed and corrected.  Forbes duly placed excess insurance for the Erinaceous group, limited to its commercial property management activities as accurately stated in the slip, the policy, and a renewal report, cover note and letter sent by Forbes to HPC.  Forbes denies any breach of duty and/or contends that any breach of duty was not causative of the loss and/or that HPC was contributorily negligent.

14.	In November 2007 HPC sought to join the Excess Insurers to the proceedings.  This application was opposed, successfully by Excess Insurers at a hearing before Field J in February 2008.  HPC appealed to the Court of Appeal and, in the meantime, the action proceeded as between the Claimants, HPC and Forbes.  On 28th April 2009 the Court of Appeal gave judgment allowing HPC’s appeal against the dismissal by Field J of its application to join the Excess Insurers, holding that the matter should not have been dealt with summarily, whilst questioning whether any party other than the Claimants would be entitled to bring a claim in rectification against the Excess Insurers. 

15.	The Excess Insurers were joined as defendants on 22nd May 2009, the Claimants adopting and passing on HPC’s case set out in HPC’s Defence to the Claimants’ claim as to why the excess policy provides cover for negligent or fraudulent valuations or should be rectified so as to do so.  Excess Insurers deny the claim for rectification.  They contend that they agreed to provide excess insurance for the Erinaceous group, limited to its commercial property management activities, as accurately stated in the slip and the policy, and that this does not cover valuations.

16.	At the trial I heard factual oral evidence from Mr Davis for the Claimants; Mr Hart, Mr Brindley and Mr Wensley for HPC; Mr Bickell and Mr Gadd for Forbes; and all the underwriters involved in the placement, save for Ms Philpott of  D A Constable.  I also heard expert oral broking evidence from Mr McGrath for HPC and Mr Wood for Forbes.  There was a Joint Memorandum agreed between Mr McGrath and Ms Rooke, the Claimants’ expert broker.  In the light of this Memorandum and various admissions made by HPC it was agreed that there was no need for oral expert evidence to be given in relation to the issues between the Claimants and HPC.  There were also reports and Joint Memoranda from expert underwriters, Mr Holt for HPC and Mr Warrington for Excess Insurers.  It was agreed that there was no need for oral examination of the underwriting experts.

The facts
The background to the placement
17.	DHL was part of the Hercules group of companies which was acquired by the Group in October 2004.  At the time of its acquisition, DHL provided property consultancy services, including substantial commercial property valuation work for banks, building societies and other clients. Prior to 2004, the Group’s focus had been primarily on residential property services.  The acquisition of Hercules represented part of a move to a greater involvement in commercial property services.

18.	The placement of the 2004/5 professional indemnity insurances for the Hercules group of companies had been effected through Hercules’ in-house brokers, Cadogan Insurance Services Ltd (“Cadogan”), who had, in turn, used Howdens as placing brokers. The relevant covers expired on 10th July 2005. 

19.	The placement of the 2004/5 professional indemnity insurances for the pre-merger Erinaceous Group had been effected through its in-house brokers, HPC. Cover was obtained with a limit of indemnity of £5 million any one claim. Because the sums involved were considerable, HPC wanted to access the Lloyd’s market and therefore needed to use a Lloyd’s broker.  Forbes was appointed to place the cover for the Group companies other than those (such as HPC) providing insurance services.  The relevant covers expired on 1st April 2005.
20.	The acquisition of Hercules provided an opportunity for rationalisation and cost-savings. Cadogan was integrated into HPC which now assumed broking responsibilities for the Group as a whole. Mr Nigel Davis, previously Financial Director of the Hercules Group and now the Financial Director of the (combined) Group, was given the responsibility of overseeing the implementation of a combined insurance programme covering the Group, including the consolidation and renewal of the existing professional indemnity arrangements of the Group. His primary focus was on using the combined programme to achieve a premium reduction. 

21.	HPC was accordingly instructed to obtain a consolidated renewal of the professional indemnity cover across the Group for the 2005/2006 year. The relevant HPC individuals were Mr Brian Hart, the Commercial Insurance Director, who was the individual primarily responsible for the placement of the primary and excess professional indemnity insurance policies for the non-insurance services for the Group in 2005; the Managing Director of HPC, Mr Steve Brindley, to whom Mr Hart reported; and Mr Tony Wensley, a Commercial Supervisor and Account Handler, who provided administrative and back-up assistance, particularly when Mr Hart was away.

22.	HPC (and Mr Hart) had already worked closely with Mr Andrew Bickell at Forbes in connection with the placement of the 2004/5 cover for the pre-merger Erinaceous Group. Both HPC and Forbes perceived the purchase of Hercules to be an opportunity for a further collaboration between HPC and Forbes. 

23.	On 20th December 2004, HPC received documentation from Cadogan relating to the placement of Hercules’ professional indemnity insurance in 2004. The covering letter referred to the fact that the £10 million excess of £10 million excess layer covered DHL and the cover note for that excess layer identified the insured as “Dunlop Heywood Lorenz Limited.”  The accompanying 2004/5 proposal form for DHL identified £1,095,000 of fees derived from commercial valuations in the last completed financial year, with a highest portfolio valuation of £185 million and clients including the Bank of Scotland, the Royal Bank of Scotland and the Bank of Ireland. 

24.	On 21st December 2004 Mr Bickell and another broker from Forbes attended a meeting at HPC’s offices with Mr Hart. Mr Bickell made a note of the meeting.  As recorded in Mr Bickell’s note, Mr Hart explained that a meeting had also been arranged with Howdens out of courtesy but that he hoped to be in a position to provide Forbes with a letter of appointment for the whole Group (including the newly acquired Hercules companies) in early 2005. Mr Hart also said that HPC was working on the renewal submission and hoped to get it to Forbes by 7th February 2005 at the latest. It was agreed that the renewal submission should include the Hercules non-insurance companies (although their cover did not expire until July 2005). Mr Hart stated that on the renewal they would probably be looking for an overall limit of indemnity of £10 million, but then possibly buying an excess layer in respect of certain work or companies.

25.	On 6th January 2005 Mr Hart told Mr Bickell in a telephone conversation, of which Mr Bickell made a note, that no beauty parade was required and that there would not be a problem regarding the appointment of Forbes to place the cover for the non-insurance side of the Group. However, it was necessary for Forbes to put in a fee request (and Howden were doing likewise). Mr Hart also said that he would like to see Forbes appointed for the insurance side of the Group as well, but he was not looking after this and he felt this would be more of a problem.  
26.	Mr Brindley and Mr Hart met with Mr Davis on 13th or 14th January 2005 to address the Group’s objectives to obtain a harmonised programme incorporating the newly acquired Hercules companies at a reduced level of premium, whilst maintaining the existing level of cover.  It was the Claimants’ and HPC’s case that at that meeting Mr Davis instructed HPC to obtain a primary layer of £10 million for all the companies in the enlarged Group with a further layer of excess cover of at least £10 million for DHL, thereby matching the existing cover.  

27.	HPC was keen on appointing Forbes as placing broker, at least for the Group non-insurance companies professional indemnity cover. 

28.	Mr Bickell prepared a fee proposal and sent this as an attachment to an email to Mr Hart on 18th January 2005 which referred to Forbes “being appointed as Insurance and Risk management advisors to the newly merged Group”.  The attached document was entitled “Professional Indemnity Fee Proposal 2005 for Erinaceous Group Plc” and placed emphasis on the services from which the Group would be benefiting if Forbes were appointed. Pages 3, 4 and 6 of the proposal stated, amongst other things:
“Our fee is designed to reflect the negotiations, placement and servicing of your P.I. programme…
Our fee will be based upon us providing you with (but not limited to) the following services:…
•	Discuss in depth such terms with you, leading to your firm instructions.
•	Place cover to the limit instructed, having discussed programme structure, and agreed the parameters for the ‘proposition’ to the market…
•	Regular meetings to discuss and review business activities and any specific requirements regarding Policy coverage.
•	Advice as required on contract documents, Collateral Warranties and the like.
•	In addition we will attend to any queries that arise out of your firm’s daily activities and which relate to or have an insurance perspective….
We propose charging an annual fee of £55,000, combined with the inclusion of a performance bonus structure…
The suggested criteria for the bonus would in our opinion include the following:
•	Responsiveness
•	Understanding your business
•	Added value
•	Quality
•	Pro-activity…
•	Practical and commercial advice
…
We believe we are well equipped to meet the challenge of acting as your Insurance & Risk Management advisors.  We are enthusiastic and committed to this goal and look forward to the prospect of continuing to work with you.”

29.	Shortly thereafter Mr Brindley and Mr Hart met with Mr Davis again and the decision to use the services of Forbes was taken.  It was also by this stage agreed that HPC would seek quotes for an excess layer of £15 and £20 million as well as £10 million.
 
30.	On 21st January 2005 Mr Brindley sent by fax to Forbes a draft document headed “Terms of agreement” which indicated that HPC was looking to appoint Forbes in respect of the placement of the professional indemnity insurance programme for the Erinaceous Group including Hercules (non-insurance business) subject to certain points.  The document set out a proposed fee structure involving a benchmark annual fee of £45,000 which would be adjustable up or down according to the level of premium achieved; the lower the premium, the higher the fee. 

31.	Mr Bickell sent back his comments on this document to Mr Brindley on 24th January 2005, stating that:
“Firstly, we would look to delete the reference at the top to “contract” and “terms of agreement” and head the document “Fee Proposal”.
Mr Bickell went on to request various amendments to the details of the proposed fee arrangements.

32.	The final version of the document (now headed “Fee Proposal”) was signed by Mr Brindley on behalf of HPC and by Mr Bickell on behalf of Forbes on 26th January 2005 (“the Fee Proposal”).  This provided:

“After taking into account the information contained within the AFP presentation received by e-mail 18th January 2005, HPC as placing Broker for all Erinaceous Group  PLC Insurance policies..., would look to appoint AFP in  respect of the Erinaceous including Hercules PI insurance placement (renewal date 1/4/2005) subject to the following.
...
1)	Cover to be at no worse policy wording conditions to the current Erinaceous/Hercules policy wordings, unless specifically agreed to in writing by HPC in advance.  Various excesses will need to be employed for the various trading Companies and types of work undertaken throughout the Group, none however exceeding £100,000 each and every claim.
…
3)  Fee structure – It is our objective to secure renewal at the most         favourable terms possible…”

33.	There is an issue between HPC and Forbes as to the contractual effect of the terms of this letter and in particular the meaning and effect of paragraph 1.  HPC submitted that this provision amounted to a contractual agreement that the cover arranged should be on no worse terms – including as to the basis of cover – as the existing Erinaceous and Hercules policies, unless different terms were specifically agreed to in writing by HPC in advance.  Forbes’ position was that the provision was not a matter of contract and was only concerned with policy wordings, and not with the amount of cover to be purchased.
34.	HPC and Forbes subsequently signed an agreement headed “Sub-Broking Terms of Business Agreement” dated 11th February 2005, which was prepared by Forbes’ Compliance Department. Forbes submitted that this agreement (“the SBA”) was intended to define, and did define, the obligations owed by Forbes and the obligations owed by HPC in relation to all placement services provided by Forbes as a sub-broker for HPC, including the subject placement.  HPC submitted that this was an umbrella agreement produced for compliance purposes which does not address or detract from the agreed terms upon which this particular placement was to be made.
35.	By a letter dated 2nd March 2005, HPC appointed Forbes as ‘our broker’ in respect of the existing Hercules professional indemnity covers with immediate effect for the placement of insurance to 1st April 2006.  The letter sets out the structure of the existing Hercules cover and the £10 million excess £10 million layer insuring DHL alone. Certified copies of the 2004/5 slips were provided to Forbes by Howdens on 10th March 2005.  On the same day, Mr Bickell confirmed that the Group’s existing insurers had agreed to extend the present cover through the month of April 2005 subject to pro rata additional premiums.

36.	On 18th March 2005 Mr Hart telephoned Mr Bickell to tell him that the Erinaceous Group had bought another company, EP2, which would need to be covered under the policy.
37.	On 6th April 2005 Mr Hart telephoned Mr Bickell to say that the renewal submission was now complete.  In this conversation there was a discussion between Mr Hart and Mr Bickell as to the amount of cover for which HPC wanted Forbes to seek quotes. There is a dispute as to what Mr Hart said in this conversation which will be considered further below. Mr Bickell made a contemporaneous note of the conversation which records the following:
“Looking to purchase £10m across the board and then either an extra £10m, £15m or £20m for Dunlop Heywood Lorenz / Commercial Prop Man  
They are disbanding parts of the Grp (either Heywoods or Hercules) and merging them etc with effect from 1/5.”  
38.	Following this conversation the renewal submission was sent by HPC to Forbes. It comprised a master proposal form, signed by Mr Hart and dated 7th April 2005, as well as separate proposal forms for individual group companies. In relation to Dunlop Heywood Lorenz and ISG Occupancy Ltd (“ISGO”), the proposal form contained the following note:
“Dunlop Heywood Lorenz Ltd and ISG Occupancy Ltd will merge with effect from 1.5.05 to become Dunlop Haywards Ltd. Dunlop Heywood Lorenz and ISG Occupancy Ltd should then go into ‘run-off cover’.” 
The proposal form also described the current insurance cover of the Erinaceous Group and the Hercules Group, including the DHL excess layer, and then set out at the end the “Cover required” as follows:
“A limit of £10,000,000 for all group companies on an each and every claim basis with varying deductibles” [The required deductibles were then set out]  
There was no express reference in this or in any later version of the proposal form to any requirement for excess cover.

39.	The renewal submission comprised a substantial volume of material.  It was reviewed by Mr Bickell who found that various items of information appeared to be missing.  On 11th April 2005 he raised some initial points in an email sent to Mr Hart. 
40.	On the morning of 12th April 2005 Mr Hart sent by email some further information, including a revised proposal form with more figures relating to the Group companies’ businesses.  This included a completed questionnaire for DHL Manchester which stated that in 2004 the Manchester office of DHL received gross fees in respect of commercial survey and valuation reports of £800,000.  The average value of the property portfolios valued by DHL Manchester was £300 million with a top value of £523 million. The largest individual property valued was worth £150 million.  The revised proposal form included information provided by Mr McGarry of the DHL London office which indicated that 90% of the work of DHL London was valuation work (75% commercial and 15% residential), that the most expensive single property valued was worth £33 million and the most substantial portfolio was worth £180 million.  DHL was said to have income from commercial structural surveys and valuations of £1,175,000 and income from bank valuations of £1,900,000, as well as other income for residential and land surveys and valuation.  It was specifically recorded that DHL had an excess insurance layer of £10 million over and above the £10 million cover enjoyed by the other Hercules Companies.  
41.	Later that day Mr Hart came to see Mr Bickell at Forbes’ offices. It is at this meeting that Mr Bickell says that Mr Hart clarified the scope of the excess cover for which he wanted Forbes to seek quotes, stating that the quotes should be in respect of the commercial property management activities of the Group.  Mr Hart denies that he gave any such instructions to Mr Bickell.  What transpired at that crucial meeting will be considered further below. Mr Bickell made a contemporaneous note of this meeting which includes the following:
“2)  Premium target – no more than £750k for £10m
- £80k for £10m x/s £10m iro Comm Prop Man.”
42.	On 13th April 2005 Mr Bickell sent an email to Mr Hart which summarised the various items of missing information which he had asked Mr Hart to provide.  In response to this email Mr Hart provided some of the further information needed.  
The initial quotations
43.	 On 15th April 2005 Forbes obtained a quotation for the Primary Policy from the Abacus syndicate.  This named the Assured as “Erinaceous Group PLC & as per 05 proposal forms”.  It provided for a primary limit of indemnity of £10 million excess of £25,000 for auctioneering, £50,000 for property management, £100,000 for commercial surveys and valuations, and £75,000 all other work.  The quotation sheet also set out 4 subjectivities:

“-	Satisfactory details of extent of Commercial Valuations for transactional purposes
-	Satisfactory details of any investment advice provided
-	Satisfactory NCD
-	All 2005 S & Dated Proposal forms completed.”

44.	Mr Bickell, who was an account handler, instructed Mr Chris Gadd, an experienced Forbes broker, to assist him in the placement.

45.	Mr Gadd took the quotation sheet around the market.  Further quotations for the primary layer, together with quotations for the excess layer, were all scratched on the same document.  The typed quotation sheet itself did not say anything about the excess cover being sought by the insured.

46.	Forbes’ placement folder does not appear to have survived in the form in which it would have been taken around the market.  However, it seems that Forbes had a presentation pack including pro forma proposal forms for various Erinaceous subsidiaries, information about the Erinaceous Group, claims experience and health & safety. It also included the master proposal form which gave a breakdown of annual fees for each subsidiary by area of work, distinguishing between property management, estate agency, investment agency, valuations, auctioneering etc.  Forbes had also prepared two summary sheets setting out summaries of the Group’s fee income per subsidiary and per activity/discipline. 

47.	The first of the Excess Insurers to be approached by Forbes was Mr Peter Glanfield of W R Berkley, who had already quoted for the primary layer.  W R Berkley ultimately underwrote both the Primary and Excess Policies of Erinaceous in 2005.  W R Berkley had insured Erinaceous under its primary policy in 2004/5, and had also subscribed the £10 million excess of £10 million Hercules policy covering DHL in 2003/4 and 2004/5.  On Friday 15th April 2005 Mr Glanfield wrote on the back of the primary layer quote sheet a “VRI” or very rough indication of terms for the £10 million excess of £10 million layer at a premium of £73,500, “sub L/U”.  Mr Glanfield also wrote “DHL” and a series of monetary amounts separating out the fee income arising from DHL’s different business activities totalling £14 ½ million, with a request to the broker to “Confirm Pls”.  Excess Insurers accepted that this indication was in respect of excess cover for DHL alone.

