England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		17/06/2011

Mr Justice Christopher Clarke:

1. This is in substance a claim by The Travelers Companies Incorporated ("Travelers") for US $ 20 million, being the limit of indemnity available under two policies of primary and excess professional indemnity insurance ("the contracts of insurance") subscribed by the Claimants (collectively the "Insurers") in respect of claims made in the period 16^th May 2003 to 15^th May 2004. Beazley Underwriting Ltd ("Beazley") subscribed to the primary layer of US $ 10 million in excess of Travelers' US $ 10 million. Liberty Mutual Insurance Europe Ltd ("Liberty Mutual") subscribed to the second excess layer of US $ 10 million. The cover in respect of which the claim is brought relates to a Deed of Indemnity dated 16^th May 1997 between Travelers, then named The St Paul Companies Inc ("St Paul"), Aon Corporation and a number of "Group Companies".

Overview

2. The subject matter of the contracts of insurance was liabilities which arose under the Deed of Indemnity ("the Deed") relating to Travelers' sale of the Minet Group of insurance broking companies to Aon in May 1997. By clause 2.1 of the Deed Travelers agreed to indemnify Aon Corporation, Minet, Minet Holdings Guernsey Ltd and Minet Holdings Inc and their respective subsidiaries and subsidiary undertakings against any loss, liability, claim or cost arising out of any event or matter occurring on or before the date of completion of the sale of Minet to Aon Corporation, which was 16^th May 1997 ("Completion"), relating to the business of or conduct of business by any Group Company (i.e. Minet Guernsey and Minet Inc and their subsidiaries and subsidiary undertakings) to the extent that the same was not specifically provided for in the March Accounts^[1] (save to the extent that the amount provided for had actually been used against the matters provided for).
3. An "Indemnified Claim" was defined as any "loss, liability claim or cost referred to in clause 2 other than an Indemnity Exclusion". Clause 4.14 of the Deed provided that where there was a continuing series of related events, occurrences or matters which amounted to or would amount to an Indemnified Claim then such events occurrences or matters occurring during the period of 12 months following Completion would be deemed to have arisen or occurred prior to Completion.
4. The contracts of insurance were intended to respond to claims made between the 6^th and 7^th anniversaries of the Deed. They were the last in a series of 3 such contracts taken out by Travelers in respect of its potential liabilities under the Deed^[2]. Travelers paid Insurers a total premium of US $ 1,755,000 for the US $ 20 million excess of US $ 10 million cover provided by the contracts of insurance.
5. In Standard Life Assurance v Oak Dedicated and others and Standard Life Assurance v Aon [2008] Lloyd's Rep IR 552 ("Standard Life v Oak") Tomlinson J, as he then was, held that the policy excess definition in Standard Life's professional indemnity insurance placed by Aon Ltd^[3] (hereinafter "Aon") in 1998 ("the 1998-2001 Policy"), which applied to each and every "claim and/or claimant," applied separately to each claimant making a claim against Standard Life so as to preclude aggregation of separate claims arising from a common cause. It thus prevented Standard Life from making any recovery at all under its insurance in respect of 97,000 small claims in relation to mortgage endowment policies which together totalled in excess of £100 million. He held that Aon was liable in negligence to Standard Life because it was well aware of Standard Life's requirement for insurance cover in respect of an accumulation of mass consumer or regulator-driven claims and had procured unsuitable cover whilst reassuring Standard Life as to the suitability of the cover obtained.
6. Until 1994 Standard Life had never had professional indemnity ("PI") insurance, preferring to self-insure against its own errors and omissions. In that year it was persuaded by a specialist financial institutions insurance broker called SRS to take out such insurance in order to meet the risk of an accumulation of large numbers of small consumer or regulator-driven claims. The policy excess in Standard Life's 1994/1995 policy applied "per claim" and 'claim' was defined in terms which permitted aggregation of claims arising from a common cause or source. But, when the insurance was renewed for 1995/6, the lead underwriter of Lloyd's Syndicate 702 amended the excess provision so as to read "claim and/or claimant". The significance of this was not appreciated by the SRS broker, Mr de Zulueta, who informed Standard Life that SRS had successfully resisted underwriters' attempts to try to restrict coverage and that the only change made was clarificatory.
7. SRS was acquired by Minet in September 1995, although it continued to operate under the SRS name as a separate division. Mr Castle of SRS/Minet assumed principal day to day responsibility for the Standard Life account, both as account executive reporting to Standard Life and as broker to the lead underwriters, with Mr de Zulueta retaining a strategic role. Mr Castle placed Standard Life's 1996/1997 Policy using the previous year's slip as a quote sheet. He too failed to appreciate the significance of the "and/or claimant" amendment, even when an identical manuscript amendment was made to the 1996/1997 policy wording which he had drafted and submitted for agreement to the new lead underwriter, Mr Kerrison of The Independent, in about November 1996. On various occasions in 1995 and 1996 SRS/Minet continued to reassure Standard Life that its PI cover was suitable to insure it against a large accumulation of individually small mass consumer or regulator-driven claims.
8. Mr Castle renewed Standard Life's PI cover in 1997, and again in 1998, by which time Minet had been sold to Aon Inc and he, along with Mr de Zulueta, had become an Aon employee. On each occasion the policy excess continued to be defined as applicable to each and every "claim and/or claimant".^[4]
9. On 30 April 2001, within the period of the 1998-2001 Policy, Standard Life notified its PI insurers of circumstances which might give rise to claims against it in respect of endowment mortgages. It was then met with the contention that the policy excess applied separately to each of 97,000 mortgage endowment claimants.
10. Standard Life claimed against its insurers and Aon. That led to the judgment in Standard Life v Oak ("the judgment"). Aon claimed over against Travelers under the Deed, on the basis that the "and/or claimant" wording had been inserted by the lead underwriter in 1995 at a time when the brokers within SRS were well aware of Standard Life's need for catastrophe cover for a large number of small claims. The same wording continued to be used by the same broking personnel on renewal in 1996, 1997 and 1998. Aon contended that the negligence in 1998 fell within Clause 4.14 of the Deed. Travelers settled Aon's claim under the Deed in the amount of US $ 32.5 million and sought an indemnity of the limit of US $ 20 million excess of its US $ 10 million retention under the contracts of insurance subscribed by Insurers.
11. On 26^th November 2010 Insurers served Amended Particulars of Claim. These abandoned a number of defences originally pleaded. The issues that remain for determination are these:

i) was Travelers liable to Aon under the Deed?

ii) if so, does Travelers' claim fall within the scope of the contracts of insurance?

