QUEEN'S BENCH DIVISION
(COMMERCIAL COURT, POTTER J)
B e f o r e :
LORD JUSTICE McCOWAN
and
LORD JUSTICE AULD
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ACTION 440 |
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NEW HAMPSHIRE INSURANCE COMPANY and others |
(Appellant/Insurers) |
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- and - |
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MGN LIMITED and others |
(Respondent/Claimants) |
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ACTION 1328 |
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MAXWELL COMMUNICATION CORPORATION PLC (IN ADMINSTRATION) and others |
(Appellant/Insurers) |
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- and - |
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NEW HAMPSHIRE INSURANCE COMPANY and others |
(Respondent/Claimants) |
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180 Fleet Street, London EC4A 2HD. Tel: 0171 831 3183
(Official Shorthand Writers to the Court)
MR A LAYTON QC and MR PHILLIPS QC and MR N HEXT (instructed by Messrs Sedwick Detert Moran & Arnold, London EC3) appeared on behalf of Chubb Insurance Company of Europe
MR I MILLIGAN QC and MR S MORRIS (instructed by Messrs Norton Rose, London EC3) appeared on behalf of Maxwell Communication Coroporation PLC
MR I MILLIGAN QC and MR D EDWARDS (instructed by Messrs Lovell White and Durrant, London EC1) appeared on behalf of MGN
MR J LOCKEY (instructed by Messrs Stephenson Harwood, London EC4 for 15th Defendant in Action 440, and Messrs Nabarro Nathanson, London W1 for 3rd-7th and 16th-19th Defendants in Action 440) appeared on behalf of the Pension Fund and Bishopsgate Management Limited
____________________
180 FLEET STREET, LONDON EC4A 2HD. TEL: 0171 831 3183
(OFFICIAL SHORTHAND WRITERS TO THE COURT)
HTML VERSION OF JUDGMENT
Crown Copyright ©
LORD JUSTICE STAUGHTON:
This is the judgment of the Court.
In Macmillan Inc v Bishopsgate Investment Trust plc (no.3) (1996) 1 WLR 387 this court had to consider what system of law should determine who had the better title to some shares in Berlitz International Inc., a New York Corporation. The facts in that case, either proved or assumed, were as follows: Macmillan (the 11th defendants in one of the present actions) were a wholly owned subsidiary of Maxwell Communications Corporation plc, a company owned partly by the public and partly by Mr Robert Maxwell and his family; they had a majority holding in the shares of Berlitz; those shares were transferred out of Macmillan's name to Bishopsgate Investment Trust, who were owned and controlled by Mr Maxwell and his family; and then the shares were pledged to secure the debts of companies in the private ownership of Mr Maxwell and his family. Thus Macmillan suffered a loss and those latter companies received a gain, unless and until Macmillan succeed in recovering the shares or (since they have now been sold by agreement) their value.
We have referred to that case merely as a possible illustration of the problem that we face in the present appeals. We are being asked to answer preliminary issues, which Waller J. ordered to be tried in two actions in the Commercial Court. That was no doubt a very sensible procedure. But it is sometimes helpful to us to have some live facts to bear in mind, rather than the dry bones of a preliminary issue.
The present dispute arises out of a number of contracts of insurance concluded for years beginning on 1st August 1988, and 1st July 1989, 1990 and 1991. As commonly happens the contracts were arranged in layers: first there was a contract with a limit of £1 million, subscribed by New Hampshire Insurance Company alone; above that there were a succession of layers up to the following totals -
1988/1989 | £25 million |
1989/1990 | £35 million |
1990/1991 | £50 million |
1991/1992 | £50 million |
New Hampshire were the leading underwriters on all contracts, except for the top £10 million layers in 1990/1991 and 1991/1992, which were subscribed only by Chubb Insurance Company of Europe SA. Other insurance companies and syndicates at Lloyds, who are the second to twenty-sixth plaintiffs in action 1993 folio 440, subscribed the contracts except for those written by New Hampshire or Chubb alone. It is not possible to refer to the parties as the plaintiffs and the defendants, as there are two actions and for the most part the same parties feature on opposite sides. So we will refer to all the insurers collectively as the Insurers, and as the Other Insurers when we are excluding Chubb. The beneficiaries of the insurance contracts were on one view companies in the Maxwell group, together with some pension fund trustees, and on another the Maxwell group itself. It is the companies, or rather some of them, and the trustees who feature as parties in these actions. They have been called the Claimants. As has already been mentioned, in some of the Maxwell companies Mr Robert Maxwell and his family held a controlling interest but there was also ownership by the public; others were owned by Mr Maxwell and his family alone.
The insurance cover at the first layer was on the form of New Hampshire, headed "Comprehensive Dishonesty, Disappearance and Destruction Policy Form A." All subsequent layers were on the same form, save that there is a dispute when it comes to the Chubb contracts. In broad terms it is an insurance against crime. The first part of the cover, and that with which the present dispute is concerned, is defined as follows:
INSURING AGREEMENTS
EMPLOYEE DISHONESTY COVERAGE - FORM A
1. Loss of Money, Securities and other property which the Insured shall sustain, to an amount not exceeding in the aggregate the amount stated in the Table of Limits of Liability applicable to this Insuring Agreement I, resulting directly from one or more fraudulent or dishonest acts committed by an Employee, acting alone or in collusion with others.
Dishonest or fraudulent acts as used in this Insuring Agreement shall mean only dishonest or fraudulent acts committed by such Employee with the manifest intent:
(a) to cause the insured to sustain such loss; and
(b) to obtain financial benefit for the Employee, or for any other person or organisation intended by the Employee to receive such benefit, other than salaries, commissions, fees, bonuses, promotions, awards, profit sharing, pensions or other employee benefits earned in the normal course of employment.
The preliminary issues ordered by Waller J. on 6th October 1994 comprised twelve questions or groups of questions. Only seven of them are still in dispute on this appeal, but we are still left with a task which is formidable enough. Fortunately we have a clear and comprehensive judgment of Potter J., from whom this appeal comes.
Before the judge there was a good deal of evidence, both oral and in witness statements, by witnesses of fact and an expert. There was also some contest as to what was relevant and admissible on the topic of interpretation of the contracts, followed by an interlocutory appeal to this court comprising Staughton, Millett and Ward LJJ. In extempore judgments delivered on 15th June 1995 it is said that there was some slight divergence of view between them, and that Staughton LJ represented the middle ground. At all events the parties have been content to rely on that judgment. We would reiterate the four principles which it proposed relating to the material that is relevant to the interpretation of a written contract:
(1) Nothing is relevant unless it was known to, or reasonably capable of being known to, both parties at the time when the contract was made. In particular, an undisclosed intention held in pectore by one of the parties is not admissible for the purpose of interpretation.