48.	On Monday 18th April 2005 Forbes obtained a quotation for the excess layer cover from Mr Robert Ripley of Mitsui.  Mitsui subscribed only the excess layer of the Erinaceous Group’s insurance in 2005, having previously covered the £10 million excess of £10 million Hercules policy covering DHL in 2004/5.  Mr Ripley scratched the primary layer quotation sheet to refer to the previous cover for Hercules, and gave alternative quotations for £10 million in excess of £10 million, or for £20 million in excess of £10 million, “from Dunlop Heywood Lorenz as per existing cover”. Mr Ripley completed a Renewal Underwriting Notes form on 18th April 2005.  Excess Insurers accepted that Mitsui’s initial quotation was for excess cover for DHL alone.

49.	Mr Grant Clemence of D A Constable was also asked to quote on 18th April 2005.  D A Constable had been on the Hercules £3 million excess of £2 million cover in 2004/5 but had not subscribed the higher excess layers, or insured Erinaceous.  D A Constable’s underwriting guidelines described cover for surveys and valuations as a problematic area and stated that surveyors operating in areas including Central and Greater London should be either declined or treated with great caution.  Mr Clemence scratched the quotation sheet beneath Mr Ripley’s quotation.  Although Mr Clemence accepts that he scratched underneath Mr Ripley’s quotation, his recollection is that the risk was only ever broked to him on the basis that the excess layer was to cover the entire Erinaceous Group but limited to its commercial property management activities.  He does not recollect Mr Gadd broking the risk to him, but thinks it may have been Mr Paul Browne, another Forbes broker.  

50.	The remaining Excess Insurers gave initial quotations on Tuesday 19th April 2005.  Mr Andrew Palmer of Markel was asked to quote for both the primary and excess layers, and did so. His scratch is at the bottom right hand side of the quotation sheet.  A copy of the quotation sheet was scanned on to Markel’s Swordfish computer system.  Markel had subscribed the Hercules primary and Hercules £5 million excess of £5 million excess layers in 2004/5, but not the £10 million excess of £10 million excess layer for DHL.  Nor had Markel insured the Erinaceous Group in 2004/5.  Markel subscribed both the primary and excess layers of Erinaceous in 2005/6.  Mr Palmer completed a PI Risk Summary sheet on 19th April 2005 which recorded that the excess layer “only covers Dunlop Heywood Lorenz”.  This document was subsequently modified.  Excess Insurers accepted that Markel’s initial quotation was for DHL alone.

51.	Mr Steven Driscoll of Ace also gave an initial quotation for both the primary and excess layers of the Erinaceous Group insurance on 19th April 2005.  In 2004/5 Ace had participated in the Hercules £3 million excess of £2 million layer, but not the £10 million excess of £10 million layer for DHL.  In 2005/6 Ace subscribed both the Primary and Excess Erinaceous Group Policies.  When giving Ace’s initial quotation for the primary and excess layers Mr Driscoll completed a Professional Lines Rate Worksheet for the former, which noted that the latter was in respect of DHL only.  Excess Insurers accepted that Ace’s initial quotation for excess cover was for DHL only.  

52.	The final underwriter to quote for the Excess Policy was Württ.  In 2004/5 Württ had subscribed three layers of the Hercules insurance: £3 million in excess of £2 million, £5 million in excess of £5 million, and the £10 million in excess of £10 million cover for DHL.  Württ had not insured Erinaceous.  In 2005/6 Württ subscribed the Excess Policy only.  Württ’s initial quotation was given to Forbes by Mr Brian Denton on 19th April 2005.  On that day Mr Denton produced two rating sheets relating to the excess layer, one headed “Erinaceous Group”, and the other headed “Heywood Dunwoody”.  Excess Insurers accepted that Württ’s initial quotation was for DHL alone.

53.	Mr Bickell and Mr Gadd say that, when Mr Gadd reported back to Mr Bickell and showed him the quotations he had obtained, Mr Bickell saw that the quote from Mitsui for excess layer cover was for Dunlop Heywood Lorenz, as in the case of the expiring cover.  Mr Bickell pointed out to Mr Gadd that this quote was on the wrong basis, and that what was required was a quotation for cover for the commercial property management activities of the whole Group (of which Dunlop Heywood Lorenz was now part). Mr Gadd agreed to seek revised quotes to reflect this.
54.	Whether, when and in what terms Mr Gadd sought revised quotes from the Excess Insurers is very much in dispute and Mr Gadd has no actual recollection of broking a revised quote, although he does recall being instructed by Mr Bickell to do so.  This issue will be considered further below.

55.	It is Mr Bickell’s evidence that by the time he finalised his Renewal Review and Report (“RRR”) on 20th April 2006 Mr Gadd had confirmed to him that he had obtained re-quotes for the excess layer covering commercial property management activities of the whole Group.  He says this is why the RRR referred to the cover in such terms.
56.	On 20th April 2005, Mr Bickell sent an e-mail to Mr Hart and Mr Wensley containing the details of the renewal terms negotiated by Forbes.  The covering email identified a significant premium saving across the primary layer and indicated that Forbes were pleased with the results of their negotiations.  Attached to the email were five Microsoft Word documents:

(1)	a document containing the 14-page RRR and a standard set of terms and conditions from Forbes running to a further 6 pages;

(2)	a document providing the A.G.Dore surveyors wording 2004; 

(3)	a document containing the premium payment clause coded LSW3000;

(4)	a document containing a USA and Canada Conditions clause coded RJW038; and

(5)	a document containing a small claims handling agreement and a automatic acquisition clause.

57.	The RRR provided renewal terms in section 4.  That section dealt first with the proposed terms for the primary layer in full and then with three excess layer options: £10 million excess £10 million, £15 million excess £10 million and £20 million excess £10 million.  At the foot of the various excess layer premium indications were terms applicable to all three options.  Against the heading “Conditions/Endorsements” was the language:
“To follow the primary layer as far as applicable plus:
1)	Indemnity provided by this policy will be restricted to the Insured’s Commercial Property Management activities.”

58.	The quotations for the primary and excess policies were both said to be subject to a signed and dated master proposal form; to confirmation of the exact nature of bank valuations and satisfactory details of the extent of transactional commercial valuations; and to satisfactory details of any investment advice provided.

59.	Mr Hart had just got married. He returned to HPC’s offices for the afternoon of 22nd April 2005, before departing on honeymoon.  He did so for the specific purpose of reviewing the RRR and reporting to Mr Davis.  When carrying out this review Mr Hart says that he did not check the terms and conditions of the proposed excess cover as set out in the RRR and accordingly did not read and notice the Limiting Condition.  

60.	At 2.30pm on 22nd April 2005 Mr Hart telephoned Mr Bickell to say that he had discussed the terms and hoped to give instructions for the renewal that afternoon or on Monday. Mr Hart also indicated that the Group would probably buy £20 million of cover in the first instance. Mr Bickell made a note of this conversation.

61.	Mr Hart then drafted a summary report on the placement (“the Summary”) and created an Excel spreadsheet (“the Spreadsheet”) setting out a comparison of the premiums obtained by Forbes and those from the previous year. Those documents were sent by email to Mr Davis with the attachments that had been provided by Forbes, at 4.00 pm.

62.	The covering email concentrated on the costs of the programme and drew specific attention to the Spreadsheet and the Summary accompanying the terms and conditions and which “shows just how well the renewal has gone”.  Mr Davis was asked to contact Mr Wensley if he was “agreeable”.  Mr Davis closed the e-mail by saying:
“If you need to speak to me, you can ring me on my mobile ... on Monday AM if there are any issues but I am very confident that this covers all bases and at a very good deal for the Group.”

63.	The first substantive paragraph of the Summary referred to the attached Spreadsheet which was said to provide year-on-year comparisons.  Mr Hart emphasised that the savings achieved had been considerable, despite delays in the provision of information and the presence of large claim settlements. The Summary drew specific attention to the 60-day premium payment clause and to the three subjectivities identified by underwriters. It did not identify the Limiting Condition.

64.	The Spreadsheet provided a premium comparison with the previous year on a contract by contract basis.  The row dealing with the £10 million excess £10 million contract contained the words “DHL only” in the notes column.  

65.	Mr Davis read the email, the Summary and the Spreadsheet.  He was primarily interested in the financial ‘bottom line’. He did not read the RRR. The basis for the plea of contributory negligence against the Claimants is that he should have read the RRR and he should have noticed and appreciated the significance of the Limiting Condition, which was set out at page 13 of the enclosed RRR.

66.	On 25th April 2005, Mr Wensley chased Mr Davis for his renewal instructions.  Mr Davis replied almost immediately that he was happy for cover to be put in place “on the basis that Brian has outlined.” 

67.	Mr Wensley informed Mr Bickell of the instructions to proceed as quoted by telephone on the morning of 26th April 2005. Those instructions were confirmed in writing by email that afternoon.

68.	Mr Bickell took the fresh primary layer quotation sheet provided by Abacus and wrote “FON w.e.f. 1/5/05 £10m x/s £10m @ £58,800 net” at the bottom of the page.  His evidence is that in doing so he was accepting a quotation for excess insurance on the terms of the Limiting Condition set out in the RRR.  The Excess Insurers were not shown the RRR or Mr Wensley’s 26th April 2005 email.  

The noting of a Firm Order
69.	Mr Gadd took the fresh primary quotation sheet on which Mr Bickell had noted the assured’s firm order round the market on 27th and 28th April 2005 and asked the primary and excess layer underwriters to note the assured’s firm order with effect from 1st May 2005.  As with the original quotation sheet on which the initial quotations for the primary and excess layers were scratched, the typed text of this fresh quotation sheet contained no reference to the Excess Policy.  Even after it had been scratched by all the relevant underwriters, the FON quotation sheet contained no reference to the proposed terms of the Excess Policy other than the premium and limit; in particular no reference to whether it was to cover DHL alone, or to cover the Erinaceous Group for commercial property management activities only.

70.	Mr Palmer of Markel noted the firm order on both the primary and excess layers on 27th April 2005, stipulating “sub slips within 10 days”.  Mr Palmer also stipulated “Markel line to be put down by Andy P only”.  A copy of the FON quotation sheet was scanned on to Markel’s Swordfish computer system.

71.	In the case of Mitsui and Württ, the identity of the underwriter who noted the firm order was different from the underwriter who had given the initial quotation, with Mr Simon Potts noting the firm order for Mitsui, and Mr Graham Knowles noting it for Württ, both on 27th April 2005.

72.	Mr Glanfield of W R Berkley, the same underwriter who had given the initial quotation, noted the firm orders for the primary and excess layers on 27th April 2005.  At some stage he made a manuscript annotation upside down on a copy of the quotation sheet on W R Berkley’s file “Dunlop H 01714 AF £14.4M fees”.  01714 was W R Berkley’s risk reference for its insurance of DHL £10 million in excess of £10 million in 2004/5.  

73.	Mr Clemence of D A Constable, also the same underwriter who had given the initial quotation, noted the firm order for the excess layer on 27th April 2005.  

74.	The final underwriter to note the firm order was Mr Driscoll of Ace, again the same underwriter who had given the initial quotation.  Mr Driscoll noted firm orders on both the primary and excess layers on 28th April 2005.

75.	At the time when the firm orders were noted, all of the subjectivities set out on the quotation sheets remained outstanding.  Mr Bickell of Forbes wrote to Mr Wensley of HPC on 28th April 2005 confirming that all of the insurers had noted the firm order with effect from 1st May 2005, all terms and conditions being as set out in Forbes’ RRR dated April 2005, and listed the subjectivities.

76.	The policies incepted with effect from 1st May 2005, albeit with the subjectivities still in place at that stage.

Subsequent correspondence
77.	On 12th May 2005, Mr Hart sent an email to Mr Bill Wrigley at DHL Manchester copied to Mr David Kahn, seeking to address underwriters’ subjectivities relating to the provision of further information concerning bank and other transactional commercial valuations and investment advice.  The final paragraph of the email stated:
“Finally, the limit purchased is £20M any one claim with defence costs additional.  Do you believe this limit is sufficient or are you aware of any contracts that might require more than this.”

78.	Mr Kahn responded to Mr Hart on the same day.  He had spoken to Mr McGarry in the London office of DHL who indicated that, with the level of valuation work being undertaken, he would feel more comfortable with £30 million of cover. On the other hand, Mr Wrigley’s response of 16 May 2005 confirmed that £20 million of cover was sufficient “for the North” on the basis that “it is after all the amount of negligence or loss, not the valuation figure” which mattered.  Mr Hart clarified his request for further information from Mr Wrigley relating to bank valuations on the same day and once again confirmed that DHL’s cover was for £20 million, but that he was also being asked to look for a further £10 million of cover. Mr Wrigley answered Mr Hart’s query on the difference between commercial valuations and bank valuations by email on 26th May 2005. 

79.	Also on 16th May 2005, Mr Wensley sent Mr Davis a proposal form for his signature and dating.  Mr Davis reviewed the document and responded to Mr Wensley by email with certain limited amendments on 19th May 2005.  The final proposal form was signed by Mr Davis on 26th May 2005 and was sent to Forbes by HPC on the following day.

Scratching the slip
80.	When noting the firm orders for primary and excess layer insurance on 27th April 2005 Mr Palmer of Markel stipulated that this was subject to slips within 10 days.  In the event, it took rather longer than that for the subjectivities information to be gathered.  Forbes contacted Mr Palmer on 20th May 2005 and obtained his agreement to a further 7 days.  On Friday 27th May 2005 Forbes received from HPC a signed and dated Erinaceous Group proposal form and information in response to the subjectivities.  On Tuesday 31st May 2005 (after the end of May Bank Holiday Monday) Mr Gadd started taking the primary and excess layer slips around the market.  The primary layer slip was scratched between 31st May and 1st June 2005 and the excess layer between 31st May and 2nd June 2005.

81.	The Excess slip identified the Insured as “Erinaceous Group PLC And as per primary policy”.  The Excess slip Conditions stated, in their entirety:
“CONDITIONS	Wording: LPO 392
Clauses: To follow the underlying policy terms and conditions as far as applicable plus:
1) It is understood and agreed that indemnity provided by this policy is limited to liability arising from the Insured’s Commercial Property Management activities only.”

82.	Mr Palmer of Markel scratched and stamped the primary layer slip for 25% and the excess layer slip for 10% on 31st May 2005.  On the same day he completed a Markel “MINT – Underwriters Front Sheet” for each of the primary and the excess layers.  These both identified the broker contact name as Mr Gadd and the Assured as Erinaceous Group Plc.  The sheet for the excess layer stated, in addition: “Doesn’t cover all activities”.  At some stage Mr Palmer also updated his PI Risk Summary Sheet which he had created when giving the initial quotation on 19th April 2005.  Under the description of “This Years Program” for the £10 million excess of £10 million layer he deleted “only covers Dunlop Heywood Lorenz” and replaced it with “commercial property management only!”.  

83.	The excess slip was also stamped, scratched and initialled on every page by Mitsui as lead on 31st May 2005.  This was done by a Mitsui underwriter, Miss Tracy Field, who had not previously been involved in the broking of the risk.  Miss Field initialled the slip next to Condition 1. The following day Mr Ripley, the Mitsui underwriter who had given the initial quotation but not noted the firm order, noted on an underwriting form: 
“Practice of Dunlop Heywood bought by Erinaceous Group so change of bkr to Forbes. Cover continued for the DH activities only and the underlying cover changed to AOC from U/L RTC reinstatements which improves our exposure. No claims/circs”.  

84.	Mr Nicholas Cox, an underwriter at W R Berkley who had also not previously been involved in the broking of the Erinaceous risk, stamped and scratched the primary and excess layer slips on 31st May 2005. He created a new Excess Policy risk reference, EGY050A0V963, which differed from the 201714  risk reference used for the DHL £10 million excess of £10 million cover underwritten by W R Berkley in 2004. Between 3rd and 8th June 2005 Mr Glanfield, the underwriter who had given the initial quotation and noted the firm orders, completed Peer Review Summary sheets for the primary and excess layers.  On those relating to the excess layer he wrote “see 20174” and “Previously under Dunlop Heywood”.  He also crossed out the Group fee income figure of £68 million which had been entered.

85.	The next two underwriters to be seen by Forbes were from Ace and Württ, who both scratched and stamped the slip on 1st June 2005.  The Ace underwriter was Mr Paul Slater, who scratched the primary and excess layer slips writing “SD” under his initials to signify Steven Driscoll, the Ace underwriter who had previously been involved in the broking of this risk.  At some stage between 3rd and 10th June 2005 Mr Driscoll of Ace completed an Ace frontsheet for the excess layer on which he wrote: “Line down, see previous. Pro-rata £58,800 annual. Cover for this layer only iro Commercial Property Mgmt activities”.  

86.	The Württ underwriter was Mr Denton, to whom the risk had originally been broked.  As Companies lead he stamped and scratched the excess layer slip on every page, including next to Condition 1.  On 1st June 2005 Mr Denton inputted an entry on Württ’s Swordfish computer system in respect of the excess layer. This identified Mr Gadd as the broker contact and Erinaceous Group Plc as the assured.  A section headed “Notes” at the bottom of this document includes: “IRO COMMERCIAL PROPERTY ONLY BOUGHT HERCULES GROUP”.