The contentions in outline

Issue (i)

Insurers

12. As to issue (i), Insurers contend that Travelers was not liable to Aon under the Deed because:

a) the negligence was that of Aon and not Minet and the claim was therefore excluded by one of the Indemnity Exclusions, which excluded any obligations of any subsidiary or subsidiary undertaking of Aon Inc at the date of the Deed (other than a Minet company) arising out of its own negligent act, breach of duty, error or omission; and

b) the indemnity extension provision at Clause 4.14 is inapplicable where Aon itself was negligent and could have been held liable regardless of what had taken place in earlier years.

13. In relation to issue (i) Insurers also contend that Aon's negligence in placing the 1998-2001 Policy occurred more than 12 months after completion of the sale of Minet to Aon (i.e. after 16^th May 1998) and thus fell outside Clause 4.14 of the Deed. Although according to its terms the 1998-2001 Policy incepted on 15^th May 1998 (within 12 months of Completion), Insurers contend that Standard Life was uninsured and no contract of insurance was in place until a formal signing slip was scratched and stamped on or after 11^th June 1998 (more than 12 months after Completion), or at any rate until after 16^th May 1998, because, as they contend, until that time underwriters' scratches on the slips relating to the insurance were stated to be contingent upon the fulfilment of "subjects", namely reinsurance, the provision of satisfactory proposal forms and a Y2K questionnaire. Insurers submit that there was, therefore, no operative negligence by Aon, until 11^th June 1998.

Travelers

14. Travelers contends that on a balance of probabilities it was liable to Aon under the Deed on the basis that the negligence of Mr Castle, then of Aon, in placing the 1998-2001 Policy was part of a continuing series of related events, occurrences or matters which commenced prior to Completion, and that Clause 4.14 of the Deed applies.
15. As to the date of Aon's negligence, Travelers contends that Standard Life's cover under the 1998-2001 policy incepted on 15^th May 1998 and any negligence of Aon in considering the cover required by Standard Life and seeking to obtain that cover took place in the period from January to mid May 1998. Travelers further contends that, even if, as here, the underwriter's scratch on a slip is accompanied by a routine subjectivity, there is still a contract. Lastly it contends that all the original placing slips had been unconditionally scratched by the relevant underwriters by 16^th May 1998 and, even if one of them – the Independent – was not bound for its 30% line until June 1998, that is no bar to recovery because Travelers' settlement with Aon can be covered by the contracts of insurance other than that of The Independent.

Issue (ii)

Insurers

16. In relation to issue (ii) Insurers contend that, even if Travelers was liable to Aon under Clause 4.14 of the Deed, there is no direct correlation between the Deed and the contracts of insurance, and they are not liable to indemnify Travelers under the contracts of insurance which provide cover only in respect of Wrongful Acts arising out of and in the course of the "Insured"s' activities, the Insured being the Minet Group and any company forming part of it.

Travelers

17. Travelers submits that the evidence of Mr Calvin Branton concerning the genesis of the policy wording of the contracts of insurance shows that they were plainly intended to mirror the liabilities under the Deed. An amendment to insert the last paragraph of Clause 2.1 of the insurance- "A series of events, occurrences or matters occurring during the 12 months following the Date of Sale related to any Wrongful Act occurring prior to the Date of Sale shall be deemed to have arisen or occurred prior to the Date of Sale"- was made specifically in order to reflect Clause 4.14 of the Deed. Cover in respect of liabilities under the Deed was the only purpose of the insurance. By the time the contracts of insurance were placed in May 2003, 6 years had elapsed since the sale of Minet so that claims in relation to the vast majority of Clause 2 indemnities^[5] would be likely to be time-barred, but claims could still be made under Clause 4.14. Accordingly, the contracts of insurance fall to be construed with reference to and consistently with the Deed. Travelers is defined as an Insured in the Contracts "in respect of any claim arising out of a Wrongful Act of any of the Minet Companies and/or liability it may incur under the Deed of Indemnity".
18. In order to address the issues in dispute it is necessary to go some way back into the history, which is complicated but not greatly in dispute^[6].

The Players

Travelers

19. Travelers is a US insurance company. In 1997 it was called St Paul. Until 1997, when it was sold to Aon Corporation, the Minet Group of insurance broking companies was owned by St Paul.

Standard Life

20. Standard Life Assurance Co ("Standard Life") is a well-known leading long term savings and investments company, which from 1925 to 2006 was a mutual assurance company. Its core business was (and is) the provision of life assurance, annuities and pensions from which the bulk of its income derived, and which represented the main potential source of third party claims. Throughout the 1970s, 1980s, and 1990s Standard Life sold endowment mortgage policies to prospective mortgage borrowers in respect of which it subsequently incurred substantial liabilities as a result of what was determined by the Financial Services Authority to be the mis-selling of such policies. Standard Life also provided investment and some banking services and managed several large pension funds. It also provided health insurance policies.

Special Risk Services

21. Special Risk Services Ltd ("SRS") is a Lloyd's insurance broker which specialised in insurance for financial institutions. Its founding partners included Jeremy Adams and Francis de Zulueta ("Mr de Zulueta").

1992/1994

22. In the autumn of 1992 SRS started to seek to persuade Standard Life (which it had been targeting since 1989) to use its services to purchase PI insurance to cover its exposure to civil claims such as those which could be brought under section 62 of the Financial Services Act. It offered the services of its subsidiary company, Professional Liability Surveys Ltd ("PLS") to undertake a risk survey. This attempt was initially unsuccessful.
23. In early 1994 Standard Life initiated a tender process in which 8 brokers were invited to tender for broking services. Standard Life provided each of the candidates with a Broker Information Pack ("the Broker Pack"). The Broker Pack identified Standard Life's objectives as including "improving its understanding of its own risks". The Broker Pack also set out the specific issues that each broker had to address in a conceptual report which included, in section 4: "what in your opinion are the major catastrophic insurable risks likely to be faced by SLAC and what can be done to manage those risks?"
24. SRS's Conceptual Report for Standard Life dated 31 March 1994 identified both the potential for claims to arise in relation to 'Regulator' losses and the potential for such claims to accumulate. In particular:

i) The Report highlighted the SIB report on Pension Transfers and Opt-Outs ("the SIB Report") which was described as having led to: "a shock wave through the insurance market for anyone concerned with Professional Indemnity insurance for LAUTRO, FIMBRA and/or IMRO members".

ii) One of the two "most pertinent questions" in connection with PI policies was said to be: "what constitutes one claim for the purpose of the policy (both deductible and limit)?"

iii) Specific reference was also made to the possibility that problems might arise in years to come in relation to endowment policies.

iv) The Report commented on "what constitutes catastrophic risk from the point of view of SLAC" as follows:

"From the professional indemnity aspect, the accumulation risk of pension transfer/opt-outs provides one of the classic examples where so-called "Regulator" losses are going to accumulate which will have a significant effect on the balance sheet of many Life Companies."