(2) The court looks first at the written document alone, and determines what it means from the ordinary meaning of the language used, unless some customary meaning is pleaded and proved.
(3) However, the court may also have regard to the surrounding circumstances, now commonly referred to as the matrix, the genesis or aim, the market in which the parties are operating. But this evidence must qualify under principle (1) if it is to be admitted.
(4) Evidence of negotiations is not admissible. This is subject to some exceptions, such as a case of rectification, or if it is said that agreement was reached in negotiations as to the meaning of a particular term, or that the contract was made by a continuous process of agreeing some terms and then turning to consider others.
The boundary of what may be considered surrounding circumstances, within principle (3), is unfortunately not easy to draw. All too often a great deal of evidence is produced under that head which is of little or no help to interpretation. The present case is no exception in that respect.
With that introduction we proceed to the individual questions that we are required to answer. (Questions A,B,C,E and J are no longer in issue.)
Issue (D):
Whether the Chubb Policies were contained in and/or evidenced by
(a) the slip signed for Chubb on 8th July 1990; and/or
(b) the policy wording numbered 81296514 and the documents referred to therein; and/or
(c) the slip signed for Chubb on 3rd July 1991; and /or
(d) the policy wording numbered 81296514A and the documents referred to therein.
This issue relates to what have been called Year 3 and Year 4 of the insurance. The question is whether Chubb's form of policy became, in each case, part of the contract for the top £10 million layer which Chubb insured.
The process started with a quotation dated 2nd July 1990. Against the printed word "Form" it said
Chubb Follow Form.
The brokers, Willis Wrightson Ltd, would apparently have known that this was a reference to a form of policy used by Chubb. Next there was the slip, initialled by Chubb on 8th July 1990. Against the word FORM this said
Comprehensive Dishonesty, Disappearance
and Destruction Policy Form A.
Those were the very words on the front of the New Hampshire form of policy, which was used for all other layers of this insurance and for all the Other Insurers. There was no reference on the Chubb slip to the Chubb Follow Form, and in addition to the description of the Form there were the words "CONDITIONS as per underlying."
Thirdly there was the Chubb policy no. 812965414. This was on a Chubb form headed Excess Fidelity Policy. It is, presumably, the Chubb Follow Form, and is significantly different from the New Hampshire form. It was signed on behalf of Chubb on 21st January 1991. It evidently reached the brokers, since they sent it on to Mr Ward of Maxwell Communication Corporation plc on 13th February 1991. Mr Ward was employed in the Risk Management Department, which assumed the task of arranging insurance for the Maxwell Group - or for all the companies in it. On the letter from the brokers which enclosed the Chubb policy he wrote
Checked & okay
with a date and his initials. He said in his statement,
To the best of my knowledge I then put the original policy into a cabinet which contained all of the original policies placed on behalf of the Risk Management Division. The idea was that all original policies, regardless of their nature, would be found in one place.
The events relating to the Chubb policy for Year 4 were in some respects different. Chubb's quotation, dated 28th June 1991, merely said
Terms and Conditions as expiring
and mentioned no form. The slip, initialled by Chubb on 3rd July, said
FORM WW Excess Layer wording.
There is no direct evidence of any such form. During the argument there were suggestions that WW might stand for Willis Wrightson, or for world wide. That must remain speculation. The slip also had the line "CONDITIONS As per Primary Policy attached." That was the New Hampshire form of policy.
Thereafter policy no 81296514A was prepared on the Chubb form and sent to the brokers on 8th August 1991. In relation to that year Mr Ward of the Risk Management Department said this in his statement:
To the best of my knowledge I did not receive a copy of the Chubb excess layer wording for the subsequent policy year, namely, July 1991/June 1992. I am advised by Messrs Norton Rose, that they have reviewed all of the documents in the cabinet of original insurance policies and they have been unable to find any original or copy of the Chubb policy wording for the 1991/92 policy year, although the original for the previous year, together with the original letter dated the 13th February 1991 from Willis Corroon is contained in the cabinet.
It is conceivable, bearing in mind the time period between renewal and the collapse of the Maxwell Group, that the 1991/92 wording would not have been received by the department prior to my leaving at the end of 1992. Possibly it was stuck in the system at Willis Corroon.
That was the new name of Willis Wrightson.
In neither year was there any complaint or protest about the terms of the Chubb policy, either by the brokers or the Risk Management Department of the Maxwell Group, so far as we are aware.
The pleading of Chubb as to how the two policies came to form part of the contracts is distinctly vague, and there was no request for Further and Better Particulars. But Mr Phillips on their behalf put his case in three ways. First he submitted that, when each of the slips was initialled by Chubb, it was implied in the terms thereby agreed that the Chubb Follow Form was part of the contract.
The basis for this implication was said to be as follows:
(i) Chubb always used this form when they were alone on an excess layer.
(ii) That was known to brokers such as Willis Wrightson.
(iii) Willis Wrightson must be taken to have accepted that when they placed the business with Chubb.
(iv) Subsequent conduct of the parties was consistent only with that.
There was evidence in support of points (i) and (ii) which was not in terms contradicted. However, we were shown a letter dated 16th January 1991, to New Hampshire from Miss Godwin of the policy division at Willis Wrightson. It said in a postscript "please could you send me one of your wdgs as I need to issue a Pol for 'Chub'". Miss Godwin did not give evidence.
The subsequent conduct referred to in (iv) was confined to the facts which we have already set out.
We cannot accept that argument, if only for the reason that the implication would contradict the express terms of the contract. Each of the slips referred to a form; in our experience that is extremely common if not universal practice. In neither case was it the Chubb form. In those circumstances it cannot in our judgment be implied that the Chubb form was required by the contract that was concluded when the slips were initialled.
Secondly it was submitted that, once a policy has been issued, its terms are conclusive evidence of the contract between the parties unless and until it is altered by the process of rectification. That can happen by agreement of the parties or by order of a court but not otherwise. And there has been no application for rectification in this case.
This doctrine is said to be supported by Youell v. Bland Welch & Co Ltd (no.1) (1990) 2 Ll R. 423 and Punjab National Bank v. De Boinville (1992) 1 Ll R.7. But in our opinion those cases are concerned with the situation where a policy has been agreed to by the parties. In those circumstances the policy will, at any rate in the ordinary way, be conclusive evidence of the contract unless and until it is rectified; the slip cannot be used to add to, explain or contradict the meaning of the policy. That is not this case. Here the issue is whether the policy ever was agreed to. The insurers cannot preempt the answer to that question by the unilateral act of issuing it. That was the reasoning of Potter J., and we agree with it. He also had something to say about the operations of Lloyd's Policy Signing Office, but with that we are not concerned in this case.