87.	The final underwriter to scratch and stamp the excess slip was Ms Beverley Philpott, a senior underwriter at D A Constable who had been responsible for drafting D A Constable’s guidelines on covering surveys and valuations, who did so on 2nd June 2005.  She had not previously been involved in the broking of the risk.  D A Constable does not have an internal underwriting record contemporaneous with scratching of the slip.  A print-out from D A Constable’s Phoenix computer system in respect of the Excess Policy contains a comment post-dating the McGarry claims: “We were only covering the property mgt on our layer and not the S&V & all work”.

Events between scratching the slip and execution of the policy
88.	Having obtained all of the underwriters’ stamps on the slips, Forbes produced cover notes for the primary and excess layers dated 6th June 2005.

89.	On 7th June 2005 Mr Bickell sent a package to Mr Hart containing Forbes’ fee invoice and the cover notes and invoices for the primary and excess layer professional indemnity insurances.  The enclosures are described in the covering letter which was addressed to Mr Hart.  The excess layer is there described as:

“the £10,000,000 excess of £10,000,000 layer, which covers the commercial property management activities of the group only.”

90.	The cover note for the excess layer, which enjoined HPC to examine the document carefully and advise Forbes immediately if any of the terms and conditions did not meet requirements or were incorrect, identified the insured as the “Erinaceous Group PLC and as per primary”.  It included under condition 1, the following language:
“It is understood and agreed that indemnity provided by this policy is limited to liability arising from the Insured’s Commercial Property Management activities only.”

91.	It was the evidence of Mr Hart and Mr Wensley that, in accordance with HPC’s usual procedures at the time, the cover notes were reviewed by Mr Wensley only.  It was common ground that they were not passed to the Group but remained with HPC.  HPC did not draw the Limiting Condition to the attention of the Group.  Mr Bickell and Mr Hart met on 22nd June 2005 at Forbes’ offices where Mr Hart provided a cheque for premium and fees.  The Cover Note of the meeting prepared by Mr Bickell on the following day records that Mr Hart told him that: 
“he had been through the cover notes thoroughly and signed off on them as being accurate and that no amendments to cover are required.” 

Issuance of the policy/(ies)
92.	Two policies were issued for each of the primary and excess layers, one for each of the Lloyd’s and Companies markets.  The Lloyd’s Policy Schedule for the Excess Policy is dated 20th June 2005, but the Lloyd’s Excess Policy also contains an LPSO signing date of 13th June 2005.  It was agreed by the Excess Insurers that the date of execution of the Lloyd’s Excess Policy should be treated as being 13th June 2005 for the purposes of the rectification case.  The Lloyd’s Excess Policy as issued or executed named the Assureds as Erinaceous Group PLC and as per primary policy and contained a single endorsement:
“ENDORSEMENTS
	Attaching to and forming part of this Policy
	Endorsement No: 1
	It is hereby understood and agreed that:
1.	The indemnity provided by this Policy is limited to liability arising from the Assured’s commercial Property Management activities only.”
93.	The Companies Primary and Excess Policies appear to have been dated 21st June 2005.  The Companies Excess Policy states that it is subject to the same terms, conditions, limitations and exclusions as set out in the Lloyd’s Excess Policy.

94.	Formal policy documentation was provided by Forbes to Mr Hart on 25th July 2005. The covering letter again emphasised that the cover should be read thoroughly by the insured to ensure familiarity with the insuring clauses, conditions and exclusions.  The identity of the insured in the excess layer schedule and the endorsement 1 were in materially identical language to that which appeared in the cover notes.  The formal policy documentation was not passed on to Mr Davis or anyone else within the Group and the Limiting Condition was not drawn to the attention of the Group.

95.	On 30th June 2005, Mr Wensley had been asked by Mr Steven Day of ‘Dunlop Haywards’ to provide a formal verification of insurance cover.  Such documents were typically required by banking clients in respect of valuation work.  Mr Wensley did so by email on 1st July 2005. The document sets out the limit of indemnity, period of insurance and excesses for both the primary and excess layers of professional indemnity cover.  The limit of indemnity for the excess layer is described as £10 million excess of £10 million any one claim defence costs in addition “(cover in respect of Dunlop Haywards only).”  

96.	Verifications in identical terms were provided by Mr Wensley to ‘Dunlop Haywards’ employees on 27th July 2005, 13th October 2005 and 26th October 2005, and to John Gorham of the Group on 30th August 2005.  On 10th November 2005, Mr Wensley provided Ms Anna Dewey of ‘Dunlop Haywards’ with a completed certificate of professional indemnity insurance indicating total cover of £20 million without limitation.  Later verifications of insurance produced by Mr Wensley and addressed specifically to ‘Dunlop Haywards Ltd’ (rather than the Group) give no indication of the limitation of the cover to commercial property management activities.  The first verification of insurance to indicate any limiting feature of the excess layer was signed by Mr Wensley on 22nd March 2006.  In that document the cover is said to extend to “Dunlop Haywards Commercial Property Management Activities only”.  By that date Addleshaw Goddard had already written a letter before action to DHL and HPC, informing them of a claim by Cheshire arising from Mr McGarry’s valuation of the former Concentric Control Works at Aston. 

The rejection of the claims
97.	A bordereau of claims and circumstances was circulated by Forbes to certain of the Excess Insurers on 19th April 2006.  By notes scratched on 21st, 24th and 25th of April 2006 they rejected the claims on the basis that there was no cover for valuation work.  The Fifth Defendant rejected the notifications by e-mail on 10th May 2006 to Ms Angela Gyles at Forbes and in a further e-mail of 15th May 2006 to the senior claims manager at Forbes, Mr John Pavitt, the latter copied to Excess Insurers.

98.	By contrast, in a letter dated 29th January 2007, the primary insurers exercised their rights under clause 4.1 of the primary policy to discharge their liability for the potential claims by payment of a single policy limit (as well as defence costs incurred to that date) on the basis that the claims were a “Series of Claims” as defined in the policy and therefore fell to be aggregated together.  On or around 21st February 2007, the primary insurers paid the sum of £10 million and, by a    letter of the same date, withdrew their consent to the incurring of further defence costs for their account. 

99.	Having set out above the general factual background there are two crucial issues of fact that need to be further addressed, namely (1) the placing instructions given by HPC to Forbes and (2) whether, when and in what terms Mr Gadd sought and obtained revised quotes relating to the basis of cover from the Excess Insurers.

The placing instructions given by HPC to Forbes
100.	The starting point is the instructions given by Mr Davis to HPC.  In their witness statements both Mr Davis and Mr Hart said that it was at their meeting on 13th or 14th January 2005 that Mr Davis instructed HPC to obtain £10 million excess cover for DHL.  Both were pressed on this in cross examination by Forbes’ counsel and they acknowledged that they now had no clear recollection of exactly what was said.  Although it is not now possible to be precise about the exact words used I am satisfied that the gist of what Mr Davis told Mr Hart and Mr Brindley was that they were to harmonise the Group insurances, obtain cheaper premiums and maintain the same level of cover.  Whether or not DHL was specifically mentioned, Mr Hart correctly understood that this meant obtaining an £10 million excess layer of cover for DHL as per the existing Hercules cover.  Indeed it is clear that at some stage the excess layer cover must have been discussed between Mr Davis and Mr Hart since it was agreed, most probably at Mr Hart’s suggestion, that excess quotes should be obtained for £10 million, £15 million and £20 million layers of coverage.  Those quotes were understood to be required on the same or equivalent terms as the existing Hercules excess cover.

101.	Even without that instruction, taking away existing cover was something which Mr Hart was not going to do unless so instructed; it would have infringed what he regarded as ‘a golden rule’ of insurance.  Mr Hart therefore understood that his instructions were to obtain the same or equivalent excess cover for DHL.

102.	Mr Bickell accepted that you would never take away cover which was not requested to be taken away and that, in the context of “claims made” professional indemnity cover, you would need unique or at least rare circumstances to want to do so.  Unless he had been requested to do otherwise Mr Bickell would therefore implicitly understand his instructions to be to maintain the existing cover for DHL.

103.	As to express instructions, in January 2005 there was agreement to the terms of the Fee Proposal.  The terms agreed included “Cover to be at no worse policy wording conditions to the current Erinaceous/Hercules policy wordings, unless specifically agreed to in writing by HPC in advance.”   The exact meaning and effect of this provision will be considered further below, but I am satisfied that this was an instruction that, among other things, the basis of cover should not be changed to the insured’s detriment without specific agreement in writing.  Indeed, Mr Bickell accepted in evidence that this referred to the basis of cover being purchased.

104.	The excess cover requirements were next discussed during the telephone discussion between Mr Hart and Mr Bickell on 6th April 2005.   This was an informal “heads up” conversation.  Its main purpose was to inform Mr Bickell that the proposal form was finally about to be sent over. 

105.	 Mr Bickell’s note of the conversation includes the following:
“Looking to purchase £10m across the board and then either an extra £10m, £15m or £20m for Dunlop Heywood Lorenz / Commercial Prop Man  
They are disbanding parts of the Grp (either Heywoods or Hercules) and merging them etc with effect from 1/5.”

106.	As reflected in Mr Bickell’s note, at the meeting Mr Hart said that that they were looking to purchase a primary layer of £10 million and an excess layer of £10 million, £15 million or £20 million layer for DHL or “Commercial Property Management”.  He explained that there was a lot of restructuring going on, that certain parts of the groups were being disbanded and merged and that DHL was going to be merging with IGSO to form the “Commercial Property Management” part of the Group.  However, as Mr Hart accepted in evidence, anything he said in this conversation would only have been a general indication rather than a precise instruction as to the cover which Forbes should obtain quotes for.  As he said: “this was undoubtedly no more than just a heads-up as to where we were.”  

107.	Mr Bickell was then sent the renewal submission, including the proposal form.  Although the form did not state anything about the requirements for excess cover it did state:
“Dunlop Heywood Lorenz Ltd and ISG Occupancy Ltd will merge with effect from 1.5.05 to become Dunlop Haywards Ltd. Dunlop Heywood Lorenz and ISG Occupancy Ltd should then go into ‘run-off cover’.”
The form therefore contained an instruction there should be run off cover for DHL.  Despite the lack of instructions in relation to excess cover, I accept that this would reasonably be understood as meaning run off up to the existing limits of cover, as Mr Bickell accepted in evidence.  In any event, Mr Bickell’s implicit instructions remained not to take away cover without an express request to do so.  It was his evidence that that request was made during the 12th April 2005 meeting with Mr Hart.

108.	Before considering what transpired at that crucial meeting, the context in which it took place needs to be considered.  The first point to be made is that there was considerable time pressure.  It had taken much longer than envisaged for Mr Hart to produce the renewal submission and there was now a great deal to be done in a short period of time, the inception date for the programme being 1st May 2005.  Secondly, there were particular pressures on Mr Hart as he was about to get married and go on honeymoon.  This would not only have been a major distraction at the time, but it also meant that he was going to be away from the office for much of the second half of April.  In addition, Mr Bickell was going to take Mr Hart for a celebratory lunch that day.  This meant that there was a particular time pressure that day as the pre-lunch meeting did not start until about 1.30 pm.

109.	It is also right to recognise that Mr Hart and Mr Bickell’s attention was focused far more on the primary layer than the excess layer.  It was the primary layer and the amalgamation which it involved that was the most difficult and time consuming part of the proposed presentation and placement.  The excess layer was seen as being relatively straightforward and not much attention was paid to it.  In fact, the merging of DHL into a re-organised Group structure meant that it was more complicated than was appreciated at the time.

110.	The meeting itself was relatively short.  It took place at around 1.30 pm and lasted about half an hour following which Mr Hart and Mr Bickell went out for their celebratory lunch.  Mr Bickell made some rough notes at the time which he made up into a tidier note later that day, or possibly the following day.  It was not a formal meeting.  Mr Hart was coming over to deliver bound versions of the renewal submission and because of the planned lunch, although there was a need for them to discuss various issues, as Mr Bickell had stated in his email earlier that day.

111.	Point (2) of Mr Bickell’s note of the meeting records:
“Premium target – no more than £750k for £10m
-	£80k for £10m x/s £10m iro Comm Prop Man.”
As that note suggests, one of the issues discussed at the meeting was premium targets and it was agreed that Forbes would aim for no more than £800,000 for the primary layer and £80,000 for a £10 million excess layer, although quotes were also to be sought for a £15 and £20 million excess layer.  That led on to a discussion of the excess layer.  

112.	The note suggests that in that discussion Mr Hart said that the excess layer was to be in respect of “Commercial Property Management”.  Mr Bickell was adamant that this was the instruction he was given.  Mr Hart was equally adamant that the he had not and never would have given any such instruction.

113.	Having carefully considered the evidence and the extensive submissions made on this issue I have concluded that Mr Hart did indeed give the instruction recorded in Mr Bickell’s note.  My principal reasons for so concluding are as follows:

(1)	One of the striking features of the case is Mr Hart’s uncertainty about what instructions he did give in respect of the excess layer.  Some instructions would surely have been given, and he claimed that they had been, but, on his evidence, what those instructions were was very unclear.  HPC’s original pleaded case did not refer to any oral instruction, but instead relied upon an implicit instruction to obtain DHL run off cover to be derived from the proposal form.  By amendment it was alleged that during their conversation on 6th April 2005 Mr Hart expressly instructed Mr Bickell to obtain excess cover for DHL in its run off and its ongoing activities in the name of DH.  This was reflected in Mr Hart’s third witness statement (but not his earlier statements).  However, in evidence it became apparent that no instruction had been given by Mr Hart during the “heads up” conversation of 6th April 2005.  As to what instruction was given, Mr Hart insisted it was for “DHL going backwards and DH going forwards”, by which he explained that he meant all activities carried out by DH, not merely those which had been previously carried out by DHL, although he could not recall whether he would have said this at the 12th April 2005 meeting.   If, as Mr Hart insisted, he did not give instructions that there be cover for “Commercial Property Management”, one would expect him to be clear as to what instructions he did give, but he was not.

(2)	Although in his first witness statement Mr Hart said that “Commercial Property Management” was not an expression he would have used, in evidence he acknowledged that he may well have done in describing the company or division into which DHL was going to be merged.  This was borne out by the documents.  Thus Mr Hart’s own notes of a conversation that he had with Mr Danny Innes on about 2nd February 2005 recorded that the work undertaken by DHL and ISGO was in the nature of commercial property management and facilities management.  Moreover, there was a further undated manuscript note of Mr Hart, probably prepared sometime in March 2005, in which he separated out the various business areas by fee income and equated “Commercial Property Management” with DHL and ISGO.  I therefore have no doubt that it was Mr Hart who was responsible for the expression “Commercial Property Management” and that it was used by him during the meeting of 12th April 2005.

(3)	I am not satisfied that at the time Mr Hart appreciated that “Commercial Property Management” was an inappropriate description of DHL’s activities and that it would or might exclude valuation work.  On the contrary one sees it being used by him to describe the activities to be carried out by the merged company or division, which activities were going to be wider than those carried out by DHL.  Further, in his first witness statement he said that ““commercial property management” can mean different things in different contexts.  Indeed, I would go as far as to say that, on analysis, “commercial property management” could include almost anything, even valuations”.  Until shortly before the trial that was HPC’s primary case on construction.

(4)	Given that it was a description which he appears to have considered was wide enough to cover DHL and DH’s activities there is nothing inherently improbable in him using it to describe the cover required.  Since it was envisaged that DHL would shortly be merged into another company or division the cover could not simply refer to DHL.  In circumstances where, as he several times stressed in his evidence, the corporate structure of the Group was in a state of flux, it is likely that Mr Hart thought it unwise to limit the scope of the excess cover to any named company or companies, and far preferable to limit it by reference to an area of business.

(5)	I am satisfied that Mr Bickell understood his instructions to be to obtain cover for commercial property management activities.  This is borne out by a number of documents.  Excess cover for the “Commercial Property Management activities” of the Erinaceous Group as a whole is what he set out in the RRR sent to HPC on 20th April 2005; it is the basis on which he told HPC a firm order had been noted on 28th April 2005; it is the basis of cover set out in the excess layer slip which he drafted between 26th and 31st May 2005; it is the description of excess cover to which he drew HPC’s attention in his covering letter of 7th June 2005 enclosing a cover note setting out the limitation to commercial property management activities; and it is what he was still saying in an 11th October 2005 email to Mr Hart which is further considered below. Whilst a misunderstanding is possible, it is likely that Mr Bickell’s clear and contemporaneous understanding reflected what he was told.

(6)	It is borne out by Mr Bickell’s contemporaneous note.

114.	In addition, there are a number of later matters which are difficult to explain if Mr Hart did not realise that the excess cover was for “Commercial Property Management activities”.  