25. SRS was successful in the tender process, which included an oral presentation by Messrs de Zulueta, Adams and Kelvin Curran. So it was that on 13^th April 1994 Standard Life appointed SRS as its broker for PI insurance.

1994/5

26. SRS then obtained PI cover for 1994/5 for 12 months incepting on 15^th May 1994. The cover was placed in the PI, not the financial institutions, market, using a wording (known as "FX1" or "Sentry") which SRS had developed for financial institutions in conjunction with Reynolds Porter Chamberlain ("RPC"). The cover was in three layers:

i) £ 5 million in excess of £ 2.5 million;

ii) £ 20 million in excess of £ 5 million; and

iii) £ 25 million in excess of £ 25 million.

One of the purposes of this insurance was to meet the risk of an accumulation of large numbers of small consumer or regulator-generated claims such as those resulting from the SIB Report.

27. The members of the SRS team involved on the Standard Life Account in 1994 were Messrs de Zulueta, Adams, Colin West, Kelvin Curran (responsible for the development of UK Financial Institutions business) and Kevin Bayes (day to day administration).
28. The slip for the primary layer for the 1994/5 insurance described the £ 2.5 million excess as applying to each and every claim, and the slips for the two excess layers said the same. No final policy wording was ever issued because of a hold up in obtaining a copy of Standard Life's handling procedures. The draft wording which was shown to the lead underwriter, Mr Andreas Loucaides, provided cover in respect of legal liability and direct financial loss. The wording included the following provisions:

"EXCESS

In respect of each and every Claim and/or Loss the amount as specified in item 4(ii) of the Schedule^[7]…shall be borne by the Assured at their own risk …, and Underwriters shall only be liable to indemnify the Assured in excess of such amount."

"DEFINITIONS

…

3. "Claim" shall mean each Claim or series of Claims (whether by one or more than one Claimant) arising from or in connection with or attributable to any one act, error, omission, or originating cause or source or the dishonesty of any one person or group of persons acting together and any such series of Claims shall be deemed to be one Claim for all purposes under this Policy."

Accordingly Standard Life would have been able to aggregate claims to make up the US $ 2.5 million excess which arose from or in connection with any of the matters specified in the clause.

1995/6

29. SRS renewed the insurance for 1995/6. No changes were made to the structure of the insurance, which was placed in 3 layers with the same limits and excess points as in the previous year.
30. Prior to placing the insurance SRS had repeated to Standard Life its original recommendation that Standard Life should commission PLS to undertake a risk survey. Standard Life agreed to do this. PLS' Risk Management Survey Final Report was published in March 1995 and was seen by SRS prior to the 1995 renewal. It emphasised the risk that a number of small claims could accumulate to catastrophe level, including claims arising from consumer or regulatory pressures. It referred to the mis-selling of endowment policies and regular premium pension policies. In light of the Report SRS specifically queried whether Standard Life had any potential liability arising from the mis-selling of endowments. Standard Life responded on 2^nd June 1995 that it had no notification to make in relation to endowments.
31. At a meeting with Standard Life, attended by Messrs Curran, Adams and Bayes, on 9^th February 1995, and in a letter from Mr Curran of 16^th February 1995 SRS advised Standard Life that there were pressures in the market to apply a "per claimant" deductible but "hopefully with the levels of self insurance currently retained this should not be a problem" (February meeting note) and "we are in a strong position in this regard" (letter of 16^th February). As a result of the illness of Julie Kerr, an employee in Standard Life's Corporate Risk department, there was a delay in preparing the proposal documentation for the 1995/6 insurance. On 12^th May 1995 SRS sought and obtained a 30 day extension to the 1994/5 insurance. As a result the 1995/6 insurance ran from 15^th June 1995 to 14^th May 1996.
32. The lead underwriter on the primary layer for the 1995/6 insurance was Mr Andreas Loucaides of Syndicate 702 (REB Syndicate). Syndicate 702 was a regular leader in this class of business. On 5^th June 1995, during the renewal process, Mr Loucaides scratched the reverse of a quotation sheet with the words "Definition of eec [each and every claim] after claim insert "claimant" 95/96" (Underlining is in original). At some stage he also amended page 11 of the draft policy wording to insert the words "and/or claimant" in the definition of 'Claim' so that it read: "Claim shall mean each and every Claim &/or claimant or series of Claims (whether by one or more than one Claimant) arising from" (Underlining added).
33. After quotations for the 1995/1996 insurance had been obtained, SRS confirmed the details to Standard Life in a fax from Mr de Zulueta dated 7^th June 1995. The fax advised inter alia that:

i) All terms and conditions were as expiring unless otherwise stated.

ii) Underwriters had tried to restrict the wording, but SRS had resisted. The only change was to "clarify definition 3 as below:

"3. 'Claim' shall mean each Claim and/or claimant or series of Claims (whether by one or more than one Claimant) arising from or in connection with or attributable to any one act, error, omission or originating cause or source or the dishonesty of any one person or group of persons acting together and any such series of Claims shall be deemed to be one Claim for all purposes under this Policy." [Bold represents the change]

This "clarified" definition of Claim appears to track the changes made to the definition that Mr Loucaides had made on page 11 of the draft policy wording.^[8]

iii) Prices remained competitive for the coverage, scope and state of the market generally "given the Regulator's activities".