The third submission of Mr Phillips is the most promising. It is that there was a variation, agreed to on the part of the insured by silence. Although in the case of Year 3 it may only have occurred after the contract had been in force for five months, presumably it was retrospective.
That there can be acceptance so as to conclude a contract by silence in some circumstances is shown by the case of Rust v. Abbey Life Assurance Co Ltd (1979) 2 Ll R.334. There Brandon LJ said (at p.339):
It is clear that in ordinary insurance cases a policy may become a binding contract between an insured and insurers even though the insured has not seen or expressly assented to all the detailed terms of the policy, provided always that such terms are the usual terms of the insurers.
He concluded (at p.340):
It follows from what I have said that I would uphold the decision of the learned Deputy Judge on the first of the two bases relied on by him. If I am wrong about that, however, it seems to me that the learned Deputy Judge's decision should in the alternative be upheld on the second basis relied on by him. The plaintiff had the policy in her possession at the end of October, 1993. She raised no objection to it of any kind until some seven months later. While it may well be that in many cases silence or inactivity is not evidence of acceptance, having regard to the facts of this case and the history of the transaction between the parties as previously set out, it seems to me to be an inevitable inference from the conduct of the plaintiff in doing and saying nothing for seven months that she accepted the policy as a valid contract between herself and the first defendants.
That decision was approved by Lord Steyn in Vitol SA v. Norelf Ltd (1996) 3 WLR 105 at p.114. The dispute there was as to whether inactivity and silence could amount to acceptance of a repudiation. The answer of Phillips J. at first instance had been, it depends upon the circumstances (p.110). Lord Steyn agreed, saying (at p.113) -
One cannot generalise on the point. It all depends on the particular contractual relationship and the particular circumstances of the case.
We are thus liberated from the rigid nineteenth century doctrine that there can be an acceptance by conduct but not by silence alone (Brodgen v. Metropolitan Railway Co. (1877) 2 App Cas 666). But we feel that we should proceed with some caution before giving too large a licence to one party to a proposed contract to thrust terms on the other without his explicit approval.
The field of insurance may well be one where it is normal practice to make a preliminary contract, and then for one party (the insurers) to send detailed terms to the other, not expecting a reply unless the other regards them as unsatisfactory. This may be what happens in ordinary life with motor insurance or householder's comprehensive insurance. Often the necessary acceptance can be inferred when the insured, having received the proposed policy, pays the premium. We enquired whether that was a possible answer in the present case, but it seems that no such argument was put forward before the judge and the facts found in relation to the premium are insufficient.
We have not been told that there was any evidence of a custom in the insurance industry that policy details are accepted unless they are expressly questioned. Nor does there appear to have been any contention to that effect; it was merely said to be the usual practice as between Chubb and brokers. The judge did not regard the evidence of that as reliable. So we must consider the particular relationship and the particular circumstances of this case. We cannot attribute much, or indeed any, weight to the fact that Mr Ward wrote "checked & okay" on the letter, and put the policy in the place where original policies were kept; those were not circumstances which by inference conveyed acceptance to Chubb, since they did not know of them. Furthermore Mr Ward was a subordinate member of the Risk Management Department, under Mr Cox who was the head of it and whose task it was to review the primary policy wordings.
Nevertheless we regard this as a borderline case. What determines the point, in our judgment, in favour of the Claimants is that the Chubb policy did not merely supplement what was in the slips; it contradicted them, since in each case the slip referred to a different form. In those circumstances we would require more than the evidence of silence that there is here to persuade us that acceptance by the insured should be inferred. Like the judge, we would answer issue (D) by saying that the Chubb forms of policy were not part of the terms of the contracts for the top layers in 1993 and 1994.
Mr Phillips in the course of his reply pointed out that it was and remains the pleaded case of the Claimants that the Chubb policy did form part of the contracts. How then were they allowed to procure a preliminary issue from Waller J., and to argue before Potter J. that the Chubb policy did not form part of the contracts? Apparently the parties agreed that there was no need for any amendments, at any rate for the time being. We do not feel that we should tolerate such a cavalier attitude. The Claimants should be required to amend their pleadings so as to delete assertions which they now themselves contradict.
Issue (F):
Whether, on a true construction of the Contracts of Insurance and/or the Chubb Policies, the cover provided was:
(i) single in nature (i.e. that there was a single Assured, "the Maxwell's Group of Companies"); or
(ii) joint in nature (i.e. that there was more than one Assured but all Assureds were insured jointly); or
(iii) composite in nature (i.e. that there was more than one Assured and each Assured was insured separately).
The New Hampshire policies for Year 1 and Year 2 contained this wording
Name of Insured:
Pergamon Holdings Limited &/or Pergamon Group plc &/or Pergamon Media Trust plc &/or Hollis plc &/Or Maxwell Communications Corporation plc &/Or Mirror Holdings Ltd &/Or Subsidiary Companies &/Or Associated Companies &/Or Companies for whom they have (herein called the Insured) instructions to insure.
The reason that the words "(herein called the insured)" appear to be out of place is that they are part of the pre-programmed wording into which details are subsequently inserted. (The days have unfortunately gone when one could tell at a glance how much of a document was printed for general use and how much typewritten for a specific purpose.)
That wording was proffered by the Claimants, or their brokers, and appeared in the slips for Year 1 and Year 2. It appears to us to leave no room whatsoever for doubt as to who were insured: the companies listed or identified (in so far as they are) in the wording. There may remain a question as to whether they were insured jointly or severally or both; to that we will return.
Mr Rokison for the Other Insurers argues that the insured was the Maxwell group. That was not, of course, a legal entity. Nor were its limits readily identifiable, except to the cognoscenti at headquarters. There were a number of planks in Mr Rokison's platform.
(1) The information presented to the Insurers, via the brokers, comprised details of the turnover, locations, number of employees etc. of companies in the group, and also figures for the group wage roll, turnover and assets. It was presented in a package for the group as a whole. This was likely to lead to a smaller premium than one total for many insurances separately placed.
(2) The practice in the insurance market, when rating insurance for a group of companies against dishonesty of employees, was to have regard to the predominant activity of the group, instead of rating separately the individual companies by reference to their own businesses.
(3) The Risk Management Department knew that. Indeed they were told it, when they wished to increase the limit for one company which on its own would be rated more highly. They were told that it would be not much more expensive to increase the limit for all the companies - or all the group - because the rating based on predominant activity was lower.
We suppose that point (1) can perhaps be described as a surrounding circumstance. At all events, we ruled that evidence of it was admissible when the dispute was last before this court, although that may have been a rather generous view. We have a good deal more doubt about the admissibility of points (2) and (3). But that only mattered when we were considering whether to save the parties from unnecessary expense and the judge from unnecessary labour by excluding evidence from the start. All that is now of importance is to say, as we do, that nothing in points (1), (2) and (3) is of any assistance in helping us to decide whether the insured were the companies identified or described in the wording, or else "the Maxwell Group."