115.	First, there is Mr Hart’s endorsement of the RRR.  In relation to the excess layer, three alternative options were presented in the RRR involving an indemnity limit of, respectively, £10 million, £15 million or £20 million excess of £10 million. There was then a heading “Terms and Conditions Applicable to all Three Options” under which the following was stated: 
“Conditions/Endorsements:
To follow the primary policy as far as applicable plus:
1)  Indemnity provided by this policy will be restricted to the Insured’s Commercial Property Management activities.”  
116.	In his covering email, Mr Bickell stated that he looked forward to discussing the terms with Mr Hart on Friday (22nd April 2005).  This was a reference to the fact that Mr Hart had arranged to come into the office on 22nd April 2005 specifically to review the RRR before he went away for his honeymoon.  Although Mr Hart said that by oversight he missed the reference to the Limiting Condition I consider it far more probable that he did read it, but that it did not cause him any particular concern because it reflected the instructions he had given.  In particular:
(1)	He had come in specifically to review the RRR.  As he said in evidence, he had been working on this for a considerable period of time, he was interested in it, and he wanted to see it through from “cradle to grave”.  
(2)	As Mr Hart agreed in evidence, the core of the report on which he would have focussed his attention was Section 4, which set out the renewal terms. This entire section is only five pages long; and Mr Hart accepted that, as an experienced professional broker used to reading reports of this kind, it would not have taken him a long time to read and understand this section.  
(3)	The Limiting Condition was very obvious from even a brief perusal of the RRR: it was the only condition specific to the excess layer insurance.
(4)	Mr Hart needed to focus on the excess layer as he would have had to consider the three excess alternative options.
(5)	Although Mr Hart may have been particularly interested in the limits and premium figures, it is apparent that he gave attention to the detailed wordings, at least on the primary layer, as is reflected in his comments to Mr Bickell in respect of the sub-consultants wording in his conversation at 2.30pm to discuss the renewal terms.
117.	In relation to the cover note and its covering letter, although it clearly should have been reviewed by Mr Hart, as the only person in HPC with real familiarity with the risk, I accept the evidence of Mr Hart and Mr Wensley that it was not forwarded to him and that when Mr Hart told Mr Bickell on 22nd June 2005 that the cover notes had been reviewed thoroughly he meant by HPC rather than by him personally.  
118.	A further occasion on which the Limiting Condition is likely to have come to the attention of Mr Hart is at the time of an email exchange in October 2005.  On 5th October 2005 Mr Hart wrote to Mr Bickell to inform him (amongst other things) that the Group had acquired another company, PPH Commercial, as of 1st October 2005, which would trade as a division of Dunlop Haywards Limited.  He continued: 
“Consequently, we need to arrange for this division to have excess layer coverage in line with DH current limits.”  
119.	Mr Bickell responded by email on 11th October 2005:
“You mention bringing them in line with DH current limits.  Do you mean £10m or do they also need to be included under the £10m x/s £10m policy which provides indemnity in respect of Commercial Property Management activities only?” 
This email therefore not only expressly pointed out that the excess layer policy was limited to “Commercial Property Management activities only”, but required Mr Hart to focus on the point by asking him whether the newly acquired company needed to be included under this cover. 

120.	Mr Hart must have considered the point because on 14th October 2005 he discussed it on the telephone with Mr Bickell and told Mr Bickell (as recorded in Mr Bickell’s contemporaneous note) that PPH Commercial should be added to the excess layer policy.  Subsequently, it appears that Mr Hart changed his mind and indicated (on 19th October 2005) that PPH only needed to be covered under the primary policy.  
121.	Mr Hart accepted in evidence that he must have read Mr Bickell’s email of 11th October 2005 and the statement that the £10 million excess of £10 million policy “provides indemnity in respect of Commercial Property Management activities only”. However, he was unable to explain why this provoked no reaction from him.  One would have expected it to have done so if he had been under the impression that the excess layer policy was not limited in this way.
122.	Finally, there is an email exchange in March 2006 shortly after HPC had been notified of a potential claim arising out of a valuation carried out by Mr McGarry and the question of whether there was excess coverage for valuation claims.  This led to the following exchange of emails between Mr Davis and Mr Hart on 24 March 2006:
(1)	At 8:05am Mr Davis sent Mr Hart an email in which he stated:
“As far as I am aware virtually all surveyors believe that our cover is £20m.  When did the change occur that restricted the £20m cover to properties managed by us?”  
(2)	Seven minutes later (at 8:12am) Mr Hart replied:
“Our PI is £20m in respect of Commercial Management activities only for DH as per what Hercules had previously. All other activities have £10m.”  
(3)	Mr Davis responded:
“I am sorry but I believe you are wrong.  It was increased to £20m through Howdens to cater for the higher valuations that the City office were undertaking.  It had no connection with Commercial Management as we would almost certainly never value buildings that we were managing.”  
123.	This email exchange suggests that Mr Hart was aware of the Limiting Condition.  Although it was not correct that cover in respect of “Commercial Property Management activities only” was what Hercules had previously, it is likely that Mr Hart was trying to explain away what had been done in terms of being the equivalent of Hercules prior cover.
124.	In evidence, Mr Hart sought to explain the email as being the result of a telephone conversation he had with Mr Bickell in the seven minute interval between the two emails and a direct quote of what Mr Bickell said.  Why it would be a direct quote was not satisfactorily explained, nor does it purport to be so.  Mr Bickell denied having any such conversation with Mr Hart and would anyway not have told Mr Hart that the excess layer cover was “as per what Hercules had previously”.  I find that no such conversation took place.  
125.	Mr Hart insisted that he would never have given an instruction for the cover to be for commercial property management activities because this would have involved a restriction on the cover, was contrary to his instructions, and could exclude DHL’s valuation work.  However, it was Mr Hart who on any view introduced the expression “commercial property management” to describe DH and therefore DHL’s work and, as I have found, he did not at the time appreciate that it was an inapt description of DHL’s work.  Although, he knew DHL did a significant amount of valuation work, as stated in evidence, his general perception of DHL was as a multifaceted agency whose core business was commercial property management.  Although the basis of the cover was being described differently to before, as it had to be, at the time Mr Hart considered that the broad description of “commercial property management” provided equivalent coverage.
126.	HPC placed considerable reliance upon various documents which they said showed that Mr Hart understood that the excess cover which he had given instructions to obtain covered valuation work and/or DH.  However, if he considered that commercial property management reflected DH’s activities, including valuation work, then there would be nothing surprising about such evidence.  In any event, the documentation relied upon is equivocal.  First, there is the express reference to “DHL only” in the Spreadsheet sent to Mr. Davis, but that was a correct description of the cover for the prior year which was being set out for comparison purposes. Then there are the email exchanges in May 2005 with DHL concerning whether the £20 million limit was sufficient for DHL’s valuation work, but the main focus of those exchanges was the satisfaction of subjectivities.  Then there is the series of verifications of insurance sent out by Mr. Wensley to the various group companies which expressly referred to excess layer cover for Dunlop Haywards, notwithstanding what was stated in the cover notes and policy documentation.  Mr. Wensley could not remember how he derived his understanding that this was the position and said that he may have asked someone.  Mr Hart gave no evidence about this and although it is possible that he was the source I do not find that to be proved.  Then, when dealing with the addition of PPH to the policy, Mr. Hart requested that they be given excess layer coverage “in line with DH current limits”, but this is an email which prompted Mr Bickell’s reply expressly referring to the cover being for “Commercial Property Management activities only”, as discussed above.    Finally, there is the email sent by Mr. Hart to Mr. Davis on 2nd November 2005 referring to excess layer insurance for “Dunlop Hayward Comm Ppty”, but that is ambiguous and could be said to support the conflation in Mr Hart’s mind of DH and “Commercial Property Management”.
 
127.	I am therefore satisfied and find that Mr Hart did instruct Mr Bickell to obtain excess cover for commercial property management at their meeting of 12th April 2005.   However, I am not satisfied that Mr Bickell, as he stated in his second (but not his first) witness statement, specifically asked Mr Hart why excess cover was needed for commercial property management activities and that he was told that Erinaceous had to have such cover because of contractual obligations to have £20 million of cover for commercial property management activities, nor that there was then a discussion about that, as he elaborated in oral evidence.  This explanation of why commercial property management activities cover was required makes little sense.  There were no Erinaceous contractual obligations requiring cover of £20 million for commercial property management activities.  There is no evidence of any such obligation or of anyone within the Group or HPC being under the impression that there was such an obligation.  It is correct that Mr Hart had been informed that ISGO had a £5million over £5million excess layer cover for certain property management contracts and it is very possible that these were discussed during the meeting with Mr Bickell.  However, ISGO had never had nor had the need for an excess layer over £10 million.  These contracts could not therefore have been the reason given for wanting a £10 million excess layer.  I also find that, as reflected in Mr Bickell’s note, the instruction given was to obtain cover for “Commercial Property Management” and that it was Mr Bickell who added the word “activities” to the description of the cover.  He no doubt did so because he considered it made more sense as a description of cover, but that was his word rather than Mr Hart’s.

Whether, when and in what terms Mr Gadd sought and obtained revised quotes relating to the basis of cover from the Excess Insurers.
128.	Mr Gadd was a very experienced broker who was a well respected and trusted figure in the market.  He was described by more than one of the underwriter witnesses as an “old fashioned” broker.  Unfortunately, this included dealing with matters orally and not being an assiduous note taker.

129.	It was Mr Gadd who Mr Bickell instructed to place the risk in the market.  In discussing with him what was required the focus was understandably on the primary layer.  In relation to the excess layer Mr Gadd was instructed to obtain quotes for three possible excess amounts, £10, £15 and £20 million.  In so instructing him Mr Bickell did not make it clear that the excess was to be for commercial property management activities.  Certainly Mr Gadd’s initial understanding was that the excess was required for DHL only, as in the previous years, and it was initially broked by him on that basis.  HPC contended that Mr Gadd’s understanding reflected the instructions which he had been given and that this shows that, contrary to his evidence, Mr Bickell cannot have instructed Mr Gadd to obtain cover for commercial property management activities.  However, I consider it more likely that Mr Bickell simply did not make it clear what the excess cover was to be for, and I so find.

130.	It was the evidence of Mr Gadd and all the underwriters except Mr Clemence of DA Constable that the first excess quote obtained was for DHL only.  This is borne out by the notes of Mr Glanfield of WR Berkeley on the back of the quotation slip and most importantly by Mr Ripley’s quote as leader on the face of the quotation sheet.  It is also borne out by various of the Excess Insurers’ internal records.  Mr Clemence scratched the quotation sheet after Mr Ripley but before some of the other underwriters, and put his scratch directly under Mr Ripley’s quote for DHL.  I find that it was Mr Gadd who broked the risk to him and not, as Mr Clemence recollected, Mr Paul Browne.  In these circumstances it is wholly implausible that the initial broke to him by Mr Gadd was not in the same terms as that made by him to all the other underwriters.  I find that, as with the other underwriters, the initial broke to Mr Clemence was in respect of cover for DHL and that his recollection is faulty in this regard.

131.	Mr Ripley, Mr Gadd and Mr Clemence provided their quotes for the excess layer on 18th April 2005.  At some later stage that day a copy of the quotation slip as subscribed up to that time was provided by Mr Gadd to Mr Bickell.  However, it was not until late on 19th April 2005 that any issue was raised by Mr Bickell as to the terms of the quote obtained.  HPC contended that this could only be because Mr Bickell took no issue with the terms of the excess layer quote for DHL set out on the quotation slip.  However, I consider that this is more likely to be because Mr Bickell simply did not focus on the terms of the excess layer until the following day when there was a fully subscribed quotation slip, and I so find.

132.	HPC contended that this was improbable since Mr Gadd went back to Mr Ripley on 19th April 2005 to get a quote for the middle excess layer, that this was likely to have been prompted by Mr Bickell, and that this means that he must have read the DHL quote given by Mr Ripley.  However, Mr Gadd was not sure whether the further quote was prompted by Mr Bickell and I consider it more likely that this omission was picked up by Mr Gadd himself, and I so find.  This is supported by the fact that the copy of the quotation slip provided to Mr Bickell on 18th April 2005 had Mr Gadd’s notation “say 100,000 for 15 xs 10” which suggests that he already had the point in mind.

133.	Realising that Mr Ripley’s original quote was only for two excess layers, during the course of 19th April 2005 Mr Gadd rang Mr Ripley to get a quote for the middle excess layer of £15 million.  This is the explanation of Mr Gadd’s manuscript note on the quotation sheet: “OK per Bob Ripley”.

134.	Having obtained quotes from all the underwriters Mr Gadd reported to Mr Bickell and showed him the fully subscribed quotation sheet.  This probably took place late on 19th April 2005.  It was at this stage that Mr Bickell considered its terms and realised and pointed out that the excess layer quote had been obtained for DHL only whereas that was not what was required.  Mr Gadd was accordingly instructed to get revised or clarified quotes.  It was in relation to this instruction that Mr Gadd wrote in pencil on the quotation sheet: 
“Now called Comm Property Management DH Lorenz Now Part of Erinaceous.”  

135.	Mr Gadd then approached the excess underwriters to get revised or clarified quotes.  As set out further below, I find that he did so after 19th April 2005 but before the putting down of the FON at the end of the month.  A crucial issue in the case is the terms in which this was done.  

136.	Forbes and Excess Insurers’ case was that a re-quote was obtained on the basis that instead of cover for DHL there be cover for commercial property management activities, but at the same premium.  HPC’s case was that underwriters were re-approached and were told that DHL was now called commercial property management or its business was in that division of the new company, possibly mentioning Dunlop Haywards, and that it was now part of the Erinaceous Group and that the risk was no different, or words to that effect.  HPC further contended that this would have been repeated by Mr Gadd as necessary at the FON and the slip stage.

137.	As set out below, I find that there was no change in the basis of cover negotiated or agreed between the FON and the slip stage, and that the FON reflected the re-quote or clarified quote which had been given.  In such circumstances, evidence of the agreement made at the slip stage is relevant to what was agreed at the time of the re-quote or clarified quote.

138.	In support of their case as to what occurred HPC relied in particular on two matters: (1) their contention that Mr Bickell, as he well understood,  was instructed to obtain cover for DHL’s activities as reflected in the initial DHL quotation obtained from underwriters; and (2) their contention that the agreement made with the leader of the risk, Mitsui, was and always remained for cover for DHL.

139.	As to (1), I have already found, as set out above, that Mr Bickell was instructed to obtain cover for commercial property management, and that his was his understanding throughout.

140.	As to (2), there is no doubt that Mr Ripley’s original quote was for DHL, as set out on the quotation slip.  It is also the case that Mr Ripley had no recollection of any re-broke to him; nor did Mr Gadd (either to Mr Ripley or anyone else).  It is also the case that if there was a re-broke Mr Ripley would ordinarily have recorded it in writing and made a note of it in Mitsui’s internal records, but that there is no such note or record.

141.	Further, following the signing of the slip (by Miss Field) Mr Ripley wrote up the risk in Mitsui’s internal control sheet as covering the activities of DHL as follows:
“Practice of Dunlop Heywood bought by Erinaceous Group so change of bkr to Forbes. Cover continued for the DH activities only and the underlying cover changed to AOC from U/L RTC reinstatements which improves our exposure. No claims/circs”.  

142.	HPC contended that at the time of writing the control sheet up Mr Ripley would have had the slip, a quotation slip (and most probably the quotation slip with Mr Gadd’s “Comm Property Management” notation) as well as his original notes.  If so, then Mr Ripley could not have written up the risk in these terms unless he thought that this reflected the agreement made in the slip.  In those circumstances, the only feasible explanation is that he regarded “commercial property management activities only” as referring to DHL’s activities. They submitted that this was supported by the reference to “activities” in the control sheet note.  

143.	Against that, Excess Insurers pointed out that the re-broke was likely to have been urgent and hurried.  Given that urgency, and Mr Ripley’s limited attendance at the box at that time, the re-broke was probably by telephone, notwithstanding Mr Gadd’s evidence that he thought he would have re-broked the risk in person.  If so, it is not surprising that there is no record of the re-broke.  Further, even on HPC’s case there was a further presentation to clarify the risk to Mr Ripley and so on both party’s case he has had a lapse in memory and in record keeping.   Moreover, given that Mr Ripley had no further involvement in the risk between the time of that further presentation and the writing up of his notes some six weeks later, his unclear recollection is not surprising.  In any event, he accepted in evidence that a re-broke could have occurred.

144.	In relation to the control sheet notes his evidence was that these were likely to have been based on his original notes and that he had failed to notice the differing terms in the slip and, if he saw it, the annotated quotation sheet.  He accepted that he would have been very disappointed with himself for doing so.  However, he also said that if he had been aware of the differing terms of the slip then he would have raised questions.  As to the reference in the notes to “activities”, it was pointed out that Mr Ripley’s original notes used the phrase “similar activities”.  

145.	Taking all these matters into account, I am not persuaded that the evidence establishes that there cannot have been a re-quote by Mr Ripley, nor that that evidence shows that there cannot have been a re-quote by the other underwriters.  I turn then to the other principal matters relied upon by HPC:

(1)	Mr Gadd’s note on the quotation slip saying “Now called Comm Property Management DH Lorenz Now Part of Erinaceous.”  As a number of underwriters accepted, the literal meaning of this note was that DHL was now called “Commercial Property Management” and HPC contended that this strongly suggests that this was effectively what he was telling underwriters – i.e. that there had been a change in name or designation but not in the basis of cover.  Mr Gadd’s evidence was that this was simply an “aide memoire” rather than a description of what was required.  It was to remind him that the cover was for “Commercial Property Management” for the Group rather than for DHL.  He accepted that it was poorly worded, as it clearly is.  On any view it was not a question of DHL now being called “Commercial Property Management”.  The contemplation at the time was that it would be merging with ISGO into DH and would thereby become a different entity.  In any event it would be unusual for any company to be called “Commercial Property Management”.  Further, on one reading what the note is saying is that it would now be called “Commercial Property Management Dunlop Heywood Lorenz”.  In addition, DHL had been part of the Erinaceous group for the purpose of the original quote, so it is difficult to see what those words add.  