34. On about 13^th June 1995, when noting Standard Life's firm order for renewal of the primary layer, Mr Loucaides scratched a revised quote sheet. He amended the description of the excess in manuscript in turquoise ink so as to add the words "and/or claimant" to the description of the excess in the slip so that it read "£2,500,000 each and every claim and/or claimant including costs and expenses".
35. This amendment produced an unusual combination. None of the professionals who gave evidence before Tomlinson J had come across it before. A "per claim" excess would, unless there was an extended definition of "claim", require each claim to exceed $ 2.5 m before there was cover. A "per claim" excess with the definition of "claim" in the policy, as set out in para 28 above, would enable Standard Life to group together a number of claims originating from the same cause. A "per claimant" excess would require that the individual claimant against Standard Life had a claim in excess of $ 2.5.m. What exactly "per claim and/or claimant" meant was to lead to much expensive debate. Tomlinson J concluded that it made the excess under the policy applicable separately to each and every individual claimant and prevented the aggregation of claims from different claimants arising from a common cause or source.
36. It appears that neither Mr de Zulueta, who broked the policy, nor anyone else at SRS appreciated that the amendment had, or might have, this effect. Thus, on 15^th June 1995, Kevin Bayes of SRS sent a fax to Standard Life which stated:

"I would like to take this opportunity to confirm the current limit of indemnity of £50,000,000 in the aggregate (plus one "around the clock" reinstatement) is paid when SLAC pays the first £2,500,000 each and every claim including costs and expenses. I hope this clarifies the position and if you need to discuss further please call."

37. In the slips for the first and second excess layers the description of the underlying excess was not amended. No policy wording was produced for the 1995/1996 insurance. As with the previous year this was due to a delay in finalising Standard Life's complaints handling procedure.
38. SRS knew that the ability to aggregate relatively small claims by different consumers arising from a common source was of particular importance so far as Standard Life was concerned. In failing to appreciate or advise Standard Life that Mr Loucaides' amendments would or might have the effect that they were subsequently held to have, (but, rather, informing them that the cover was as expiring save for a clarification) and allowing the policy to be agreed with this change and without its significance being addressed, SRS, as is common ground, failed to exercise the standard of care to be expected of any reasonably competent broker.

Minet acquires SRS

39. With effect from 4 September 1995 Minet Ltd acquired SRS, although it continued to operate as a separate division under the SRS name. Mr De Zulueta continued for a while to be responsible for broking the Standard Life account. Kelvin Curran and Kevin Bayes of SRS did not join Minet. Nigel Primmer took over the running of the account, so that those involved in the account were him, Jeremy Adams and Mr de Zulueta. Then in March 1996 John Castle ("Mr Castle"), previously of Minet, took over the role of day to day account handler from Mr Primmer and also acted as broker to the lead underwriter. Mr de Zulueta retained a strategic role in relation to the Account.

1996/7

40. In September 1995 SRS commissioned a legal review of the draft policy wording as part of its "client retention strategy" in order to demonstrate to Standard Life that SRS was giving them top level service. Nigel Primmer instructed Cameron Markby Hewitt ("CMH") to review the wording which had been seen and initialled by Mr Loucaides in August 1994 (which expressed the excess to apply in respect of each and every claim and/or loss). CMH made some suggestions about the draft wording but none of them related to the excess. They emphasised that one of the main market risks was the risk of industry wide regulatory action by SIB in connection with pension transfers and also other products including FSAVCs, endowments and home income plans. CMH were not sent any material which included the "and/or claimant" wording.
41. The potential risk to Standard Life of incurring costs as a consequence of regulatory action by SIB, IMRO and PIA was discussed with Standard Life at a meeting on 1^st February 1996. The excess was also discussed and it was agreed that SRS would as an alternative seek renewal quotations on the basis of an aggregate deductible of up to £10 million^[9] to enable Standard Life to move away from an "each and every claim/each and every claimant" deductible.
42. On 22^nd March 1996 Mr Castle, who had just taken over the account, wrote to Standard Life with a summary of the points from the wording review. He noted that:

"the definition of claim needs to be re-examined to ensure that all parties understand exactly what is considered a claim" and

"The review has confirmed that the (sic) are no serious omissions or problems with the wording."^[10]

43. On 26^th April 1996, Sun Alliance wrote to Mr de Zulueta of SRS to inform him that upon renewal they would not be participating on the primary and second excess layers and that their participation on the first excess layer would be reduced. In addition they wanted the policy excess to be "on an each and every claimant basis across the board" for them to continue participating in the programme. Mr de Zulueta annotated the letter with a note to Mr Castle commenting that:

"these people are a blasted nuisance. They are on our lineslip – please discuss with C.W [Colin West] as to how he wants to deal with this – perhaps take them off altogether – Tell SLAC".

44. Shortly prior to the renewal date Standard Life asked Mr Castle for advice on adding an additional £ 50 million excess layer, increasing the level of the self insured retention to £ 5 million and having excess layers up to £ 100 million. Having explored the options Mr Castle advised that they were unlikely to produce significant savings. Mr Castle advised Standard Life to note that "you currently have an each claim primary excess".
45. Standard Life decided to renew on terms as expiring i.e. with the same layers, limits and excesses. On 21^st May 1996, Mr Castle reported to Standard Life that he had obtained a 14 day extension of cover (the policy being due to expire on 14^th May) to enable the renewal information to be completed. Mr Castle also advised that owing to certain requirements, including some 15 additional exclusions, from the existing leader (Mr Loucaides) they had sought alternative lead markets. The new leader proposed was The Independent Insurance Co whose underwriter was Mr Terry Kerrison. Quotes had been obtained from Mr Kerrison who was prepared to offer the same terms as Syndicate 702 on the primary insurance.
46. The 1995/1996 primary slip which contained Mr Loucaides' amendment ("and/or claimant") in turquoise ink, was used by Mr Castle as the quote sheet when broking the 1996/1997 renewal to the lead underwriters. Subsequently, the primary layer signing slip was prepared by SRS and included the words "and/or claimant" typed into the excess provision. The signing slip was scratched by Mr Kerrison on 23^rd May 1996. The slip was broked to Mr Kerrison by Mr Castle.
47. The words "and/or claimant" were also added in manuscript to the slip for the first excess layer but it is not clear by whom. They were also added in the slip for the second excess layer by Mr James Weatherstone the lead underwriter for Syndicates 861 (MEB Syndicate) and 1209, which were on both slips.
48. The policy wording for the primary layer was reviewed and agreed in November 1996. The wording was discussed at two further meetings attended by Mr Castle, Standard Life and Mr Kerrison: see para 75 of the judgment. The finalised wording and schedule were signed and scratched by Mr Kerrison on or around 7^th November 1996. In doing so Mr Kerrison also added in manuscript the words "each and every claim and/or claimant" to the description of the policy Excess (viz £ 2,500,000) at section 4(ii) of the Schedule to the policy.
49. No one appears to have focused on or appreciated the possible significance of the phrase "and/or claimant", first introduced into the description of the excess on the primary layer slip by Mr Loucaides. Mr Castle does not recall attaching any significance to Mr Kerrison's amendment. Mr Kerrison considered his inclusion of these words to be uncontroversial as it merely reflected the term as set out in the slip. The change to the definition of 'Claim' in the policy wording that had been proposed by Mr Loucaides and set out in Mr de Zulueta's fax of 7^th June 1995 (see para 33 above), was not brought into the 1996/1997 policy wording; the definition remained the same as the draft 1994/1995 wording (see para 28 above).
50. In November 1996 SRS produced a Stewardship Report in respect of Standard Life's PI insurance for the period October 1995 to October 1996. The report stated that a wording review had been commissioned "with a view to representing the widest cover available to meet the needs" of Standard Life; to this end a number of changes had been made to the 1995/1996 wording but none of these was fundamental and the changes had improved the clarity of the wording.