Next, as point (4), Mr Rokison relies on the use of the words "and/or" in the description of the Insured. Did it mean that Pergamon Holdings Ltd or Pergamon Group plc were the insured? If so, which? The expression "and/or " is very commonly used in describing who is insured under a policy - almost invariably, perhaps. But we doubt if it is used with lawyer-like precision. We would interpret it as saying, "when the word "insured" is used in this document it may mean all of these companies, or else (depending on the context) it may mean any one of them." That is a perfectly sensible interpretation, although Mr Rokison says that it is too clever by half. For example, at the commencement of the policy it is said that
the Company ... agrees with the Insured.
That must mean Pergamon Holdings and Pergamon Group plc etc. On the other hand there is cover against loss through forgery of any cheque or bill of exchange
made or drawn or drawn upon the Insured.
That must mean one of the companies.
(5) Mr Rokison points to instances where the policy wording refers to "the insured", "the insured first named", "any insured", "any or all of the insured", "any one of the insured", "the insureds", "every insured", and "every other insured". These references show that the draftsman contemplated that there would or might be more than one insured. Indeed the policy expressly says so: there is a clause which begins
If more than one insured is covered by this policy ...
We do not see that this diversity of expressions is of any assistance to Mr Rokison in showing that the insured meant the Maxwell Group. The policy is not by any means written with the precision of an equity draftsman. Indeed we strongly suspect that it was not written by one person at all or at one time. It seems more likely that a number of hands have added or amended passages in it from time to time.
(6) When it came to Year 3 and Year 4, there was an indorsement as follows:
It is hereby understood and agreed that:
(1) the title of the Insured as stated in Item 1 of the Declarations is changed to read as follows:
The Maxwell's Group of Companies including but not limited to:-
Maxwell Communications Corporation plc
Headington Investments Ltd
Mirror Group plc
Pergamon Holdings U.S. Inc
and any Company which is associated with, or a subsidiary of any one of them or is owned and/or controlled by them jointly, or for whom instructions have been received to insure.
That seems to us the high point of Mr Rokison's argument, although it also detracts from his submissions relating to Year 1 and Year 2. As usual there is the problem with alterations, did the parties mean to clarify what they had said previously or to change it?
At this point we feel that one should sit back and examine what we mean by "the insured" in an insurance contract. The expression in our view covers two aspects of the person described. First, he is the person with whom the insurer contracts, the party who is bound as such. Secondly he is the person who is interested in the property or other event covered by the insurance, and whose loss is to be made good if it occurs. For the first capacity the insured must, as it seems to us, be a natural or legal person. Mr Phillips referred us to the case of Prudential Staff Union v. Hall (1947) KB 685 as authority for the proposition that a trade union can be a party to a contract of insurance. However that may be, we do not see that something called a group can be a party to a contract, otherwise than as a contract with all of its members. See Chitty on Contracts (27th edn) para. 9-063:
Liability of unincorporated associations. An unincorporated association is not a legal person and therefore cannot sue or be sued unless such a course is authorised by express or implied statutory provisions as in the case of a trade union and a trustee savings bank. Nor can a contract be made so as to bind all persons who from time to time become members of such an association. But a contract purportedly made by or with an incorporated association is not necessarily a nullity. If the person or persons who actually made the contract had no authority to contract on behalf of the members they may be held to have contracted personally. On the other hand, if they had the authority, express or implied, of all or some of the members of the association to contract on their behalf, the contract can be enforced by or against those members as co-principals to the contract by the ordinary rules of agency.
(We suspect that in the third sentence "incorporated" should be "unincorporated".)
What then of the second role of the Insured, as the owner of property or some other interest who will suffer loss if it is affected by an insured peril? On many occasions it may not make much difference whether the insured is the group, or the parent company, or the subsidiaries; all will ultimately have the same interest in the safety of the group's property. But on other occasions the interests will not be the same and ought to be insured separately. Some of the companies in the Maxwell group were publicly owned, although Mr. Maxwell had a controlling interest. It would, as it seems to us, have been a breach of duty by the directors of those companies if they had knowingly allowed the companies' property to be insured on terms which did not afford cover in the event of misconduct by companies in Mr. Maxwell's private ownership. The genesis or aim of the insurance contract was, we think, accurately stated by the judge:
The common aim was no more or less than the provision of fidelity insurance cover for all those companies comprising the group named in the definition clause, within the confines of a single policy ...
In P. Samuel & Co. Ltd. v. Dumas (1924) A.C. 431 a ship was insured for the benefit of both the shipowner and the mortgagees. She was cast away by the master and crew with the connivance of the owner, but without any complicity of the mortgagees. Viscount Cave said (at p.445):
It may well be that, when two persons are jointly insured and their interests are inseparably connected so that a loss or gain necessarily affects them both, the misconduct of one is sufficient to contaminate the whole insurance: Phillips on Marine Insurance, vol.i., at 235. But in this case there is no difficulty in separating the interest of the mortgagee from that of the owner.
Lord Sumner (at p.469) put the other side of the coin, that where there are separate interests one insured is not affected by misconduct of another:
Fraud is not something absolute, existing in vacuo; it is a fraud upon someone. A man who tries to cheat his underwriters fails if they find him out, but how does his wrong against them invest them with new rights against innocent strangers to it?
In Commonwealth Construction Co. Ltd. v. Imperial Oil Ltd. (1976) 69 DLR (3d) 558 at p.560 De Grandpre J., delivering the judgment of the Supreme Court of Canada, referred without disapproval to (but distinguished) a principle of property insurance adopted by the Court of Appeal:
A policy issued to many persons will amount to several insurance if the persons insured have different interests in the subject matter of the insurance.
So too in General Accident Fire and Life Assurance Corporation v. Midland Bank Ltd. (1940) 2 KB 388 Sir Wilfred Greene MR said (at p. 404):
That there can be a joint insurance by persons having a joint interest is, of course, manifest. If A and B are joint owners of property - and I use that phrase in the strict sense - an undertaking to indemnify them jointly is a true contract of indemnity in respect of a joint loss which they have jointly suffered. Again, there can be no objection to combining in one insurance a number of persons having different interests in the subject-matter of the insurance, but I find myself unable to see how an insurance of that character can be called a joint insurance. In such a case the interest of each of the insured is different. The amount of his loss, if the subject-matter of the insurance is destroyed or damaged, depends on the nature of his interest, and the covenant of indemnity which the policy gives must, in such a case, necessarily operate as a covenant to indemnify in respect of each individual different loss which the various persons named may suffer. In such a case there is no joint element at all.