(2)	Mr Glanfield’s upside down note on the FON that:
“ – Dunlop H  01714  - AF. 14.4 m fees -” 
HPC contended that this could only be a reference the “VRI” he had given for DHL and to the £14 ½ million fees he had identified for that purpose.  As such, it showed that the FON must have been referable to that quote.  They also relied on the comments and annotations made by Mr Glanfield on the peer review summary sheets following the signing of the slip.  On the summary sheet for the primary layer Mr. Glanfield wrote “very different to last year” but no such comment was made for the excess layer.  In addition, he caused the peer review summary for the excess layer to be amended by crossing out the fee income reference of £68 million. In its place the £14.4 million figure was entered which HPC contended must be referring to the DHL quote.  Further, it was contended that if there had been a re-broke Mr Glanfield would surely have corrected the sheet by reference to DHL fees and made some note as to the change in the basis of cover on the sheet. Mr Glanfield’s evidence was that he could not remember making the note on the FON, but he could only assume that he had written it to point the person processing the risk to the policy number 01714 so that they could relate the policy back to the previous DHL 2004 policy.  However, he could not account for the reference to £14.4 million fees.  As to the peer review sheet notes, Mr Glanfield rejected HPC’s suggestion that the reference to £14.4 million (which had been inserted by Miss Tara Jobling) on the peer review sheet demonstrated that there had been no change in the basis of cover from that originally quoted for DHL.  He said that the slip was the most important document and that this refers to “Commercial Property Management activities” which confirms his belief then and now as to what was being covered.  Although it was accepted by Excess Insurers that Mr Glanfield’s note on the FON was “anomalous”, nevertheless they submitted that his evidence that the risk was re-broked to him on the basis that it was to cover commercial property management activities, and that there was no re-broke explaining the new name or designation of DHL, was clear and should be accepted.

(3)	The fact that the alleged re-quote was entirely verbal in relation to all underwriters, which would mean serial independent failures to follow good practice.  As the underwriters accepted, it is obviously good practice to ensure that quotes are recorded in writing.  There are good reasons for this.  In particular it helps avoid the dangers of misremembering and misunderstanding and it provides a record for others who may become involved in the risk to be able to use and act upon.  However, verbal re-quotes do occur, especially where there is a degree of urgency.  Moreover, this was a high level ‘clean’ layer; the risk was perceived to be good, and indeed better than the risk for DHL; the change in the basis of the quote needed to be dealt with quickly; Mr Gadd was a well known, respected and trusted figure in the market; and the slip was to follow shortly which would set out the full details.  Further, even on HPC’s case there was a verbal clarified quote.

(4)	The fact that no internal record of the re-quote was made either by Mr Gadd or any of the underwriters, which would involve further multiple incidents of bad practice and, in a number of instances, a failure to follow internal guidelines.  However, Mr Gadd did have his short hand “aide memoire”.  As to the underwriters, they no doubt assumed, and may well have been assured, that it would be sorted out in the slip.  They all trusted Mr Gadd to do a proper job in this respect as, on Excess Insurers’ case, he did, since the slip did clearly set out the agreement they say they had made.  Further, Mr Palmer’s evidence, which is considered further below, is that he did make a contemporaneous internal record of the re-quote.

(5)	The fact that there was no written evidence of a fresh underwriting exercise being carried out in relation to commercial property management activities.  HPC contended that this would have required figures for commercial property management fee income to be compiled and presented, as Mr Bickell claimed he had done, although there was no evidence of this.  However, underwriters had the group figures for property management.  Even if one assumed that all of that was commercial property management, which it would not have been, the revised quote remained attractive since the same premium was being offered for a less risky activity.  Although the volume of fee income covered was greater, the risk was less.  Further, the layer only came in at £10 million any one claim on what was a “clean” risk.  Moreover, historically there never had been a commercial property management claim at this level.  It did not therefore require any detailed or sophisticated underwriting exercise to be carried out in order to conclude that the revised terms were, as Mr Glanfield put it, “a good write”.  As Mr Gadd explained, the market at that time was ‘softish’ and underwriters being asked to subscribe to a £10 million excess of £10 million layer would regard it as a ‘very wanted’ piece of business.  As such, they would have a relaxed attitude both to underwriting in the first place and to any changes in the basis of cover, not requiring too much detailed information.  

(6)	The fact that the FON does not reflect or refer to the re-quote and there is no record of the FON being noted on such terms.  This is yet more bad practice.  Further, if there had been a verbal re-quote that made it all the more important that the FON set out the basis of cover and a number of underwriters accepted that this would be “critical”.  However, on any view the FON was poorly drafted since it only referred to the limit and the price and made no reference to any basis of cover.  Indeed, on its face it  purports to be an unrestricted excess insurance of the Group, which everyone accepts was never intended to be the cover provided.   Mr Bickell’s explanation was that as far as he was aware the quotation had recently been obtained on the correct basis and there was no need to spell that out.  The FON did not refer to the limitation to “Commercial Property Management activities” (or to any limitation) because Mr Bickell simply did not see this as an issue at the time. The cover was in any event to be defined in the slip which would follow shortly.  

(7)	Turning to consider subsequent matters, HPC relied on the fact that the terms of the slip were apparently inconsistent with the only external written record of the basis of cover agreed, namely the annotated quotation sheet.  It was contended that the only plausible explanation of underwriters who had not previously been involved in the risk signing the slip off in such circumstances was that they were satisfied that “Commercial Property Management” was now what DHL was called, in accordance with Mr Gadd’s note.   However, the underwriters in question rejected this suggestion.  Their evidence, which was admitted to be based on reconstruction rather than recollection, was that if, as is likely, they would have queried this, then if Mr Gadd had told them the “Commercial Property Management activities” basis of coverage had been agreed with the relevant underwriter they would have been content to sign the slip on that basis.  Conversely, they said that they would not have been satisfied with an explanation that “Commercial Property Management activities” referred to DHL’s activities, notwithstanding Mr Gadd’s note.

(8)	HPC also placed reliance on the May 2005 chain of emails concerning DHL’s valuation work which accompanied the slip.  These emails related to the subjectivities but the emails behind those at the front of the clip indicated that DHL considered that they had cover in relation to valuations up to £20 million.  HPC contended that it was likely that the brokers and at least some of the underwriters would have read the whole chain of emails and, if so, they would have struck them as odd if they had thought that the cover related to the “Commercial Property Management activities” of the Group and would have taken action.  However, none of the witnesses recalled reading the whole chain of emails and they considered that it likely that they would simply have considered the final emails at the front of the clip, which was all that they needed to see for the purpose of satisfaction of the subjectivities, which was in any event more of a matter for the primary layer underwriters.

146.	As outlined above, there are answers on the evidence to the various matters relied upon individually and collectively by HPC.  There are also a number of evidential and inferential matters which tell against HPC’s case.  In particular:

(1)	All the relevant underwriters had a recollection of a broke on the basis of the cover being for “Commercial Property Management activities”, save for Mr Ripley.  HPC contended that this was wishful reconstruction, but I do not accept that this can be the case for all the underwriters.  It is correct that there are differences between the recollections of the different underwriters in terms of both timing and content of the broke (in the recollection of Mr Clemence) or re-broke (in the recollection of the other underwriters), but that is to be expected.  It is also correct that the detail given by some of the underwriters was based more on reconstruction than recollection, but the relevant underwriters were all clear about the fact of the broke/re-broke.  Further, some of the underwriters were able to give convincing evidence of the detail of the re-broke.  This was particularly true of Mr Palmer of Markel who had a very clear recollection of a re-broke and was able to explain by reference to documents his thinking process at the time.  He was a particularly important witness as he was the only underwriter who was involved at all stages: quote, re-quote, FON and slip signing.  Indeed, it was his evidence, which I accept, that it was because the FON did not set out the terms of the re-quote that he stipulated that he had to sign the slip.  Mr Glanfield also had a clear recollection of the risk being re-broked, although there was some force in the criticism made of him that his recollection seemed to have markedly improved over time. 

(2)	I accept Mr Palmer’s evidence that his amendment to the Markel spreadsheet to reflect that the basis of cover had been changed to “commercial property management only!” was likely to have been made at the time of the re-broke of the risk rather than the signing of the slip.  This would be his usual practice.  If so, then it is contemporaneous written evidence of the re-quote.

(3)	None of the underwriters (including Mr Ripley) had any recollection of the risk being presented by Mr Gadd in the terms alleged by HPC, namely that DHL was now called commercial property management or its business was in that division of the new company, possibly mentioning Dunlop Haywards, and that it was now part of the Erinaceous Group and that the risk was no different, or words to that effect.  This would be an unusual and question begging presentation and, if it occurred, one would expect some at least of the underwriters to remember it.  Mr Gadd also denied that he would ever have so presented the risk.

(4)	The terms of the slip were clear.  The cover was for “Commercial Property Management activities” of the Group as a whole.  That is not how one would naturally refer to cover for DHL’s activities, notwithstanding the terms of the annotated quotation sheet.  If that was the intention it is surprising (1) that the slip would be drafted in these terms and (2) that all the underwriters would be content to sign off the slip in these inapposite terms.    

(5)	The three underwriters who gave evidence who had signed the slip but not previously been involved in the risk all said that they would not have been satisfied with an explanation that “Commercial Property Management activities” referred to DHL’s activities, as reflected in Mr Gadd’s note.  As they explained, this is not what “Commercial Property Management activities” means; this is not how one would refer to coverage for an insured and reading “Commercial Property Management activities” in this way is inconsistent with the named insured being the Group rather than DHL and/or its other designation.

(6)	I am satisfied that Mr Bickell did instruct Mr Gadd to obtain a re-quote for commercial property management activities in accordance with his understanding of his instructions.  This was the evidence of both Mr Bickell and Mr Gadd.  Although Mr Gadd had no recollection of the re-broke itself he did have a clear recollection of this conversation with Mr Bickell.  If Mr Gadd was so instructed then it is overwhelmingly likely that he would have acted in accordance with those instructions.  Conversely, it is extremely unlikely that, as was the case put, he would have re-broked the risk on an entirely different basis from that which he had just been instructed to do.  Mr Gadd had been told that he had effectively misbroked the risk.  That is a serious matter, and something which one would expect an experienced and conscientious broker such as Mr Gadd to put right, and quickly.

147.	Despite the skill and persistence with which HPC has built and presented its case I consider that it is far more likely that Mr Gadd did re-broke the risk on the basis that it was to cover commercial property management activities for the Group and that terms were re-quoted and agreed on this basis, and I so find.  

148.	As to the detail of events after the scratching of the quotation slip I find that what occurred was as follows.  Late on 19th April 2005 Mr Bickell instructed Mr Gadd to get re-quotes on the excess layer to cover the commercial property management activies of the Group as a whole rather than DHL. There was a degree of urgency about this as Mr Bickell was due to provide the RRR to HPC the following day.  I find that on the morning of 20th April 2005 Mr Gadd approached Mr Ripley to obtain a revised quote.  Mr Ripley, who was shortly to retire, was only occasionally at the Mitsui box at this time and I find that Mr Gadd contacted him by telephone.  Mr Ripley agreed to provide excess cover for commercial property management activities for the Group as a whole at the same premium.  Because this was done by telephone this was not recorded on the quotation slip itself.  Both Mr Ripley and Mr Gadd should have made a note of what had been agreed, but neither did so.

149.	Mr Gadd then approached the remaining underwriters, most probably in person.  Some of them were probably seen on the morning of 20th April 2005 after Mr Gadd had spoken to Mr Ripley but the remainder were seen later, but before the FON stage.  Once he had obtained the agreement of Mr Ripley, Mr Gadd was confident that he would secure the agreement of all the following underwriters to this change and on 20th April 2005 he confirmed to Mr Bickell that there was cover on this basis, although he had not seen all the underwriters at this stage.

150.	Each of the underwriters was told that the excess cover was wanted for commercial property management activities for the Group rather than DHL only and agreed to amend the quote they had given to reflect this.  None of them wrote anything on the quotation slip itself since the original terms had been written out by the leader, Mr Ripley, and it would generally be for the leader to make any amendments.  Nor did any of them, save for Mr Palmer, make an internal record of the change in quote.  It would have been good practice to do so but they all trusted Mr Gadd and assumed that it would all be sorted out in the slip, which should have been coming forward shortly.

151.	Given that there was no new or revised quotation sheet setting out the revised terms agreed it was particularly important that Mr Bickell should do so in the FON which he prepared.  Unfortunately, he failed to do so and instead he simply recorded the level of cover selected and the applicable premium.

152.	It was Mr Gadd who took round the FON.  Where he saw the same underwriter that he had seen before that underwriter simply scratched the FON, the mutual understanding being that it referred to and reflected the revised oral quotation which had recently been agreed.  Where he saw a different underwriter he told them that the order had been agreed by the original underwriter and they were content to accept his word in relation to that.  In so far as there was any discussion of the terms of the cover at this stage it would have been by reference to the revised terms relating to commercial property management activities for the Group as a whole.  In respect of all underwriters the FON was scratched on the basis that it related to the re-quote given for cover for commercial property management activities.

153.	None of the underwriters made notes relating to the FON stage.  This was probably because they were expecting the slip to follow shortly and assumed that everything would be tidied up at that stage.

154.	After the FON stage there were no further dealings between Forbes and the underwriters until the signing of the slip.  It was Mr Gadd who took round the slip.  Where he saw underwriters he had seen before he simply brought them up to date with the satisfaction of the subjectivities and they signed the slip.  Where he saw underwriters who had not previously seen the risk he explained that the relevant underwriter had earlier agreed coverage for commercial property management activities in the place of coverage for DHL as set out in the original quotation sheet.  Some of them asked him about this on their own initiative but all were satisfied with his explanation.  He was a trusted figure and he had no reason to mislead them.  

155.	Against the factual background as found above I turn to consider the various claims and issues which arise.

The Claims/Issues
The Claimants’ claim against HPC
HPC’s duties as brokers
156.	It is a fundamental duty of any agent to exercise reasonable skill and care in the performance of the functions which he has undertaken.  As stated in Bowstead & Reynolds on Agency (18th ed.) para. 6-015:
“Every agent acting for reward is bound to exercise such skill, care and diligence in the performance of his undertaking as is usual or necessary in or for the ordinary or proper conduct of the profession or business in which he is employed, or is reasonably necessary for the proper performance of the duties undertaken by him.”
157.	This general duty applies to insurance brokers as to any other agent, and the various duties that have been held to apply to an insurance broker are no more than aspects of the general duty as it applies in the insurance broking context.  Phillips J summarised the position as follows in The “Superhulls Cover” case; Youell v Bland Welch & Co. Ltd  [1990] 2 Lloyd’s Rep. 431 at 458:
“When a Lloyd’s broker accepts instructions from a client he implicitly undertakes to exercise reasonable skill and care in relation to his client’s interests in accordance with the practice at Lloyd’s.  That general duty will normally require the broker to perform a number of different activities on behalf of the client, but the performance of those activities constitutes no more than the discharge of the duty to exercise reasonable skill and care.”
158.	What that core duty requires in the context of a particular client/broker relationship will depend on all the circumstances.

159.	The regulatory background provides guidance as to the professional standards to be expected of insurance brokers.

160.	 From July 2000, insurance brokers had been regulated by the General Insurance Standards Council (GISC), an independent non-statutory organization set up to regulate the sales, advisory and service standards of members. Most insurers required business to be introduced by GISC members and all Lloyd’s brokers were required to be members of GISC. Insurance brokers were not permitted to call themselves ‘brokers’ without being registered with GISC’s predecessor, the Insurance Brokers Registration Council (the ‘IBRC’), whose role was then taken over by GISC.

161.	GISC required its members arranging general insurance for commercial customers to adhere to a “Commercial Code of Conduct”. This was one of two customer codes which GISC applied, the other being the “Private Customer Code”. 

162.	The GISC Code represented good practices and procedures for brokers and many brokers used the Code as a basis for internal guidelines prior to January 2005. The following provisions of the Commercial Code  are of particular note:

“Core Principles
    
In the course of their general insurance activities members should

1.1	         act with due skill, care and diligence;
…

1.3	seek from Commercial Customers such information about their circumstances and objectives as might reasonably be expected to be relevant in enabling the member to fulfil their responsibilities to them;
…

1.4	          take reasonable steps to give Commercial Customers sufficient  
information in a comprehensible and timely way to enable them
to make balanced and informed decisions about their insurance;
		…

1.6          conduct their business and organise their affairs in a prudent 
                manner.

Practice Notes

Information About Proposed Insurance

Members will provide adequate information in a comprehensive and timely way to enable commercial customers to make an informed decision about the general insurance products.

Members will explain the differences in the relevant costs of the types of insurance which in the opinion of the member will suit the commercial customers’ needs. In so doing, members will take into consideration the knowledge held by their commercial customers when deciding to what extent it’s appropriate for commercial customers to have the terms and conditions of a particular insurance explained to them.

Members will advise commercial customers of the key features of the insurance proposed including the essential cover and benefits, conditions or obligations and the period of cover. In so doing members will take into consideration the knowledge held by their commercial customers when deciding to what extent it is appropriate for commercial customers to have the terms and conditions of a particular insurance explained to them.”

163.	As a result of various EU directives, in particular the Insurance Mediation Directive, which was intended to regulate and harmonise minimum standards in insurance broking and facilitate brokers’ movement throughout Europe, HM Treasury was obliged to regulate insurance mediation. As a consequence, the FSA began regulating insurance mediation with effect from 14th January 2005. The rules under the 2004 Insurance Conduct of Business Sourcebook (“ICOB rules”) applied from that date.