The Minet Sale Agreement

51. In 1997 the Minet group was put up for sale by St Paul, which was very keen to sell it because it was loss making^[11]. The negotiations, which were conducted on St Paul's side by Bruce Backberg, St Paul's Vice President and Corporate Secretary, led to the Minet Sale Agreement of 11^th April 1997 by which Aon Corporation, one of the world's largest insurance brokers, purchased the Minet Group of companies for US $ 70 million. The Recital to the Agreement provided that "but for the willingness of the Seller to provide the Deed of Indemnity, the Buyer would not be prepared to purchase the Sold Shares" and that "the Seller has agreed to provide the Deed of Indemnity and the Buyer, in reliance inter alia on the Deed of Indemnity, has agreed to purchase the Sold Shares". The Sold Shares were the shares of Minet Guernsey Ltd ("Minet Guernsey") and Minet Holdings Inc. ("Minet New York"), respectively Guernsey and New York corporations.
52. Following the sale certain Minet employees who had previously been part of Minet's SRS Division became employees of Aon, including Mr de Zulueta and Mr Castle.

The Deed

53. The Deed was executed on 16^th May 1997 between St Paul (the "Seller"), Aon (the "Buyer") and a number of Group companies. Travelers draws attention to the fact that it was a bespoke deed intended, they submit, to afford Aon a wide measure of protection and a critical adjunct to the Sale Agreement.
54. The Deed provided, inter alia, as follows:

"1.1. In this Deed:

"Indemnified Claim" means any loss, liability, claim or cost referred to in clause 2 other than an Indemnity Exclusion.

"Indemnity Exclusions" means the matters as described on clause 2.3. and defined in cause 2.4.

2.1 The Seller (i.e. St Paul) undertakes to the Buyer (i.e. Aon Corporation)…and each Group Company (defined as, in effect, Minet Guernsey and Minet New York and their subsidiaries, which included Minet Ltd and SRS, Standard Life's brokers up to 1997) to indemnify the Buyer, each Buyer Group Company (defined as any subsidiary of Aon Corporation, which included Aon Limited, which broked the 1998-2001 cover in its then name Aon Group Ltd), and each Group Company and to keep the Buyer, each Buyer Group Company and each Group Company fully indemnified and reimbursed …against each loss, liability, claim or cost which the Buyer, and any Buyer Group Company or any Group Company may at any time suffer or incur anywhere in the world arising out of any event or matter occurring on or before Completion…relating to the business of or conduct of business of any Group Company to the extent that the same is not specifically provided for in the March Accounts (or is so provided for but and to the extent that such provision has actually been utilised against the matters provided for by payment, credit or otherwise), including without limitation, each loss, liability and cost incurred as a result of investigating, defending or settling an actual or potential claim alleging such liability, save that the indemnity set out in this clause 2.1 shall not apply to the Indemnity Exclusions.

2.2. Further but without prejudice to the generality of the above, the Seller undertakes to the Buyer… and to each Group Company to indemnify the Buyer, each Buyer Group Company and each Group Company and to keep the Buyer, each Buyer Group Company and each Group Company fully indemnified and reimbursed… against each loss, liability or cost which the Buyer, any Buyer Group Company or any Group Company, may at any time suffer or incur anywhere in the word arising out of any event or matter occurring on or before Completion…relating to the business of or conduct of business by any Group Company on or before Completion …whether attributable to or arising from or out of:

2.2.1 any alleged or actual negligent act, breach of duty or trust…whether express or implied, by any Group Company or any former subsidiary undertaking of any Group Company or of any director, officer or employee of any Group Company or former subsidiary undertaking of any Group Company;

….

to the extent that the same is not specifically provided for in the March Accounts (or is so provided for but and to the extent that such provision has actually been utilised against the matters provided for by payment, credit or otherwise), and save that the Indemnity set out in this clause 2.2.1 shall not apply to the Indemnity Exclusions

2.3. The parties agree that the indemnity provisions set out in sub-clause 2.1 and 2.2 above are always to be interpreted in the manner most favourable to the Buyer …

2.4. The "Indemnity Exclusions" means [sic]:

2.4.1 the obligations and liabilities set out in Clause 2.3 in relation to the specified items in 2.3.1 to 2.3.13…

2.4.2 any obligations and liabilities of any Buyer Group Company (other than a Group Company) arising out of its own negligent act breach of duty or trust, error or omission, breach of statute, criminal offence or misfeasance …".

4. GENERAL

….

4.14.