That, as it seems to us, is this case. The companies that formed the Maxwell group had separate interests to insure, and not a joint interest in the same property. That must have been known to the Insurers, in the light of the companies' disparate businesses and seeing that one of them was Mirror Group Newspapers. It is not clear why they adopted a different definition of the insured for Year 3 and Year 4. But that definition was still capable of referring to the companies rather than the group as parties to the insurance contract (as they must have been), and also as the owners of separate interests which were to be covered by insurance separately. That in our judgment was the intention of the parties, and the effect of the policies. It is true that there is in the policies a clause headed Joint Insured. But the content of the clause does not go as far as to say that all those insured have joint interests or are joint contractors. Rather it deals with some specific points which arise under another issue.
In the light of our answer to issue (D), no separate point arises under this head on the Chubb policies. Those, instead of naming the Insured as such, had the wording -
Parent Organisation: The Maxwell Group of Companies.
That would have needed consideration if those policies had been incorporated in the contracts; but they were not. The slips for Chubb in Year 3 and Year 4 had the same description of the insured, with very slight and immaterial variations, as the New Hampshire policies for those years.
We agree with the judge that all the contracts of insurance were composite in nature, there being more than one insured and each being insured separately.
Issue G: Whether, in the light of the answer to issue (F) above and on a true construction of the Contracts of Insurance and Chubb Policies, any non-disclosure or misrepresentation, breach of the duty of utmost good faith or breach of any other obligation by any one Assured in itself:-
(i) constitutes a non-disclosure, misrepresentation, breach of the duty of the utmost good faith or breach of such obligation by all or any other Assured: and/or
(ii) in the event and to the extent that it entitles Insurers to avoid the Contracts of Insurance and/or Chubb to avoid the Chubb Policies as against that Assured, also entitles Insurers to avoid the Contracts of Insurance and/or Chubb to avoid the Chubb Policies as against all or any other Assureds.
In the light of our conclusion on issue (F), the answer to this question is in our judgment, No. Technically one ought to enquire whether for each layer in each year there was one contract, or as many contracts as there were companies insured. And if the former, can a contract be avoided for non-disclosure as against one or some of the insured, but not against others? We feel that we are relieved from the need to answer those questions by the authority of the House of Lords, in the passage already quoted from P. Samuel & Co Ltd v Dumas. That, it is true, was not a case of non-disclosure but of wilful misconduct by one of two persons insured. But in our opinion the principle that the innocent party can still recover if it is a separate insurance must equally apply.
Potter J had a proviso or caveat in answering this question. He felt that there were likely to be situations "whereby an officer of Company A, as well as exercising functions in Company B, would also have had knowledge of the affairs of Company C and/or the actions or intentions of its officers, of such a kind that he would have been under parallel duties of disclosure and/or obligations of good faith in respect of all three". We were not addressed on that point, and the judge's observations on it should stand.
Issue H: Whether, in the light of the answer to issue (F) above and on a true construction of the Contracts of Insurance and the Chubb Policies, a loss:-
(i) resulting from a transfer of assets from one Assured to another Assured;
is capable of constituting a loss falling within the terms of the Contracts of Insurance and/or the Chubb Policies. [Part (ii) of the question was withdrawn].
If by a peril insured against one of the companies insured is deprived of money, securities or other property, which is received by another of the companies insured, that is in our judgment a loss covered by the policy. The answer flows from the view that we have reached on issue (F).
Issue I: Whether, in the light of the answer to issue (F) above and on a true construction of the Contracts of Insurance and the Chubb Policies, acts giving rise to and/or intended to give rise to:-
(i) a transfer of assets from one Assured to another Assured:
are capable of constituting dishonest or fraudulent acts for the purposes of the Contracts of Insurance and/or the Chubb Policies. [Again we are absolved from answering Part (ii) of the question].
Three points were taken under this head. First, the definition of dishonest or fraudulent acts in Insuring Agreement 1 requires that they be committed
with the manifest intent to cause the insured to sustain such loss.
Secondly, there must be a manifest intent
to obtain financial benefit for the Employee, or for any other person or organisation.
Thirdly, by Endorsement 8 dishonest or fraudulent acts also means
the unlawful taking of insured property to the deprivation of the insured .....
If on the true interpretation of the policy the insured were a single entity called the Maxwell group, it would be very arguable that none of those three requirements would be satisfied in the case of a dishonest or fraudulent transfer between companies within the group. But we have held under issue (F) that that was not the case. Each of the companies was insured ("A and B and C") as if it alone was the insured ("A or B or C"). In our judgment the answer to this question is, Yes.
Issue (K):
At what point(s) in time were the Assureds under the Contracts of Insurance and/or the Chubb Policies under a duty to disclose material matters to Insurers and/or Chubb.
It is, we were told, common ground that there is a duty to disclose before a contract of insurance is concluded, before such a contract is renewed, and when a claim is made. But Mr Milligan for the Claimants except the pension interests submits that the situation on making a claim is conceptually different; non-disclosure then can only lead to the avoidance of a compromise agreement, if there has been one, or a right to recover money paid on the ground of mistake; it does not result in avoidance of the contract of insurance, unless there is fraud, or unless the contract says that it can be avoided for non-disclosure in making a claim.
We regard it an unnecessary for us to express any opinion as to what rights, if any, arise from non-disclosure on making a claim.
The question whether there is a continuing duty of disclosure in any other circumstances is of considerable importance. We are surprised that in recent times it has only been considered in one decision at first instance: Black King Shipping Corporation v. Massie (The LITSION PRIDE) (1985) 1 Ll R 437. However, the surprise is tempered when one realises that, in the ordinary way, disclosure would be of little or no benefit to the insurer during the currency of a policy. Unless it happen before the contract is made, or before renewal, or (perhaps) before a claim is paid, disclosure could only fill the insurer with foreboding that he had made a bad bargain as a loss was likely to occur; he would have no right to cancel the contract of insurance on that account, although we suppose that he might be able to obtain reinsurance.
It is said that the situation is different in this case, because the Insurers - and for that matter the insured - had a right of cancellation. It is enough to refer only to one of the provisions in that connection.
Section 16. This Policy or any Insuring Agreement may be cancelled by the insured by mailing to the Company written notice stating when thereafter the cancellation shall be effective. This Policy or any Insuring Agreement may be cancelled by the Company by mailing to the Insured at the address shown in this Policy written notice stating when not less than fifteen days thereafter such cancellation shall be effective.
It is said that disclosure would be of value to an insurer when he has an unfettered right to cancel; hence there is a continuing duty of disclosure. The argument cannot, as we see it, be anything less than that the duty applies on every day of the policy period, to every material circumstance which becomes known to the insured. However, we suppose that if the new circumstance were something which led to a loss within fifteen days, it could be said that it was not material as the insurer would have no effective opportunity to cancel.