164.	The ICOB rules might be said to be a high target by which to set a standard in the present case given that its provisions were very new. However, the principles under which regulated entities were at that time required to operate were based on existing industry standards and best practice. The ICOB rules reinforce the FSA Principles by providing practical guidance on various issues, including ways of establishing a customer’s demands and needs and of matching arranged insurances to those needs. The FSA Principles sit above the ICOB rules and the rules are to be read against the background of (and are clarified by) the FSA Principles.

165.	Amongst the relevant FSA Principles are the following:

“Skill care and diligence. A firm must conduct its business with due care and diligence.
…
Management and control. A firm must take reasonable care to organize and control its affairs responsibly and effectively with adequate risk management systems.
…
Communication with clients. A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.”

166.	Under ICOB 1.2.8, “contracts of large risks” are excluded from the majority of ICOB’s provisions. A contract of large risks is defined in the FSA glossary and includes an insurance policy which covers, amongst other things, general liability and miscellaneous financial loss, in so far as the policyholder exceeds the limits of at least two of the following three criteria:
(1) balance sheet total: €6.2 million;
(2) net turnover: €12.8 million;
(3) average number of employees during the financial year: 250.

167.	The excess insurance in the present case would therefore be a contract of large risks and so, technically, a number of key ICOB rules would not apply. As a result, the FSA would not seek to pursue a broker or seek to enforce an action against a broker for breach of an ICOB rule (unless that breach also amounted to a breach of an FSA Principle). Nevertheless, the rules remain informative as to the conduct expected of a broker. In that connection, the following ICOB rules are of particular note:

(1) The “selling standards” are set out in the relevant ICOB rules 
        applicable at the time. Under ICOB 5.4.1(1), a broker is required to
        supply “sufficient information” about the proposed policy to enable the 
        commercial customer to make an informed choice in his purchase.
        Sufficient information was expected to take account of the main  
        benefits and exclusions of cover.

(2) Under ICOB 4.4.5, in cases where a personal recommendation (essentially an advised sale) is made, the customer’s “Demands and Needs Statement” should explain why the demands and needs of the customer combine to make the recommended contract suitable (the ‘suitability assessment’). In so doing, the broker is expected to take into account the level of cover chosen and the cost and scope of cover with particular regard to any applicable limitations and/or exclusions.

(3) A broker is to be proactive and under ICOB 4.3.2 (1), he is required to seek such information about the customer’s circumstances and objectives as might reasonably be expected to be relevant in enabling the broker to identify the customer’s requirements.

168.	Against the above background there was considerable agreement between the expert brokers for the Claimants and HPC as to HPC’s duties in the present case.  It was common ground that HPC contracted with the Group to act as the Group’s insurance brokers and to consolidate and renew the Group’s professional indemnity insurance.  Ultimately, it was also common ground that HPC’s duty to exercise reasonable skill and care involved contractual and tortious duties to DH and DHL to do the following:

(1)	to exercise reasonable care and skill in the fulfilment of its instructions and the performance of its professional obligations; 

(2)	carefully to ascertain the client’s insurance needs and to use reasonable skill and care to obtain insurance that met those needs;

(3)	carefully to review the terms of any quotations or indications received;

(4)	to explain to the client the terms of the proposed insurance; and

(5)	to use reasonable skill and care to draw up a policy, or to ensure that a policy was drawn up, that accurately reflected the terms of the agreement with the underwriters and which was clear and unambiguous so that the client’s rights under the policy were not open to doubt.

169.	These are duties which it would generally be expected that an insurance broker would owe.  In the context of the present case, it was further admitted that the duty to explain the terms of the insurance included a duty:
“to explain (in particular in the light of the Group’s admitted instructions to renew at no worse terms) any changes to the terms of the Group’s expiring policies necessitated by the state of the professional indemnity insurance market or the changes to the Group’s structure”.

Breach of duty
170.	It was eventually common ground that HPC was in breach of its admitted duties in relation to the renewal of the £10 million excess of £10 million contract of professional indemnity insurance for 2005/6, in the following respects:
(1)	in failing to review the terms of the RRR, the cover note and the policy properly and carefully and in failing to identify the Limiting Condition; 
(2)	in failing to draw the Limiting Condition to the attention of DH and DHL, to explain the significance thereof and to advise them of the difference between the terms of the excess insurance actually obtained and the terms of the expiring excess insurance cover for 2004/5;
(3)	in failing to exercise reasonable skill and care in obtaining excess insurance which provided cover and/or which clearly and unambiguously provided cover in respect of DH and DHLs’ valuation work in an amount of £10m excess of £10m, in accordance with the terms of the expiring 2004/5 cover and as the Group had requested and required. 

171.	In addition, insofar as Forbes, the placing broker, was at fault in and about the placing of the 2005/6 excess layer, it was admitted that HPC is contractually responsible to DH  and DHL for the acts or omissions of Forbes.

Damages
172.	Subject to the allegation advanced by HPC that the excess policy does indeed respond to the third party claims notwithstanding the incorporation of the Limiting Condition (whether on its true construction or as a result of rectification), it was further admitted that HPC’s breaches of duty caused the Claimants to suffer loss and damage in the amount of the indemnity which would have been paid under the excess insurance in relation to the Nationwide and Cheshire Building Society third party claims, namely £10m.

173.	Subject to that, the issues remaining between the Claimants and HPC were as follows:

(1)Was the Claimants’ damage contributed to by any negligence on the part of Mr Davis, either in approving the placement of cover, without reading the terms of the Renewal Review Report which contained the Limiting Condition, or in failing to notice and complain of the Limiting Condition in the excess policy at any time thereafter; and, if so, to what extent should the Claimants’ damages be reduced under the Law Reform (Contributory Negligence) Act 1945?

(2)Are the Claimants entitled to recover as costs and/or as damages consequent upon HPC’s breaches of duty, or as mitigating expense thereof, legal costs howsoever incurred in relation to the adoption of HPC’s case on construction/rectification case against Excess Insurers, on the premise that HPC’s case on construction/rectification against Excess Insurers fails, and if so, are such costs recoverable on an indemnity or standard basis?

174.	It was agreed that issue (2) should be held over until after judgment on the principal issues and the issue of costs falls to be addressed.

175.	The central issue in relation to the claim against HPC is the case on construction and rectification.  That is also the central issue in the claim against Excess Insurers.  Those issues will now be addressed, followed by the remaining issues between the Claimants and HPC and then the claim by HPC against Forbes.

Construction
Endorsement 1 in the excess insurance policy wording provides: 
“It is hereby understood and agreed that … The indemnity provided by this Policy is limited to liability arising from the Assured’s commercial Property Management activities only” 

On the true construction of endorsement 1, does the excess insurance cover the Nationwide and Cheshire Building Society third party claims?
The legal principles
176.	There was little difference between the parties in relation to the legal principles applicable to HPC’s construction case.  The relevant principles were recently reviewed by the House of Lords in Chartbrook Ltd v. Persimmon Homes Ltd [2009] 3 WLR 267.  The approach summarised in ICS v. West Bromwich [1998] 1 WLR 896 was confirmed as being the correct approach to issues of construction.  The relevant question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean (see Lord Hoffmann in Chartbrook at paragraph14).  

177.	The House of Lords rejected the attempt in Chartbrook to depart from the exclusionary rule in relation to pre-contractual negotiations.  The position therefore remains that evidence of such negotiations is not admissible for the purposes of construing the contract.  This does not mean that prior contracts are necessarily excluded from the relevant background, and the judgment of Rix LJ in HIH v. New Hampshire Ins Co [2001] 2 Lloyd’s Rep 161 contains useful guidance as to the circumstances in which a prior contract in the insurance context may be relevant for the purposes of construction (see in particular, paragraphs 81 to 85; 92 to 93).
 
178.	As Excess Insurers submitted, it is also relevant to note what was said (albeit obiter) about the decision of Kerr J in the The “Karen Oltmann” [1976] 2 Lloyd’s Rep. 708 in Chartbrook (at paragraphs 43 to 47).  In The “Karen Oltmann” Kerr J had looked at telexes passing between the parties in order to attempt to determine the sense in which the parties were using the word “after” in a time charter.  He did so on the basis of seeing whether the parties had in effect given their own dictionary meaning to the words.  This was considered to be an illegitimate extension of the “private dictionary” principle.  As Lord Hoffmann said, that principle permitted evidence to be adduced “that the parties habitually used words in an unconventional sense in order to support an argument that words in a contract should bear a similar unconventional meaning” (paragraph 45).  The principle is akin to the principle by which a linguistic usage in a trade or among a religious sect may be proved.  It was not, Lord Hoffmann said, applicable in The “Karen Oltmann” because there was no evidence of any unconventional linguistic usage which the parties had in common.  Further, Kerr J’s view that there could not be rectification because the choice of words used in the contract did not result from any mistake was wrong.  As Lord Hoffmann said, rectification is available not only when the parties intended to use different words, but also when they mistakenly thought their words bore a different meaning (paragraph 46).

HPC’s case on construction 
179.	HPC originally contended that the phrase “commercial property management” should be construed so as to include all activities relating to property including carrying out valuations.  However, this argument was not pursued by HPC at trial.  As a matter of ordinary language there is a clear distinction between property management and property valuation.  In professional indemnity insurance this distinction is well recognised.  Moreover, the proposal forms used in the placement of Erinaceous Group’s professional indemnity insurance (in common with other standard form proposal forms in use in the market) were careful to distinguish between property management, on the one hand, and surveying and valuations, on the other, and when the insurance was placed, different deductibles applied to each.  

180.	HPC nevertheless contended that when considered against the relevant background and context the words “Commercial Property Management activities” should be construed as meaning DHL’s activities.

181.	In support of this argument HPC primarily relied on their contention that there had been a contract at the FON stage to provide cover for DHL’s activities.  The slip and the policy should be construed by reference to that earlier agreement with the consequence that “Commercial Property Management” should be construed as meaning DHL.

182.	This argument fails on the facts since I have held that there was no contract at the FON stage to provide cover for DHL’s activities.  In any event, the FON contract was only ever envisaged as being a temporary means of providing cover and was always intended to be superseded by the slip and later the policy.  In such a case there is little assistance is to be derived from the differing terms of the earlier contract.  As stated by Rix LJ in HIH v New Hampshire at paragraph 83:
“The difficulty of course is that, where the later contract is intended to supersede the prior contract, it may in the generality of cases simply be useless to try to construe the later contract by reference to the earlier one. Ex hypothesi, the later contract replaces the earlier one and it is likely to be impossible to say that the parties have not wished to alter the terms of their earlier bargain. The earlier contract is unlikely therefore to be of much, if any, assistance. Where the later contract is identical, its construction can stand on its own feet, and in any event its construction should be undertaken primarily by reference to its own overall terms. Where the later contract differs from the earlier contract, prima facie the difference is a deliberate decision to depart from the earlier wording, which again provides no assistance. Therefore a cautious and sceptical approach to finding any assistance in the earlier contract seems to me to be a sound principle.”

183.	In this case there is a major difference between defining the cover in terms of “DHL’s activities” and “Commercial Property Management activities”.  The former identifies the cover by reference to all the activities of a particular company; the latter by reference to a limited range of activities carried out by the Group as a whole.  The nature and extent of the difference would strongly support the prima facie inference that there has been a deliberate decision to depart from the earlier wording.

184.	In order to try to get round these difficulties HPC sought to rely on their allegation that Mr Gadd had informed the underwriters that DHL was now called or known as “Commercial Property Management”.  They submitted that this was information provided and therefore admissible background.  Against that background they further submitted that the reference to “Commercial Property Management” in the slip would reasonably be understood as referring to DHL.  Excess Insurers contended that, as in The “Karen Oltmann,” this was an illegitimate attempt to extend the “private dictionary” principle.

185.	This submission of HPC also fails on the facts as I have found that Mr Gadd did not so inform underwriters.  Even if he had, and that information was admissible background, and it was permissible and possible to infer from it that the parties intended to use “Commercial Property Management” as a synonym for DHL, I fail to see how it would bear out HPC’s suggested construction.  If that had been the intention then one would expect the cover to be defined as “Commercial Property Management’s activities” and the insured to be defined as “DHL now called Commercial Property Management and its successor companies”.  Instead the parties have defined the insured as being all the Group companies and the cover as being for a type of activity rather than a company’s activity.

186.	HPC also sought to suggest that any other construction would be commercially absurd.  It would mean that the insured was not covering obvious risks and the principal exposure for which excess insurance had been required and, moreover, for no apparent reason giving up previously held valuable cover which it had initially asked to renew.  However, the placement was being made following the merger of the former Hercules and Erinaceous Groups, with new management taking over responsibility for the former Hercules insurances.  Different companies within the Hercules and Erinaceous Groups had a range of different levels of professional indemnity insurance.  From Excess Insurers’ perspective, there was nothing strikingly illogical or obviously uncommercial about the new management deciding to purchase primary insurance on an “any one claim” basis and excess insurance only in respect of the Group’s commercial property management activities.  In any event, any such absurdity cannot justify the radical recasting of the language of the slip/policy which HPC’s case on construction requires.

187.	For all these reasons I reject HPC’s case on construction and hold that on the true construction of endorsement 1 the excess insurance does not cover the Nationwide and Cheshire Building Society third party claims.

Rectification 
Should the slip and policies for the Excess Insurance be rectified in the manner indicated below because, as executed, they do not reflect the common intention of the parties at the time of execution?
“It is hereby understood and agreed that … The indemnity provided by this Policy is limited to liability arising from the Assured’s  commercial Property Management Dunlop Heywood Lorenz activities only”.	
The legal principles
188.	The requirements for rectification are summarised in the judgment of Peter Gibson LJ in Swainland Builders Ltd v Freehold Properties Ltd, [2002] 2 E.G.L.R. 71 at paragraph 33 in a passage approved by the House of Lords in Chartbrook Ltd v Persimmon Homes Ltd, [2009] 3 W.L.R. 267 at paragraph 48:
“The party seeking rectification must show that: (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (3) the intention continued at the time of the execution of the instrument sought to be rectified; (4) by mistake, the instrument did not reflect that common intention.”

189.	There was some debate between the parties as to the extent to which these issues had to be approached on an objective basis and without regard to subjective intentions.  HPC argued that where, as in this case, there is a prior concluded contract, the proper analysis is one of variation which is always an objective question.

190.	However, the issue is not whether the contract originally made was varied, but whether the final contract made should be rectified.  The original FON contract was always going to be superseded by the slip and then the policy.  It is the policy that is the formal instrument which sets out the agreement of the parties.  That agreement must be applied according to its terms unless it be rectified.  The analytical starting point is therefore the policy, not the FON contract.

191.	The fact that the parties had a prior concluded contract will make it easier to establish a common intention in respect of a particular matter and an outward expression of accord reflecting that intention.  It may also make it easier to demonstrate a continuing common intention, especially in the absence of evidence of further negotiation in respect of that matter prior to the definitive agreement.  However, I do not consider that it affects or alters the principles to be applied or the admissibility of evidence.

192.	In his judgment in Chartbrook at paragraphs 64 and 65 Lord Hoffman accepted that evidence of the parties’ subjective state of mind is admissible and explained how it may be relevant evidence in respect of objectively determined issues.  As he said at paragraph 64, quoting his own judgment in Carmichael v National Power plc [1999] 1 WLR 2042 , 2050 - 2051: 
“The evidence of a party as to what terms he understood to have been agreed is some evidence tending to show that those terms, in an objective sense, were agreed. Of course the tribunal may reject such evidence and conclude that the party misunderstood the effect of what was being said and done.”

As was pointed out at paragraph 65, such evidence is likely to be particularly relevant where the alleged consensus is based on oral exchanges or conduct.

193.	It is also important to bear in mind that rectification involves proof of mistake, in the present case common mistake.  That requires proof that the difference between the prior and final agreement is due to a mistake made by both parties.  

194.	This means that it is necessary to show that the parties in fact remained agreed on the (objectively determined) prior terms, or that their earlier (objectively determined) common intention was continuing at the date of the final contract, but by some mistake that prior agreement, or common intention, was not accurately expressed in the final contract.  As Chartbrook makes clear, rectification requires a mistake about whether the final contract correctly reflects the parties’ prior agreement or common intention (whatever that may objectively be), not whether it accorded with what the party in question believed that consensus to have been.
195.	In determining whether there has been a common mistake in the expression of the terms in the final contract between the parties, the Court must necessarily consider all the circumstances.  There is no conceptual limit as to the sort of material which may be relevant, and it can include evidence of subjective state of mind or intention.  It is a matter for the Court to weigh the evidence in reaching its conclusion.  Particularly relevant factors are likely to be the nature of the final contract, and the circumstances in which the wording now alleged to be there in error, came to be included in it, and agreed by the parties.  

196.	There was also an issue between the parties as to who are the relevant natural person or persons to whose intention the Court should have regard in relation to the rectification issues.  It was common ground that it was the evidence of the intention of Forbes, as the contracting agent, and underwriters which mattered.  However, HPC contended that it was only Mr Gadd’s evidence which was relevant since it was he rather than Mr Bickell who had all the direct dealings with underwriters.  I consider that this is an oversimplification.  First, Mr Bickell did have dealings with Excess Insurers in the sense that it was he who noted the firm order on the quote sheet and, importantly, it was he who drafted the slip containing the Limiting Condition which HPC contend should be rectified.  Secondly, in considering Mr Gadd’s intention and what he is likely to have said to Excess Insurers, it is relevant to consider what instructions and explanations he received from Mr Bickell.  

HPC’s case on rectification

(1) Whether the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified and whether there was an outward expression of accord.
197.	 As I have found, the initial quotations given by all Excess Insurers was on the basis of coverage for DHL.  This was reflected in the terms of the quotation slip.  However, HPC’s case is and always has been that it was the putting down of the FONs by underwriters which comprises the relevant prior agreement. 