Notwithstanding the provisions of clause 2 providing for indemnification arising directly or indirectly out of any event or matter occurring on or before Completion the Seller agrees that in circumstances where there is a continuing series of related events, occurrences or matters which amount or would amount to an Indemnified Claim, then such events, occurrences or matters occurring during the period of twelve months following Completion will be deemed to have arisen or occurred prior to Completion…"

1997/8

55. The cover was again renewed by Mr Castle, who was assisted by Colin West. The structure of the insurance remained the same as in previous years. The amendments to the definition of the excess made by Mr Loucaides at the 1995/1996 renewal were carried forward without alteration so that the slip for and the schedule to the primary policy continued to be subject to a deductible of "£2,500,000 each and every claim and/or claimant including costs and expenses" (emphasis added). The policy for the primary layer of the 1997/1998 cover included the same wording in respect of 'Excess' and the definition of 'Claim' as set out above (paragraph 28) in the draft 1994/1995 wording.
56. On the slip for the second excess the words "and/or claimant" were added in manuscript to the description of the underlying excess by Ms Jane Bennett the underwriter for Syndicate 1212. No such change was made to the slip for the first excess layer, which described the underlying excess as "£ 2,500,000 each and every claim". But the first excess policy wording in effect incorporated by reference the "and/or claimant" wording since it provided that liability to pay under the first excess policy should not attach unless and until the underwriters of the underlying policy should have paid or have admitted liability or have been held liable to pay the full amount of their indemnity inclusive of costs and expenses.

1998-2001

57. After the Sale of Minet by Travelers in May 1997, Aon took over the placement of Standard Life's PI insurance, but the principal employees who had been responsible for the Standard Life Account at SRS/Minet immediately prior to the Sale, namely John Castle and Mr de Zulueta^[12], remained responsible. In December 1997 Minet Ltd ceased business. From January 1998 Aon took over Standard Life's account and in that year its PI insurance was renewed by Mr Castle who was now employed by Aon as Standard Life's Account Executive.
58. Renewal discussions began in January 1998. On 22^nd January 1998 there was a pre-renewal meeting involving Standard Life, Aon and The Independent. A discussion took place about the state of, and changes in, the market and possible changes to the structure of the programme, its limits and excess which could be achieved as a result. It was agreed that proposal forms should be used to update the renewal information and the minutes set out the various proposal forms (7 in number) which would be required. The Millennium issue was discussed and Mr Kerrison confirmed that he would require completion of a form, of which a draft was given to Mr McConnell of Standard Life.
59. On 6^th March 1998, Mr Castle attended a meeting in London with Standard Life and Mr Kerrison at which renewal terms were discussed further. Terms for renewal were to be provided with the following alternatives:

"A. As is.

B. Aggregate stop on self insured retention.

C. Increased limits to £100 million…

D. Wording improvements on Crime

E. 3 year deal."^[13]

Quotes for 1998 - 2001

60. On 23^rd April 1998 a typed quotation sheet bearing Mr Castle's reference (00768171.Doc/JC) was sent out to insurers. On 28^th April 1998, a further meeting took place in Edinburgh at which Mr Castle informed Standard Life that he had asked insurers to indicate terms^[14] in various higher layers up to £ 100 million all excess of £2.5 million; for a three year policy payable in annual instalments but with a single limit plus one reinstatement; and for an "aggregate stop on the excess of £2.5 million".
61. The minutes record that Mike McConnell of Standard Life was being asked to reduce the overall insurance spend. Mr Castle confirmed that notwithstanding outstanding renewal documents he would try to get terms to Mr McConnell by 7^th May. It is clear from the minutes that proposal forms had not yet been provided by Standard Life to Aon.
62. On 8^th May 1998, Mr Castle faxed to Standard Life a Renewal Report ("the Renewal Report") which set out the various quotations that had been obtained from Mr Kerrison that day for a 3 year policy (with either annual premiums or a pre-paid premium and with either an aggregate for a single year or one stretched over 3 years) or for a 1 year policy. These quotations were set out on the last page of the 23^rd April 1998 quotation sheet. Mr Kerrison's scratch of that date is "Subject to satisfactory proposal form R & A^[15] & Y2^[16] questionnaire". The quotes were all for cover in excess of £ 2.5 million. The Renewal Report included a quote for an annual aggregate cap in the amount of £7.5 million at a cost of 25% of the primary premium. By this means Standard Life could aggregate the excesses on individual claims and, once £ 7.5 million had been reached, could recover thereafter from the ground up.
63. In the summary on the first page of the Renewal Report, the deductible was described as "£2,500,000 each and every claim". However, in the final section of the Renewal Report, the 'Programme Coverage Summary', the excess was set out as "£2,500,000 each and every claim and/or claimant". In the final section the insurance is stated to be:

"SUBJECT TO: Satisfactorily completed signed and dated proposal forms and millennium questionnaire"

64. At 08:47 on 13^th May 1998, Mr Castle faxed through further quotations which were annotated on a copy of the second page of the Renewal Report. These were quotes for £ 25 million excess of £ 27.5 million and £ 50 million excess of £ 52.5 million.
65. Also on 13^th May 1998 Standard Life sent to Aon a proposal form for the Standard Life Bank signed and dated 14^th April 1998. No other proposal form had been provided to Aon by this time. On or by the same day Standard Life had decided on an increased excess of £ 27.5 million (although the excess was ultimately £ 25 million): see Mr McConnell (the Deputy Managing Director of Standard Life)'s note of that date relating to the renewal which states:

"We wish to move to higher levels of transferred risk….. To that end we have other quotes, the most attractive being cover from £27.5m to £102.5m at a premium of £225,000."

Next to this is a hand-written note which states:

"13/5/98 *Agreed with J.S [Jim Stretton]."

The memo continues:

"We are also quoted for a three year deal. This seems attractive not only because the market is soft but it also precludes the possibility of wording linking the year 2000 implications to the exclusions, this option is quoted at £198,333 per annum. The amount of reduction in premium shows the levels where the market sees the greater risk i.e. at the level we would be self insuring. However this is the preferred option."

66. It is not clear from the documents exactly when Standard Life decided upon a 3 year policy. But, whenever it was, Mr Castle received instructions from Standard Life to renew the cover on expiring terms but as a 3 year deal and in a single layer with a limit of £ 75 million excess £ 25 million.^[17] The date and time of these instructions is also unknown but it cannot have been before 13^th May 1998 because it was only on that date that Mr Stretton gave his agreement to the higher limits and the higher excess: see the previous paragraph. Standard Life did not take up the quotation for the aggregate cap as they did not think it was cost effective.