The Marine Insurance Act 1906 provides:
17. A contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost good faith is not observed by either party, the contract may be avoided by the other party.
18(1). Subject to the provisions of this section, the assured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured ...
A novice could be forgiven for thinking that the only duty of disclosure is by the insured, and that it only applies before the contract is concluded (which could no doubt include the new contract which is made upon renewal). But the maxim that mention of one of two things excludes the other must be applied with caution when considering the draftsmanship of Sir Mackenzie Chalmers. His method of codification was, at any rate at times, to state the effect of rules decided by the courts, and not to pronounce upon points which had not been decided.
Mr. Rokison's submission is that section 18(1) is merely an example of the general duty that is placed on both parties, at all times, by section 17. We can see force in that argument. But it is questionable whether in practice the law has been treated in that way.
In the Litsion Pride the war risks insurance of the vessel contained a term that, in the event of her sailing for, deviating towards or being within a war risks exclusion zone -
(A) ... additional premium shall be paid at the discretion of insurers hereon.
(B) Information of such voyage or deviation shall be given to insurers as soon as practicable ...
There was also, it seems, a clause entitling the insurers to give 14 days notice of cancellation.
Hirst J. (a p.510) quoted from the judgment of Scrutton LJ in Leon v. Casey (1932) 2 KB 576 at p.579:
The origin of the order to ships' papers goes back to the time of Lord Mansfield. In those days the courts of common law did not give discovery of documents. If this was wanted the only means of getting it was by a Bill of Equity, and very often an action at law was delayed while the necessary proceedings in equity were taking their course. In consequence partly of this inconvenience and partly of the fact that insurance has always been regarded as a transaction requiring the utmost good faith between the parties in which the assured is bound to communicate to the insurer every material fact within his knowledge not only at the inception of the risk, but at every subsequent stage while it continues, up to and including the time when he makes his claim, the common law courts invented the order for ship's papers, an order which is made as soon as the writ is issued in an action on a policy of marine insurance.
It must however be pointed out that the order for ship's papers is now governed by the Rules of the Supreme Court, following criticism by Greer LJ in Leon v. Casey (at p.588) that it had become "an unfair and unjust weapon in the hands of the insurer". That scarcely sounds like the product of the utmost good faith. Under O72 r.10 it is now a matter of discretion. Furthermore Scrutton LJ expressed the view that the duty of disclosure continues throughout the duration of the risk, without limit. That is not what is now contended for by the Insurers.
The argument of Mr Gilman for the insurers in the Litsion Pride was that after the insurance contract was concluded the test should be
whether the misrepresentation or non-disclosure would, if believed by a prudent underwriter, influence him in any relevant decision he had to make, e.g., the fixing of [additional premium], or whether to pay, compromise, or resist a claim ... and also whether or not to invoke the 14 day cancellation clause.
Hirst J. accepted that argument. He distinguished Commercial Union Insurance Co v. The Niger Co Ltd (1922) 13 Ll.L 75 and another case relied on by the insured as follows (at p.511):
What the underwriter was seeking to do in these two cases was to fix upon the assured a duty to volunteer information ex post facto concerning new matter, which had come to light after the conclusion of the policy, and which affected the risk already accepted. The key to these cases is I think to be found in the dictum of Lord Buckmaster in the Niger case that there is no duty on the assured to disclose circumstances arising subsequently which might show that the premium had been accepted at too low a rate. This in my judgment does not touch the problem with which the Court is concerned in the present case.
It might be said that the Insurers in the present case are seeking to do exactly the same. Mr Rokison's answer is that here the Insurers were entitled to disclosure of any new information that had become available in order to determine whether to exercise their right to cancel. But the same could be said in the Litsion Pride. Hirst J. continued:
Focusing specifically on the duty in relation to the giving of information of the voyage under the warranty, it seems to me that there is a very close analogy with the position which arose in the Style and Liberian cases, where the duty was held to apply. The information is material because it is required to enable the underwriter to make a decision as to the rate of AP, as to facultative reinsurance, and (at all events in the present case) possibly even as to cancellation under the 14 day notice clause.
And later (at p.512):
Consequently, I hold that the duty of utmost good faith applied with its full rigour in relation to the giving of information of the voyage under the warranty.
"The warranty" is a reference to the war risks trading clauses.
The decision of Hirst J. was referred to with approval by Hobhouse J. in Bank of Nova Scotia v. Hellenic Mutual War Risks Association (Bermuda) Ltd (The GOOD LUCK) (1988) 1 Ll.R 514. However, he held that the Association owed the bank as mortgagees no duty of the utmost good faith. His conclusion on the question of a continuing duty of disclosure was as follows (at p.545):
There is no duty to disclose matters relevant to the making of the contract once the contract had been made; the time has then passed within which they must be disclosed. The later disclosure of later discovered facts would serve no useful purpose and, therefore, is not required. By contrast there can be situations which arise subsequently where the duty of utmost good faith makes it necessary that there should be further disclosure because the relevant facts are relevant to the later stages of the contract. The Litsion Pride illustrates such a situation in relation to the making and prosecution of a claim. Similarly, in the law of partnership there is a continuing duty of the utmost good faith.
Before us the Litsion Pride was said to be a case on circumstances where the insurers had an intervening decision to make, rather than a claim to consider.
The Court of Appeal in the Good Luck (1990) 1 QB 818 summarised the reasoning of Hobhouse J. at first instance and the decision of Hirst J. in the Litsion Pride. But May LJ delivering the judgment of the court was, as it seems to us, at pains to express no opinion upon whether there was a continuing duty of disclosure: see pp. 886-888.
Rogers J. in the Commercial Court of New South Wales felt no such reticence in NSW Medical Defence Union Ltd v. Transport Industries Insurance Co Ltd (1985) 4 NSWLR 107. We quote the first paragraph of his judgment:
The plaintiff seeks to strike out pars 15 to 16 inclusive of the first defendant's amended defence. In essence, by those paragraphs, the first defendant, an insurer, seeks to avoid liability under a policy of insurance on the basis that, during the currency of the policy the insured failed to comply with its obligation to act in good faith by failing to disclose certain material facts. It is claimed by the insurer that the disclosure of the facts was required by it in order to enable it to exercise two alternatives which were available to it. First, under condition D(v), the insurer had the opportunity of giving thirty days notice to terminate the policy. Secondly, it had the opportunity throughout of obtaining facultative reinsurance. It is said that the disclosures, if made, would have borne materially on a decision whether or not either or both of these opportunities should be availed of.
The judge rejected those arguments. He observed that the ability to cancel was thought to be quite irrelevant by Lord Buckmaster in the Niger case; and that the Litsion Pride was concerned with an express obligation in the policy to supply information if trading in an excluded zone.