198.	I have found that the FONs did not relate to the quotes for DHL but rather to the verbal re-quote given for commercial property management activities of the Group.  It follows that HPC has not established the necessary prior agreement for which it contends.

199.	For completeness, I should record that there was an issue between the parties as to the precise legal effect of the FONs.  HPC’s case was that the FONs were of binding effect and that there was therefore a binding contract of insurance for the 2005-2006 year on the terms thereby agreed made on 27th/28th April 2005.  Excess Insurers’ case was that the FONs took effect as a held covered agreement, because of the presence of the subjectivities, until and subject to provision of the information required by the subjectivities.  However, on either case the FON represents a binding contractual commitment and the only relevant difference between the two agreements would appear to be that a held covered agreement would be temporary. 

(2) Whether the intention continued at the time of the execution of the instrument sought to be rectified.
200.	I accept HPC’s case that there was no change in intention between the FON stage and the signing of the slip, or between the signing of the slip and the issue of the policies.  However, in the light of the findings I have made, that simply means that the common intention to provide cover for commercial property management activities remained the parties’ common intention at the time of the signing of the slip and the issue of the policies.

(3)  Whether by mistake, the instrument did not reflect that common intention.
201.	The findings I have made mean that the policy reflected the terms of the parties’ agreement at the time of the FON and at all material times thereafter.

202.	Although the issue of the terms of any rectification does not therefore arise, it is to be noted that HPC’s case on those terms shifted over time and remained problematical to the end.  In particular, it was striking that HPC’s case as ultimately formulated did not reflect the evidence of Mr Hart as to his intentions and instructions.  The case made was that the coverage was to be for the insured’s “DHL activities”.  However, it is not clear how such activities would be identified following DHL’s intended merger into a different company/department.  Further, Mr Hart’s evidence was that his intentions/instructions were for there to be coverage for all activities of DH, whether or not they had previously been DHL activities.

203.	For all these reasons I conclude that the claim for rectification of the policy fails.

204.	In the light of those conclusions on construction and rectification I turn to consider the remaining issues as between the Claimants and HPC.

    (1)Was the Claimants’ damage contributed to by any negligence on the part of Mr Davis, either in approving the placement of cover, without reading the terms of the Renewal Review Report which contained the Limiting Condition, or in failing to notice and complain of the Limiting Condition in the excess policy at any time thereafter; and, if so, to what extent should the Claimants’ damages be reduced under the Law Reform (Contributory Negligence) Act 1945?

205.	Section 1(1) of the Law Reform Contributory Negligence Act 1945 (“the 1945”) Act provides:

“Where any person suffers damage as the result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced to such extent as the court thinks just and equitable having regard to the claimant’s share in the responsibility for the damage...”

206.	“Fault” is defined in section 4 of the 1945 Act as meaning “negligence, breach of statutory duty or other act or omission which gives rise to a liability in tort or would, apart from this Act, give rise to the defence of contributory negligence.”

207.	The 1945 Act contemplates a two-stage enquiry.  First, a defendant must establish that the claimant has suffered damage partly as a result of his own fault.  Secondly, if causative fault on the part of the claimant is established, the Court will consider the apportionment of responsibility for the loss between the parties on the basis of the relative causative potency of the claimant’s conduct and the relative blameworthiness of the claimant for the relevant damage.

Were the Claimants at fault?
208.	As stated in Clerk & Lindsell on Torts (19th ed) para. 3-51.
“The standard of care in contributory negligence is what is reasonable in the circumstances, which in most cases corresponds to the standard of care in negligence. Although contributory negligence does not depend on a breach of duty to the defendant, it does depend on foreseeability. Just as carelessness in ordinary actions in negligence requires foreseeability of harm to others, so contributory negligence requires foreseeability of harm to oneself. A person is guilty of contributory negligence whenever he ought reasonably to have foreseen that, if he did not act prudently, he might suffer injury, and he must take into account the possibility of others being careless. The standard of reasonable care is normally objective; and the care which the claimant should take is to avoid accidents of the general class as opposed to the particular accident. The fact that the claimant acts under a public duty does not absolve him from the need to take care.”

209.	In the context of a claim against insurance brokers it has been said that this involves a consideration of whether the client has been guilty of “neglect of what would be prudent in respect of their interests” – The “Superhulls Cover” Case [1990] 2 LLR 431 at 460 citing the case of Swan v North British Australasian Co. (1863) 2 H & C 175 at 182.

210.	In considering the issue of foreseeability of harm it is relevant to have regard to the fact that the alleged fault consists of an omission to guard against the failure of another to carry out his legal obligations - see J W Bollom & Co v Byas Mosley & Co Ltd [2000] Lloyd’s Rep IR 136; Barclays Bank Plc v Fairclough Building Ltd [1995] QB 214.  

211.	Although each case turns on its own facts, I was referred to a number of claims against insurance brokers in which the plea of contributory negligence against a lay client failed – see The” Moonacre” [1192] 2 Lloyd’s Rep 501; Tudor Jones v Crowley Colosso [1996] 2 LLR 619; Standard Life Assurance v Oak Dedicated Ltd [2008] Lloyd’s Rep IR 552.  Each of those cases involved  an unsuccessful plea that the insured had failed to appreciate the presence or the significance of an inappropriate condition of the insurance which the broker had negligently permitted to be incorporated in the policy and negligently failed to identify and explain.

212.	By contrast there have been cases where the insured was a sophisticated insurance client where a plea of contributory negligence in such circumstances has succeeded – see The “Superhulls Cover” Case [1990] 2 LLR 431 (20% reduction); National insurance and Guarantee Corp v Imperio Reinsurance Co [1999] Lloyd’s Rep IR 249 (30% reduction).

213.	In the present case the alleged fault consisted of Mr Davis’s admitted failure to read the terms and conditions applicable to the excess cover as set out in the RRR.  Despite the terms in which the agreed issue was framed, HPC advanced no case that Mr Davis was at fault in failing to notice and complain of the Limiting Condition other than by reference to his review of the RRR.  Had he read the terms and conditions applicable to the excess cover as set out in the RRR I accept that it is likely that he would have noticed the Limiting Condition as it was the only Condition/Endorsement set out.

214.	In support of their contention that this involved negligence and fault on Mr Davis’ part HPC stressed a number of matters.  They pointed out that Mr Davis had been the Financial Director of the Hercules group and became the Financial Director of the merged Group after the take-over by Erinaceous and that, although he may not have had any formal qualification or training in insurance, he should be regarded as a relatively sophisticated purchaser of insurance.  He was also the person in the Group who was ultimately responsible for the placement of the new consolidated insurance programme and from whom final instructions had to be obtained before finalising the placement.  

215.	HPC also relied on the evidence of Mr Hart and Mr Brindley that Mr Davis had asked to see the RRR when it arrived.  However, I accept that this request, if made, related and would have been understood as relating to his desire to ascertain the financial terms of the renewal, which, it was acknowledged, was Mr Davis’s principal concern.

216.	HPC further pointed out that this was the first occasion on which a consolidated insurance programme was being put together and Mr Davis could therefore reasonably have been expected to check that this had been done correctly; that Mr Hart’s summary dealt solely with the primary layer and did not mention the excess layer at all, and that Mr. Davis had asked HPC to obtain quotes for three different options and this would have been another reason for reading through the RRR.

217.	In relation to the last point it is correct that the RRR set out the terms of the three different options.  However, Mr Davis’s attention was not directed to this, nor was he asked which option he wished to take up.  Instead it appears to have been assumed that cover would at least initially be obtained for an excess layer of £10 million, as set out in the accompanying Schedule prepared by Mr Hart. 

218.	I would have been inclined to accept that Mr Davis’ failure even to read the terms and conditions of the excess cover did constitute fault were it not for the terms in which Mr Hart referred him to the RRR.

219.	The second paragraph of Mr Hart’s covering email drew specific attention to “a spreadsheet and a summary with the terms & conditions which shows just how well the renewal has gone”.  

220.	 The Summary (in its first paragraph) made it clear that it was summarising (“with reference to”) the essential features of the Forbes RRR which contained “the details of cover, excess, conditions/terms and endorsements.”  In that context: 

(1)	it drew immediate attention to the subject which Mr Hart knew that Mr Davis would be concentrating on, namely the cost of cover and the “considerable” savings obtained, matters which were the subject of “year on year comparisons” which were set out in the Spreadsheet;

(2)	 it drew attention to matters which Mr Hart considered were significant and should be specifically identified, such as the primary limits of indemnity, the 60 day Premium Payment Clause and the subjectivities. 

(3)	Mr Hart did not therefore leave Mr Davis to work these matters out for himself, by a detailed review of the RRR. On the contrary, the preparation of the Summary reflects the perception of Mr Hart that Mr Davis needed an executive summary of the most immediately significant features of the cover because he would not be expected to trawl through the detail of the RRR to unearth such matters for himself.  Indeed, Mr Hart accepted in evidence that he would not have expected Mr Davis just to have noticed the offending condition for himself. 

221.	The Spreadsheet with its “year on year comparisons” specifically compared the premium for the previous year’s £10 million excess of £10 million layer (£78,750) with the lower premium now being quoted for the same limits (£61,740). This comparison would have been misleading had the basis of the two covers been fundamentally different and moreover, the Spreadsheet specifically stated that the excess cover was for: “DHL only”.

222.	The remainder of the covering email re-emphasised other financial matters (budgeted costs, HPC’s fee and premium payment) and then concluded that although Mr Davis could call Mr Hart if he needed to, Mr Hart was “very confident that it covers all bases and at a very good deal for the Group”. This was an important statement of reassurance upon which Mr Davis was intended, and entitled, to rely. 

223.	Mr Davis read the email, the Summary and the Spreadsheet carefully.  His experience was that it had never previously been necessary to check that the in-house broker had done what had been asked of them.  He was not asked by HPC to read or to check the detailed RRR, or any aspect thereof; and there was nothing to suggest any need for him to do so. In all the circumstances he was entitled to assume that since HPC considered that the terms “covered all bases,” they did just that.  

224.	Against that background, I consider that Mr Davis was not at fault for failing to review the RRR in detail.  HPC were employed to obtain cover on the relevant terms and, in that context, to conduct the necessary review of the RRR to make sure that cover was being obtained on the relevant terms.  This was a service which Mr Davis paid HPC for.  Mr Davis had no reason to believe that his experienced brokers had failed to obtain quotes for the relevant cover on the relevant terms; and in particular, he had no reason to believe that HPC had (contrary to the impression given by the Spreadsheet that the excess cover was for DHL only) obtained a quote for a fundamentally different and reduced cover and then failed to identify that such was the case, even though Mr Hart had expressly assured Mr Davis that the deal “covers all bases.” 

225.	In all the circumstances, I accept and find that Mr Davis’ reliance on his professional brokers to do their job properly was reasonable, and that there was no “fault” on his part. 

Apportionment of responsibility
226.	If, contrary to my finding, there was fault I am in any event not satisfied that this is a case in which an apportionment of responsibility should be made.  I accept that if Mr Davis had read through the RRR it is likely that he would have noticed the Limiting Condition and raised concerns as to the cover provided.  If he was at fault in failing to do so that could therefore be regarded as being a cause of the damage suffered.  However, the causative potency of that fault and in particular the degree of blameworthiness involved pales into insignificance in comparison to the fault of HPC.

227.	I accept that this is a case of serious initial and continuing fault on the part of HPC.  In particular:

(1)	in obtaining a quote for the excess layer on a fundamentally wrong basis;
 
(2)	in giving instructions to change the basis of excess cover and failing to appreciate the obvious significance of so doing;

(3)	in failing to inform the Claimants that the basis of the excess cover was being changed;

(4)	in failing to draw specific attention to the Limiting Condition when forwarding the RRR; 

(5)	in drawing up a misleading email and series of attachments which specifically reassured Mr Davis that the proposed deal “covers all bases”, and indicated that the excess cover was for DHL only, neither of which was the case; 

(6)	in failing to react to the Limiting Condition at any time thereafter, despite being given repeated opportunity to do so at the various stages:

(i)	 HPC was reminded of the importance of having cover for valuation work, and DHL’s assumption that it was in place, in the May email exchanges concerning DHL’s valuation work;

(ii)	HPC was reminded in terms in the covering letter of 7th June 2005 enclosing the cover notes, that the excess layer “covers the commercial property management activities of the group only”. 

(iii)	Mr Wensley then drew up the summary of the excess cover, which was scanned onto the system electronically and retained in hard copy at the front of the file, which recited the Limiting Condition in clear terms and would have been obvious to anyone consulting the file.

(iv)	  Mr Hart did not himself check the cover notes, or even read the covering letter, as he should have done.  In accordance with HPC’s usual practice, reading the letter and checking the cover notes against the RRR was delegated to Mr Wensley, but this system of delegation depended upon the account handler (Mr Wensley) being familiar with the detail of the renewal. The system was plainly defective where, as in this case, the renewal had been dealt with almost exclusively by Mr Hart.  

(v)	The provision of insurance verifications ought to have afforded HPC regular opportunities throughout 2005 and early 2006 to be alerted to the presence and significance of the Limiting Condition. However, the verifications continued to represent that the excess cover protected DH in respect of all its activities, with no Limiting Condition.

(vi)	In October 2005, when Mr Hart was dealing with the addition of PPH to the cover, he was specifically informed by Forbes that the £10m xs £10m cover “provides indemnity in respect of Commercial Property Management activities only.”  Still no alarm bells rang. The opportunity to remedy the position was missed yet again.  

(vii)	These continuing failures were of causative significance as it is to be inferred from the fact that Insurers had initially quoted for excess cover which did extend to valuation activities of DHL or (going forward) DH that there would have been no problem reinstating the excess cover to its originally intended scope, so that it did cover DHL and DH’s valuation activities, at any time until the McGarry claims first surfaced in March 2006. 

(7)	in reassuring the Group (contrary to the fact) that excess cover had been placed in accordance with their instructions, at various stages as set out above.  

228.	When one compares these acts and omissions, whether on the basis of blameworthiness or causative potency, with Mr Davis’ isolated failure not to scrutinise the RRR for himself, induced by his general reliance on HPC’s professional expertise and by his specific reliance on Mr Hart’s email and accompanying Summary and Schedule, any assumed “fault” of Mr Davis pales into insignificance. On this basis, I consider that even if I had found that there had been “fault” on the part of Mr Davis, I would have held that this is a case in which there should be a zero reduction for contributory negligence.  Even HPC did not have the temerity to argue for more than a 10% reduction.

The Claimants’ Claim against Excess Insurers/HPC’s case against Excess Insurers
229.	Since the Claimants/HPC’s case on construction and rectification fails it follows that Excess Insurers are not liable to the Claimants.  Had I held that they were so liable it was admitted that they would have been liable to indemnify the Claimants for £10 million.