The placement of the contracts of Insurance

The quotation sheet

67. The first page of the quotation sheet dated 23^rd April 1998 referred to in para 60, in the form in which it appears in the core bundle^[18], is not the original page of 23^rd April 1998 (it contains dates for the proposal forms three of which are after 23^rd April 1998) but the front page of a draft of the later formal placing slip. The second page is missing. The indemnity specified on the first page is £ 25 m > £ 25 m. The last page has in manuscript quotations with four different limits (£ 25m, £ 25 > 25m, £ 25 > 50m, £ 25 > 75m, £ 50m and £ 50m > £ 50m) and periods (12 months, 36 months with annual aggregates, 36 months with an aggregate for the period), with payment by annual instalments or up front in the case of the 36 months cover. These were signed by Mr Kerrison for The Independent "Subject to satisfactory proposal forms R & A & Y2K^[19] questionnaire" on 8^th May 1998. There are also two later scratches of two of the Aon line slip underwriters (Syndicate AST and SJB) dated 12^th May 1998.

The later slips

68. There are also two further slips ("the preliminary slips") in each of which the limit of indemnity is £ 75 million any one claim and in the aggregate (plus one reinstatement) > £ 25 million each and every claim and/or claimant for the period 15^th May 1998 to 14^th May 2001. On each slip the period is 3 years; the excess is £ 25 m; and the typed limit is £ 25 m, but the limit has been amended in manuscript by the underwriter to £ 75 m; the premium has similarly been amended in manuscript from £ 275,000 (which was the quote given for £ 25 m > £ 25 m in the quote sheet of 8^th May 1998) to £ 595,000 (which was the quote for £ 75 m > £ 27.5 m in the Renewal Report).
69. One of the preliminary slips (hereafter "the 25% slip") now contains the following scratches (there are no stamps):

i) "25% TBE sub R/I. Subject to Satisfactory ppsl forms & Y2K Questionnaire. Canadian Survey received recommendations to follow"

This was signed by Mr Kerrison for The Independent. It is undated but must have been put down before all the other scratches since it precedes all the others on the page and The Independent was the leader.

ii) AST 66.66% of Whole O.L.S. (Primary) – 8.333% of Excess L/S. {The 66.6% is written in above a crossed out 75%}.

This was a scratch for Syndicate AST 1207, one of the underwriters capable of constituting "the Leading Underwriter" (hereafter "a binding underwriter") on the Aon line slip. The Aon (primary) line slip authorised the Leading Underwriter (as defined) to accept and rate declarations for 3 year PI cover up to £ 50 million. For UK risks any two out of five specified underwriters would constitute the Leading Underwriter. The scratch was originally for 75% but was amended to 66.666%. The limit on the slip was £ 50 million. 75% of £ 75 million (£ 56.25 million) would exceed the limit. 66.666% would reach it.

"– 8.333% of Excess L/S" represents what had to come off the original 75% to bring the subscription within the primary line slip limits. There was a further excess line slip of £ 50 million < £ 50 million off which the underwriter appears to have contemplated that the £ 6.25 million would come.

iii) Sµ^[20]14.5.98 O/L/S Sub Prop & satisfactory Y2 questionnaire

This is Syndicate RCV 1007's scratch. It too was a binding underwriter on the Aon line slip

iv) OLS SJB 14.5.98 Sub as SVH.

This is a scratch for Syndicate SJB 1212, a binding

underwriter on the Aon line slip, sub as (i.e. with the same subject as) Spreckley Villiers Hunt (SVH), the underwriter for Syndicate RC 1007.

Scratches (ii) – (iv) are, therefore, the scratches of 3 of the 5 binding underwriters on the Aon line slip from Syndicates AST 1207, SJB 121 and RCV 1007.

v) Squiggle 18/5/98 sub all info.

This is the scratch of the FLD Syndicate 204. It, also, was a binding underwriter on the Aon line slip.

vi) A diamond shaped stamp for the Chiyoda Fire and Marine syndicate dated 29.5.98 with the words "1% Sub Satisfactory Y2K Questionnaire".

vii) Squiggle 2.6.98 Sub Everything.

This is the scratch of Mr Weatherstone, the underwriter for the MEB Syndicate 861, another binding underwriter on the Aon line slip.

It seems likely that the scratches in (v) – (vii) were obtained by Stephen Trickey who, according to the evidence of Mr Weatherstone in the Standard Life trial, broked the risk to MEB.

70. The second slip (hereafter "the 30% slip") now contains the following scratches:

a) The same scratch as in (i) above but with 25% crossed out and "30% to stand" substituted, and with "Sub R/I" crossed out and the words "As per L/S no override" added plus initials;

b) The same scratches as in (ii) (iii) and (iv) but without scratches (v), (vi) or (vii);

c) An additional scratch for the DJ Mann syndicate "9/6/98 4.5% T.S.^[21] subject satisfactory prop and Y2K".

71. It is apparent from the fact that each of the preliminary slips has a scratch or scratches which do not appear on the other and that the 30% slip has 25% crossed out and 30% substituted that both of the preliminary slips were used over the same period to enlist subscribers. Whilst it is not possible to be sure it seems likely:

i) that the 30% slip was the first document to be created (at which time scratch (i) was as in the 25% slip);

ii) that a copy of it was made when it had on it scratches (i) – (iv), but not the scratch for the DJ Mann syndicate;

iii) that that copy – the 25% slip - was then used by Mr Trickey to obtain scratches (v) – (vii); and then

iv) the DJ Mann scratch on the 30% slip was then obtained.

The sequence of events.

72. The sequence of events is, thus, partially clear.
73. On Wednesday 13^th or Thursday 14^th May 1998 Mr Kerrison of The Independent scratched for 25%, subject to reinsurance, satisfactory proposal forms and Y2K questionnaire. On 14^th May 1998 three of the binding underwriters scratched for 66.666%.
74. Saturday 16^th May 1998 was the cut off date for the operation of clause 4.14.
75. On Monday 18^th May 1998 the FLD204 scratch was put down "sub all info".
76. At 15:05 on Tuesday 19^th May 1998, John Castle sent a fax to Mike McConnell at Standard Life:

"I refer to our recent discussions and confirm that cover has been effected as per your instructions for a limit of £75 million each and every claim and/or claimant and in the aggregate including costs and expenses, excess of £25 million (self insured retention) each and every claim and/or claimant including costs and expenses. Cover is a stretched aggregate for a three year period from 15^th May 1998 and is subject to receipt of satisfactory proposal forms and supporting information including the millennium questionnaire…

I look forward to seeing you here on Friday morning to discuss the fee, the Canadian survey and to review the proposal information. Terry Kerrison would like you to join him for lunch if you have time."