We now turn to the Niger case, first in the Court of Appeal before Bankes, Warrington and Atkin LJJ. (1921) 7 Ll.L. 239. We must quote a lengthy passage from the judgment of Bankes LJ (at p.245):
The evidence shows that this business of covering these goods has been carried on by some, at any rate, of these Underwriters for very many years, and that until comparatively recently the practice was to enter into a fresh cover every year, and, of course, as long as that was the practice every year, the assured came under the obligation, before he entered into a fresh contract, to make a disclosure of any material facts which had come into existence, or which were in existence, and which were material to be known to the Underwriters. But there came a time when, I suppose for convenience, the parties altered the character of the contract, and altered it probably to an extent that they did not appreciate. What they did was, instead of having a fresh cover every year, and a fresh contract every year, they provided that the existing contract should go on until terminated by three months' notice; and that, in my opinion, established a condition of things under which this obligation to make a disclosure ceased, because there was a concluded contract, and a contract which remained and continued a concluded contract until it was in fact put an end to; and if the obligation on the assured is only to disclose matters which have come into existence and are material to be known before the contract is concluded, then the doctrine has no application to this case. But Mr Leslie Scott contended, first of all, that this was an exceptional case, and although he could not quote any authority for his proposition, he suggested that the contract of insurance being uberrimae fidei, this Court ought to extend (at least, so I understood him) the doctrine so as to meet a case of this kind, in order that the Underwriters should have the opportunity of giving the three months' notice when in fact the character or extent of the risk had altered. We asked him to formulate what the effect of introducing such a doctrine would be, and I think he must have felt himself in a difficulty in doing that, but ultimately I understood him to say that, if there was non-disclosure and an alteration of risk while the contract was a continuing contract, the Underwriter would have the right to exercise the option retrospectively when he became aware of the facts, as from the time when the disclosure ought to have been made, or alternatively, the contract should be treated as automatically concluded at the expiration of three months from that time. Well, I think that the statement of the consequences, which Mr Leslie Scott desires, indicate that this is not a case in which the doctrine can or ought to be applied. It may be that the Underwriters did not appreciate the difference in their position which they were making by the alteration in the form of the contract, and all I can say is that, if people enter into contracts of insurance for long periods, it would be a wise precaution to insert some provision requiring notice to be given them if the nature of the risk does alter or vary appreciably.
It seems to us clear that Bankes LJ was rejecting the submission that a continuing duty of disclosure existed by reason of the right to cancel. He may also have been saying, as Mr Rokison submits, that the existence of such a duty would on the facts have been of no avail to the insurers in that particular case. But that does not detract from his view that there was no continuing duty.
In our judgment that must also have been the view of the House of Lords in the Niger case (1922) 13 Ll.L. 75. In particular Lord Atkinson said (at p.79)
It would appear to me that in some of the arguments addressed to your Lordships on behalf of the underwriters, the fact has not been kept in mind that the cover is by the terms of the slip I have read a continuous cover, not limited in duration, save by the fact that it may be terminated by three months' notice. I for myself beg to say that I can see no reason why the principle laid down in the cases I have cited as to the disclosure by the assured of material facts between the signing of the cover and the issue of the policy should not apply to the continuous cover created in this case.
Lord Sumner, in connection with an argument on this or another point of non-disclosure, said (at p.82):
This would turn what is an indispensable shield for the Underwriter into an engine of oppression against the insured.
We would echo that sentiment. Whilst there are no doubt cases where a defence of non-disclosure is fully justified, there are also in our experience some where it is not. We should hesitate to enlarge the scope for oppression by establishing a duty to disclose throughout the period of a contract of insurance, merely because it contains (as is by no means uncommon) a right of cancellation for the insurer.
It remains to consider two cases on what are called fidelity bonds or guarantees. It seems that these are given to an employer as a guarantee of the fidelity of an employee; and that non-disclosure of dishonesty of the servant after the contract is made does have an effect on the contract of suretyship. In Phillips v Foxall (1872) LR 8 QB 666 at p.674 there is this passage in the majority judgment:
... it seems to us equally reasonable to suppose that it never could have entered into the contemplation of the parties that, after the servant's dishonesty in the service had been discovered, the guarantee should continue to apply to his future conduct, when the master chose for his own purposes to continue the servant in his employ without the knowledge or assent of the surety. If the obligation of the surety is continuing, we think the obligation of the creditor is equally so, and that the representation and understanding on which the contract was originally founded continue to apply to it during its continuance and until its termination.
If the guarantee at its inception was founded, as suggested, by Lord Eldon in Smith v. Bank of Scotland, on the trustworthiness of the servant, so far as that was known to both parties, as soon as his dishonesty is discovered and becomes known to the master, the whole foundation for the continuance of the contract as regards the surety fails.
That doctrine is evidently based on an interpretation of the contract, and on the law of suretyship, rather than on a duty of disclosure imposed from outside by the law as in the case of a contract of insurance. As Mr Phillips said, it arises under an implied term, and not from a duty of the utmost good faith. It was considered in the American case of Sumitomo Bank of California v. Iwasaki (1968) 447 Pac R (2nd) 956 at p.958, where Tobriner AJ said:
We shall explain why we adopt the Restatement rule. That rule provides that each time the creditor accepts the continuing offer of a surety on a continuing guaranty by extending further credit to the principal debtor, the creditor owes a duty to the surety to disclose facts known by the creditor if the creditor has reason to believe that those facts materially increase the risk beyond that which the surety intended to assume and that those facts are unknown to the surety. (Rest., Security 124. subd.(1), com. c. pp. 327-328,330.)
In our judgment that doctrine does not apply to insurance contracts in general, or to fidelity insurance in particular, although the insurer may have some other remedy if the insured knowingly maintains in his employment a dishonest servant.
We would answer this question by saying that there was no continuing duty of disclosure during the currency of any year of insurance by reason of the right to cancel. If and in so far as a contrary view was expressed in the Litsion Pride, we cannot agree.
Issue L - the Limits
This last issue is particularly difficult, largely owing to the obscurity of the contract wording. Despite the assistance of counsel we have found difficulty understanding the questions, let alone deciding them.
The question ordered by Waller J. was not that argued by Counsel or answered by Potter J. He posed three questions, as follows:
(1) Do the policy limits apply separately to each company within the Group, i.e. as a limit per insured company, or is there a single limit applicable to all companies within the group?
(2) Do the limits apply separately and non-cumulatively to each policy year, or does the aggregate limit of liability apply regardless of the number of years that the policy continued in force?
(3) Does the limit apply without aggregation to "any one loss" or is there an aggregate limit of £1m on all claims in respect of which the same employee is concerned or implicated?