HPC’s Claim against Forbes
Forbes’ duties as placing brokers
230.	There was an issue between HPC and Forbes as to the nature and extent of the contractual duties undertaken by Forbes.  
231.	HPC’s case was that the contractual agreement between the parties included, so far as appropriate, the terms of the signed Fee Proposal.  Forbes’ case was that, save as to fees, the contract terms were contained in and defined by the signed SBA dated 11th February 2005. 
232.	In so far as material, I agree with HPC that the SBA was not the only source of the contractual agreement between the parties. The SBA was not a document specifically negotiated with respect to this particular placement.  It emanated from Forbes’ Compliance Department and was one of a number of documents generated around that time to satisfy new regulatory requirements introduced in January 2005 when the FSA took over responsibility for supervising general insurance intermediaries from the GISC.  
233.	As such it did not relate directly to this particular placement but was designed to operate as a general umbrella agreement pursuant to which specific appointments would be made.  This is borne out by the unspecific reference to “insurance/reinsurance” throughout the document; the definition of “Client” in clause 1.1 as including any client of the broker and therefore, by necessary implication, possibly more than one; clause 11 which contemplates the possibility of several distinct Client Accounts; and the fact that the SBA had no fixed term but was merely terminable by mutual agreement or on one month’s written notice.
234.	I therefore accept HPC’s case that the more general provisions of the SBA do not detract from or supersede the specific, bespoke, provisions of the Fee Proposal and that the two documents can and do co-exist as part of the contractual relationship between the parties.  Nor is a different conclusion compelled by the “Entire Agreement” provision in clause 23 of the SBA.  Clause 23 in terms only superseded prior agreements “relating to the subject matter of this Agreement”.  However, the subject-matter of the SBA was the general umbrella relationship between HPC and Forbes.  It did not deal with any particular placement.  As such, clause 23 was aimed at excluding oral warranties or representations relating to the general relationship and the Fee Proposal, which was directed at the specific 2005 placement, was unaffected thereby.
235.	The Fee Proposal states that HPC would look to appoint Forbes “after taking into account the information contained within the AFP presentation” dated 18th January 2005.  That letter states that Forbes’ fee would be based upon providing the following services:
(a)	“Assistance with regard to completion of the proposal form.
(b)	Obtaining terms be they in respect of mid-term requests or at renewal.
(c)	Discuss in depth such terms with you, leading to your firm instructions.
(d)	Place cover to the limit instructed, having discussed programme structure and agreed the parameters for the ‘proposition’ to the market.
(e)	Preparation of cover notes and invoices.
(f)	  Preparation of Policy documents.
(g)	Regular meetings to discuss and review business activities and any specific requirements regarding Policy coverage.
(h)	Advice as required on contract documents, Collateral Warranties and the like.  Please note that this will not extend to formal legal advice, but will be based on our experience and knowledge of Insurers general position at any given time.
(i)	  In addition we will attend to any queries that arise out of your firm’s daily activities and which relate to or have an insurance perspective.”
236.	The Fee Proposal continues that Forbes’ appointment is to be “subject to the following..”.  It then set out various terms and concluded:
“I trust that you will agree to the terms and conditions as specified above…I would be grateful if you would confirm your acceptance by signing and returning a copy of the letter”.
237.	Forbes did sign and return the letter and thereby accepted the terms there set out as terms and conditions governing their appointment.  In return for the agreed fee I hold that Forbes agreed to those terms and conditions and that the services to be provided would include the services set out in their 18th January 2005 letter.  However, it is not alleged that there was any failure to provide the identified services, a number of which depend on them being requested.  HPC’s main reliance on Forbes’ letter is that it demonstrates the proactive role Forbes was meant to perform.
238.	The terms and conditions agreed included the provision that cover was to be “at no worse policy wording conditions” unless “specifically agreed in writing”.  Forbes disputed that this was a contractual term, but, for reasons already stated, I am satisfied that it was.  However, Forbes accepted that this was an instruction to them and as such it matters little whether or not that instruction was also an express term of the contract.  In either event Forbes’ duty would be to exercise reasonable skill and care to comply with that instruction.
239.	As to the meaning of that instruction, I do not accept Forbes’ case that it relates only to the applicable standard policy wordings – i.e. the RICS wordings.  As Forbes submitted, the main purpose of the provision was to ensure that Forbes could not achieve a reduced premium (and therefore a higher fee) by obtaining less favourable terms and conditions.  The fees agreement assumed no worse terms and conditions.  There could be no good reason for limiting that to standard policy terms and conditions as opposed to the terms and conditions of the policy generally.  In any event, as HPC pointed out, a limitation on the scope of the excess cover would represent a change in the standard RICS definition of activities which would otherwise have been covered.  I am therefore satisfied that this instruction would apply to the major change in the basis of the excess cover from coverage for DHL to coverage for commercial property management activities.
240.	The other contractual obligations which were said to arise and be relevant in the present case all derived from the SBA.  They were the obligations on the sub-broker:
(1)	To exercise reasonable standards of skill and care (Clause 4.1(a) of the SBA), which merely makes explicit what would in any event be implied by law.
(2)	 To assimilate all underwriting information relating to the placement (Clause 4.1(c) of the SBA);
(3)	To advise HPC of the key features of any proposed cover, including the essential cover and benefits and any unusual restrictions, exclusions, warranties, conditions or obligations before instructions to bind cover were given (Clause 4.1(g) of the SBA); 
(4)	To present quotations to HPC only on the terms quoted to Forbes by the Excess Insurers without amendment, alteration, or enhancement unless previously agreed by HPC and confirmed in writing to Forbes (Clause 4.1(h) of the SBA);
And the obligation on the broker:
(5)	 “to review all information received from the Sub-Broker and to advise as soon as reasonably practicable if the details of the cover or the participating (re)insurers do not meet with approval or reflect the instructions given” (Clause 4.2(e) of the SBA).
241.	As to what the duty to exercise reasonable skill and care required, there are clearly differences in the relationship between a client and his insurance broker, and between the producing broker and the sub-broker he employs to place the cover.  However, many of the background regulatory provisions relating to the professional standards to be expected of insurance brokers are also relevant to sub-brokers.  Indeed it was accepted, with one qualification, that in most cases the duties which I have held will generally arise in a client/broker relationship will also arise in a producing broker/placing broker relationship, with the difference that the client in such a case will ordinarily be the producing broker.   Those duties are:
(1)	to exercise reasonable care and skill in the fulfilment of its instructions and the performance of its professional obligations; 

(2)	carefully to review the terms of any quotations or indications received;

(3)	to explain the terms of the proposed insurance; and

(4)	to use reasonable skill and care to draw up a policy, or to ensure that a policy was drawn up, that accurately reflected the terms of the agreement with the underwriters and which was clear and unambiguous so that the insured’s rights under the policy were not open to doubt.

242.	The qualification related to the duty “carefully to ascertain the client’s insurance needs and to use reasonable skill and care to obtain insurance that met those needs”.   Ascertainment of the insured’s insurance needs is essentially the function of the producing broker rather than the placing broker.  However, it was accepted that in order to perform its duties to obtain quotations and place insurance, it is necessary for the placing broker to take care to ensure that the instructions are understood.  It was also accepted that the need to ensure that instructions are understood may give rise, in the circumstances of a particular case, to a duty to request clarification, or to query the instructions given if, for example, these appear to be illogical or absurd.  
243.	In relation to the need to seek clarification it was agreed by the broking experts that in general a placing broker would be expected to query, clarify or confirm instructions which appear to be:
(1)	unclear, ambiguous, or inconsistent with other information with which he is being provided;
(2)	illogical or absurd;
(3)	potentially disadvantageous or detrimental to the client or inappropriate to its business;
or where:
(4)	there is a disadvantage to the client arising from a change in instructions;
(5)	there is other good reason to believe that they do not meet the client’s requirements as relayed by the placing broker.
244.	It was also agreed by the broking experts that in general a placing broker would be expected:
(1)	To obtain clear authority before agreeing a limitation or restriction or change in cover; and

(2)	To draw attention to anomalies which may arise from the instructions received from the producing broker.

Breach of duty
(1)	Failure to exercise reasonable care and skill in the fulfilment of its instructions and the performance of its professional obligations; 
245.	The duty of skill and care required Forbes to take care to follow their instructions, which would include obtaining a quotation for the cover as requested, and placing the cover requested.
246.	As to whether Forbes obtained the quotation for the excess cover requested by HPC, I have found that they did.  
247.	Even if they had not, I would nevertheless have found that Forbes still obtained the cover requested.  Forbes was instructed to place cover on the terms of the RRR by Mr Wensley on 26th April 2005 initially by telephone and subsequently confirmed by email.  That was the cover which was obtained.
248.	Whether Forbes exercised reasonable skill and care to comply with the “no worse” terms instruction in the Fee Proposal will be considered below.
(2)	Failure to exercise reasonable skill and care to ensure that the instructions were understood and to query, clarify or confirm the instructions given.
249.	HPC contended that even if Mr Hart gave Mr Bickell instructions to obtain excess cover for commercial property management activities, in the circumstances of the present case these were instructions which he should have queried, clarified or confirmed, but that he negligently failed to do so.
250.	Although Mr Hart was apparently not alive to the potential disadvantages of restricting the cover to commercial property management activities, I am satisfied that a reasonable broker in the position of Mr Bickell would have been so aware, and indeed that Mr Bickell was so aware.
251.	The evidence establishes that Mr Bickell knew the following:
(1)	DHL and ISGO were to merge to form DH Ltd on 16th May 2005.  DHL as a company was thereafter to go into run-off cover but its business would continue in the new corporate guise under a different name.  
(2)	DHL was the only company in the Group which had ever had cover above £10 million.
(3)	DHL was the only company in the Group which had any significant valuation exposure.  
(4)	The values of the properties and portfolios which DHL valued were very high.
(5)	There was no indication that DHL was reducing the scale of its valuation activities.  
(6)	None of the other Group companies had ever required cover above £10 million.
(7)	There was nothing in the placing information to suggest that either DHL or any other company required cover in excess of £10 million for property management activities.
(8)	Survey and valuation work was the highest risk activity of any surveyor, and gave rise to a greater frequency of claims than commercial property management activities.
(9)	The higher the value of the properties being valued, the greater the potential for a large claim.
(10)	Mr. Bickell was unaware as at April 2005 of any commercial property management claim greater than £10 million.
(11)	The significant valuation component to DHL’s business was capable of penetrating the excess layer.
(12)	It was more likely that a valuation claim would penetrate the excess layer than a commercial property management claim.
252.	In the light of that knowledge I find that a reasonably competent broker in the position of Mr Bickell should have appreciated the following in respect of the instruction to restrict the excess layer to commercial property management:  
(1)	The change in cover from insuring one company, DHL, for the entirety of its activities to insuring all the Group companies for just one activity was a fundamental change in the basis of cover.  
(2)	DHL would be giving up excess cover which served a purpose and would provide cover for its riskiest activity, valuation work, of up to £20 million.
(3)	Cover for DHL’s past activities other than commercial property management would be reduced by 50%, leaving the very high valuations which had already been carried out exposed above £10 million.
(4)	Cover for DHL’s on-going activities other than commercial property management would likewise be reduced by 50% and exposed above £10 million although there was no indication that its existing activities were being scaled down.
(5)	There was no obvious reason for the assured to do this (apart from anything said orally by Mr. Hart).
(6)	The reduction in cover would be occurring mid-term when DHL’s existing policy still had 3 months to run.
(7)	The existing DHL excess layer would be substituted by commercial property management cover for the entire Group in circumstances where there was no apparent need (apart from anything said by Mr. Hart) for any of the companies to have such cover.
253.	Even if one leaves out of account the instruction given in the Fee Proposal, Mr Bickell’s instructions up until this time had been to obtain run off cover for DHL up to the existing limits of cover and not to take away cover without an express request to do so. On any view, this was a significant change in instructions to the potential detriment of DHL.  
254.	I take into account the fact that at this stage Mr Bickell was being asked to obtain quotes rather than place cover; that Mr Bickell might have expected that many of these matters would or should also be apparent to Mr Hart; that it was HPC’s task to establish what cover the insured wanted; and that the re-organisation of the Group might mean changing insurance requirements.  Nevertheless, in my judgment the potential detriment and disadvantage to DHL arising from this instruction was so significant that a reasonably competent broker in the position of Mr Bickell would have sought to query, clarify or confirm that instruction, all the more so if, as I find, it was a changed instruction.
255.	To a significant extent this was acknowledged by Mr Bickell.  He accepted that there was a need at least to inquire as to the reason for these instructions and claimed to have done so and been satisfied by the explanation provided.  However, I have found that he did not do so and there was no explanation given as to the need to have the cover for commercial property management contracts.  Mr Bickell was content to accept the instruction he had been given without further inquiry.  I find that he was negligent in so doing.
256.	Further, I have found that it was Mr Bickell who added the word “activities” to the description of the cover required.  Although that was a reasonable interpretation of his instructions it was an elaboration of them, the acceptability of which should have been specifically confirmed.
257.	I have also held that Forbes had agreed that cover would be obtained on no worse terms and conditions unless specifically agreed to in writing by HPC and that this instruction applied to this change in the basis of the cover.  Indeed Mr Bickell accepted that the instruction applied to changes in the basis of the cover, although he claimed (erroneously) that this was merely a change in the limits of cover.  I find that Forbes was also in breach of their duty of skill and care in failing to comply with this agreed instruction.
258.	It was suggested by Forbes that the RRR represented compliance with this requirement.  However, it is not a specific agreement in writing to the less favourable term or condition.  For it to be so that term or condition would need to be specifically identified and agreed to.  
259.	Aside from this requirement, I would not have held that the necessary clarification or confirmation was required to be in writing, as HPC contended.
(3)  Failure to exercise reasonable skill and care to explain to the client the terms of the proposed insurance;
260.	I do not consider that this involves any separate or distinct breach of duty to those addressed above.  Having failed to query, clarify or confirm the changed instruction at or shortly after the time it was given, Mr Bickell should have done so, and done so specifically, at the latest at the time of the RRR.  However, leaving that and the Fee Proposal instruction aside, I do not find that there was any failure to explain the terms of the insurance.  The key features of the proposed insurance, including the terms of the excess cover, were clearly and accurately set out in the RRR.  
(4)  Failure to use reasonable skill and care to draw up a policy, or to ensure that a     policy was drawn up, that accurately reflected the terms of the agreement with the underwriters and which was clear and unambiguous so that the client’s rights under the policy were not open to doubt.

261.	It was accepted by HPC that this issue would only arise if their construction or rectification case succeeded.  On the findings I have made this issue therefore does not arise.  The slip accurately expressed the terms agreed with the Excess Insurers by Forbes in compliance with HPC’s instructions.
Did Forbes’ breaches of duty cause the loss?
262.	Forbes submitted that even if it was in breach of duty the sole cause of the loss was HPC’s own negligence and fault, and in particular its instruction that the insurance be placed in accordance with the RRR.
263.	They submitted, and I find, that Mr Hart was negligent in the following respects in particular:
(1)	He instructed Forbes to obtain quotes for cover limited to the Group’s Commercial Property Management without having first obtained any instruction or confirmation from the Group or DHL that this cover would meet their requirements. 
(2)	He failed after receiving the RRR to draw the limitation on the scope of the proposed excess layer cover to the attention of Mr Davis and again failed, before the cover was placed, to seek any instruction or confirmation from the Group or DHL that cover with this limitation would meet their requirements.
(3)	He failed on receiving DHL’s emails in May 2005 to heed the fact that the excess layer cover needed to cover valuation activities and that the cover which HPC had instructed Forbes to place did not do so.
(4)	He failed at any time after the cover was placed to inform the Group or the Claimants of the terms of the excess layer cover which HPC had arranged on their behalf, and indeed allowed a series of verifications of insurance to be sent which misrepresented the scope of the cover. 
264.	Forbes placed particular emphasis on the importance of the instruction given that the insurance be placed in accordance with the RRR, and relied by analogy on cases involving proposal forms in which the client’s approval and signature of the form has been found to eclipse errors of the insurance broker in filling it out: see O’Connor v BDB Kirby & Co [1972] 1 QB 90; Kapur v JW Francis & Co [2000] Lloyd’s Rep IR 361, 367-8..
265.	I am not satisfied that the proposal form cases are directly analogous.  An assured filling in a proposal form has a personal non-delegable duty vis-à-vis the insurer to ensure that its contents are correct.  Even if he uses a broker to fill in all or part of it on his behalf, he takes personal responsibility for its accuracy; it is his document.  
266.	If a deliberate and informed decision had been made to give instructions to obtain excess cover on the terms set out in the RRR then a break in the chain of causation may well have occurred.  However, on my findings this is a case of a mistaken instruction being given and maintained negligently rather than knowingly or recklessly.  
267.	As to the causal effect of Forbes’ breach of duty, I find that had Mr Bickell sought to query, clarify or confirm the instruction at or shortly after the time it had been given it is likely that a discussion as to its appropriateness would have ensued, that the potential detriment to DHL would thereby have become apparent to Mr Hart and that the instruction would not have been maintained.  Instead a wording would have been devised which covered DHL’s valuation activities. 
268.	I also find that if Forbes had sought specific agreement in writing to the change in the basis of cover, or specifically identified it in the RRR, this would have been relayed to Mr Davis who would have made it clear that it was unacceptable.  Again a wording would then have been devised which covered DHL’s valuation activities.
269.	Despite the serious and indeed serial negligence on the part of Mr Hart and HPC as outlined above, I am not satisfied that it completely eclipsed these causal effects of Forbes’ breaches of duty so as to be the sole effective cause of the loss.  It is, however, highly relevant to the issue of contributory negligence.
Contributory Negligence
270.	 The relevant principles have already been addressed in considering the position as between the Claimants and HPC.
271.	There can be no doubt that there was causative fault on the part of HPC, as admitted by them in relation to the Claimants’ claim.  
272.	As to the apportionment of responsibility, the primary reason for the failure to obtain cover for DHL’s valuation activities was Mr Hart’s instruction to Mr Bickell to obtain cover for Commercial Property Management activities.  He should have considered the implications of changing the basis of cover in this manner and have realised the potential detriment and disadvantages which it involved before giving the instruction.  If a reasonably competent broker such as Mr Hart failed to do so it was reasonably foreseeable that another reasonably competent broker in the position of Mr Bickell might do likewise, or assume that Mr Hart knew what he was doing, with the consequence that the instruction was implemented.  Having given the instruction it was always likely that, as intended, it would be implemented, notwithstanding the involvement of placing brokers.
273.	Even if Mr Hart had not been the source of the instruction, it was accepted that HPC was at fault and negligent in failing to identify the change in cover and draw it to the attention of Mr Davis.  Mr Hart’s failure to do so is all the more blameworthy if, as I have found, he was the source of the instruction.  He was aware of the change in the basis of cover; he was aware of his instructions to obtain cover on the same or equivalent terms; even if he was not aware, as he should have been, of the significance of the change in cover, the fact of the change in cover should have been brought to Mr Davis’ attention.  If it had been Mr Davis would have made it clear that it was unacceptable and coverage would have been arranged for DHL’s valuation activities.
274.	Further, Mr Hart had serial opportunities to consider the position and to reflect on the appropriateness of the cover obtained and an express contractual duty to Forbes to do so as reflected in Clause 4.2(e) of the SBA.  I refer to and repeat in this context the litany of failures set out in paragraphs 227 and 263 above.
275.	I have no doubt that both in terms of blameworthiness and causative potency the primary responsibility for failing to obtain the required cover rests with HPC.  In essence HPC’s complaint against Forbes is that they should have saved Mr Hart from himself.  In all the circumstances I conclude that the just and equitable apportionment is 80% HPC and 20% Forbes.
276.	For completeness I should also mention that HPC had a contribution claim against Forbes under the Civil Liability (Contribution) Act 1978 but by the end of the trial they had decided not to pursue it on the basis that it did not add materially to their primary case.
Conclusion
277.	In conclusion, the Claimants’ claim for £10 million fails as against Excess Insurers but succeeds in full against HPC.  HPC’s claim against Forbes for breach of duty succeeds but their damages recovery is to be reduced by 80% to reflect their contributory negligence.