The limits referred to are those which are to be found on what we call the front of the policies, as follows:
Insuring Agreement I | Employee Dishonesty Coverage - Form A | £1,000,000* |
Insuring Agreement II | Loss Inside the Premises Coverage | £1,000,000* |
Insuring Agreement III | Loss Outside the Premises Coverage | £1,000,000* |
Insuring Agreement IV | Money Orders and Counterfeit Paper Currency Coverage | £1,000,000* |
Insuring Agreement V | Depositors Forgery Coverage | £1,000,000* |
Added by Endorsements: | ||
Insuring Agreement | ||
Agreement VI | Computer & Funds Transfer Fraud | £1,000,000* |
Deductible: | Agreements I, IV, V and VI £20,000 each and every loss | *any one loss |
Insuring Agreements II and III £10,000 each and every loss |
Question L (1) - Separate limits for each company?
Despite emphatic protests by Mr Rokison whenever the topic was mentioned, once it had been decided under issue F that each company was separately insured the answer to this question must be that in general there was a separate limit for each company. We asked Mr Rokison whether there would be two limits if employee A caused loss to company X and employee B caused loss to company Y; his answer was that there would be two limits, each of £1 million at the primary layer.
The problem arises in the special case of loss caused by the same employee to two companies. That is specifically dealt with in section 11 -
The Company's total liability (a) under Insuring Agreement 1 for all loss caused by any Employee or in which such Employee is concerned or implicated or (b) under Insuring Agreement V for all loss by forgery or alteration or in which such person is concerned or implicated ... is limited to the applicable amount of insurance specified in the Table of Limits of Liability or endorsement amendatory thereto.The liability of the Company for loss sustained by any or all of the Insured shall not exceed the amount for which the Company would be liable had all such loss been sustained by any one of the Insured.
Question L(2) - Separate limits for each year?
We have no difficulty in concluding, as the judge did, that there were separate limits in each year for which the policy is renewed and a premium paid. A clause in section 11 of the policy provided:
Regardless of the number of years this Policy shall continue in force and the number of premiums which shall be payable or paid, the limit of the Company's liability as specified in the Table of Limits of Liability shall not be cumulative from year to year or period to period.
There was some discussion as to whether the clause was dealing with a possible claim to carry forward an unused limit or part of a limit from year 1 to year 2. That cannot have been contemplated, and one wonders whether the clause was designed or needed to prohibit it.
However, the question remains whether the limit applies to all loss of the relevant insured in a particular policy year, or in some other way.
It is common ground, and stated both in section 1 of the policy and endorsement 3 (which replaces it) that the dishonest and fraudulent acts referred to in Insuring Agreement 1 must be Committed "during the policy period". The question then is whether
(a) the limit applies to all loss which flows from the conduct of a particular employee, even if he commits further dishonest and fraudulent acts in a later year which cause further loss, or
(b) the limit applies to all loss caused by dishonest and fraudulent acts of a particular employee in the policy year in question, the loss being sustained or discovered in the policy period or the discovery period.
We can see no ground for the wide interpretation under (a), which in effect means that there is no new cover in respect of the employee in question although a premium is paid to renew the policy for a further year. Mr Rokison submits that the limit is expressed to be for "any one loss", and that dishonest conduct of one employee is one loss. In our judgment if the Insurers wished to achieve that result it was for them to say so with at least a minimal degree of clarity. The provision that the limit shall not be cumulative from year to year can as well be read as saying that loss in subsequent years shall be subject to the one limit as that further dishonest or fraudulent acts shall be.
There is also what has been called the straddling provision:
LIMIT OF LIABILITY UNDER THIS POLICY AND PRIOR INSURANCE
With respect to loss caused by any person (whether one of the Employees or not) or in which such person is concerned or implicated or which is chargeable to any Employee as provided in Section 4 and which occurs partly during the Policy Period and partly during the period of other bonds or policies issued by the Company to the Insured or to any predecessor in interest of the insured and terminated or cancelled or allowed to expire and in which the period for discovery has not expired at the time any such loss thereunder is discovered, the total liability of the Company under this Policy and under such other bonds or policies shall not exceed, in the aggregate, the amount carried under the applicable Insuring Agreement of this Policy on such loss or the amount available to the Insured under such other bonds or policies, as limited by the terms and conditions thereof, for any such loss, if the latter amount be the larger.
That, as it seems to us, covers loss suffered partly during the period of one policy and partly in the period of another. It does not touch upon the present problem.
Mr. Rokison also relied on the provisions as to a deductible in endorsement 4:
All loss caused by acts committed by any person or in which such person is concerned or implicated and/or arising from any one occurrence (as set forth in Section II of the policy) will be considered a single loss for the purpose of this endorsement. If a loss is covered in part under this
policy and in part under a prior similar policy or bond superseded by this policy, the Deductible Amounts(s) applicable to such loss under this policy will be reduced by the amount of any deductible(s) actually applied to such loss under such other policy or bond.
There is perhaps a slightly stronger argument that all loss in that clause includes loss from fraudulent or dishonest acts in a subsequent year. But it is only marginal, and not in our judgment sufficient to carry the day in relation to limits.
We would uphold the judge's conclusion that the limits apply separately and non-cumulatively to each policy year in the sense that we have indicated.
Question L(3) - limit for each loss or each employee?
Within any policy year, is the limit to apply to all fraudulent or dishonest acts of one employee, or to each loss identified in some other way? This arises on the Claimants' cross-appeal.
The answer is in our judgment plain. Section II says that the limit is to apply to all loss caused by any employee or in which such employee is concerned or implicated. But that is subject to section 12 in respect of loss straddling two policy periods.
Conclusion
The appeal and cross-appeal should be dismissed. So should the Insurers' application for leave to appeal on certain aspects of the judge's rulings as to the admissibility of evidence. No argument was addressed to us in support of that application.
There remains a cross-appeal of the claimants, by leave of the judge, against his order for costs. This order was that the costs be reserved. He was apparently persuaded to take that course on the ground that it did not yet appear how relevant the preliminary issues would be to the ultimate result. We are afraid that we do not regard that as a good reason. The Insurers did not have to rely on the points which were raised as preliminary issues if they did not want to, instead of which the Insurers defended them (for the most part) here and below. As the price of failure, the costs below on the argument of preliminary issues should be paid by the Insurers in any event.
We would not order that the costs should be taxed and paid forthwith. The parties should proceed to trial.
ORDER: APPEAL DISMISSED. CROSS-APPEAL, SAVE IN RELATION TO THE COSTS, WILL BE SET ASIDE. COSTS BELOW TO BE PAID BY THE INSURERS IN ANY EVENT. THE APPLICATION FOR LEAVE TO APPEAL ON CERTAIN ASPECTS OF THE JUDGE'S RULINGS AS TO THE ADMISSIBILITY OF EVIDENCE DISMISSED. PARTIES SHOULD PROCEED TO TRIAL.