The fact that this letter was written on 19^th May shows that Mr Castle did not consider that 15^th or 16^th May 1998 was a critical date by which it was necessary for him to have got the subjects lifted.

77. The majority of the proposal forms were provided by Standard Life to Aon on Thursday 22^nd May 1998 as appears from the minutes of a meeting of that date which record:

"MM [Mike McConnell] handed over completed proposal forms except for Ireland which is to follow. The millennium questionnaire has not been completed but details of millennium compliance were included in the information. T Kerrison to review and assess if acceptable."

78. These proposal forms were provided by Aon to Mr Kerrison of The Independent on or before Monday 26^th May 1998 as appears from Aon's letter to Standard Life of that date ("Your leading underwriter has a copy of these…"). At that time Mr Kerrison was considering whether he still required the Y2K questionnaire to be completed. After that came the Chiyoda scratch of 29^th May 1998, which added 1% ("Sub satisfactory Y2K questionnaire"). The scratch for MEB 861 ("Sub everything") followed on 2^nd June 1998, as a result of which all five of the binding underwriters had signed.
79. Under the line slip the Leading Underwriter for UK risks meant any two of five specified syndicates – RCV 1007; SJB 1212; AST 1207; MEB 861 and FLD 204. It appears, however, from the evidence of Mr Weatherstone, the class underwriter for MEB for 1998, at the Standard Life trial that there was a side agreement whereby the MEB syndicates (1209 and 861) would have to bind for their own line. They could, thus, as he accepted, cherry pick what risks to accept for themselves.
80. That may be a correct explanation, at any rate so far as MEB is concerned. There is, however, a further reason why more than one of the potential leading underwriters was asked to sign. General Condition (H) of the line slip provides:

"(H) It is agreed in the event that one or more of the Leading Underwriters do not participate on an individual declaration, those Leading Underwriters participating on such declaration shall increase their written lines proportionately to replace the non-participating Leading Underwriters; provided that:

i) ……

ii) with regard to Schedule B of Leading Underwriters^[22], in the event that Syndicate SJB 1212 and/or RCV 1007 do not participate on an individual declaration, the remaining Leading Underwriters shall only increase their written lines to the extent of a 10% participation in respect of each of Syndicates SJB 1212 and/or RCV 1007."

81. It would accordingly be desirable to obtain the scratch of the underwriters of all five specified syndicates, in order to avoid having to secure an increase of written lines.
82. Then there was the DJM scratch of 4.5 % on 9^th June 2008"subject satisfactory prop and Y2K". This added up to 101.5%, which later signed down to 100%.
83. At some stage Mr Kerrison for the Independent crossed out 25% and wrote "30% to stand. As per L/S no overrider" on the 30% slip.
84. It is not possible to be certain as to the sequence of events. Mr Dominic Kendrick QC for the insurers postulated the following sequence:

a) the 30% slip (i.e. the one which now has 25% crossed out and 30% to stand substituted) was the original document. Mr Castle obtained 25% from Mr Kerrison on 13^th or 14^th May 1998 and then secured the 3 line slip underwriters' scratches on 14^th May 1998 for 75%.

b) by Tuesday 19^th May 1998 Mr Castle had secured reinsurance. Believing that he had acceptance for 100% and reinsurance he wrote to Standard Life on 19^th May 1998 to say that cover had been effected

"subject to receipt of satisfactory proposal forms and supporting information including the millennium questionnaire".

Noticeably he does not refer to reinsurance.

c) at some stage a photocopy was made of the original which was given to Mr Trickey, a junior broker.

d) after 19^th May Mr Castle realised that he had not got 100% cover. The primary line slip has a maximum of £ 50 million and so could only take 66.666%.

e) So the 75% was amended to 66.666%^[23]. Mr Castle returned to Mr Kerrison who agreed to take 30% "to stand".

f) On this footing there may have been two trips to Mr Kerrison in the first of which the "Sub R/I" is erased and on the second of which 25% becomes "30% to stand".

85. Whilst that is a possible scenario (in which, it is suggested, the reinsurance subjectivity is satisfied on or about 18^th or 19^th May) it seems to me that the likely sequence is as follows:

a) the 30% slip was the original document. Mr Castle obtained 25% from Mr Kerrison on 13^th or 14^th May 1998.

b) probably on 14^th May (and certainly by Monday 18^th May) 1998 Mr Castle had realised that the primary Aon lineslip could not take 75%. 75% was crossed out and 66% substituted.

This is likely to have taken place on 14^th May either immediately after the AST underwriter wrote 75% or shortly thereafter as, or when, he realised that he could not bind the primary line slip for 75%. This is because (a) that is a coherent explanation which fits the known facts; (b) the AST underwriter's scratch only has one date; and (c) 2 binding underwriters in addition to him also scratched on that day as well. If the slip was scratched by the AST underwriter for 75% and the other two line slip underwriters scratched when the figure was 75% and at a later date the 75% was changed to 66.666%, there ought to be a version of the slip with the 75% uncrossed out. I would also expect to see on the slip with 66.666% some initialling or further written recognition of agreement to the post 14^th May change with a different date.

On 18^th May the underwriter for FLD applied his scratch to the 25% slip. He appears to have done so when the figure was 66.666%. If he had done so when it was 75% again I would expect to see some further written recognition of his agreement to any later change.

c) having secured AST's scratch as to 66.666% Mr Castle went to get the signatures of the underwriters for RCV 1007 and SJB 1212, the two syndicates which under the line slip had the ability to opt out of the cover and whose non participation would not merely simply result in a proportionate increase of the written lines of the remaining syndicates so as to accommodate the whole of what would have been the line of those two syndicates had they participated.

Consistently with that at 09:04 on 14^th May 1998 Mr Castle sent a fax to Mr Chris Brown of Spreckley in which he said:

"Chris, I refer to our conversation today and enclose a copy of the main slip with the original lead quotes" i.e. The Independent and AST

d) on 18^th May 1998 Mr Trickey went to FLD another binding underwriter and then to MEB on 2^nd June 1998. Meanwhile he had gone to Chiyoda on 29^th May 1998 because Aon needed to build up the lines in order to reach 100%. Some of these scratches may have been obtained by Mr Castle.

86. More difficult to determine is the date or dates when (a) The Independent's reinsurance subjectivity was removed; and (b) The Independent's line was increased to 30%. The insurers have floated the idea that this took place on two separate occasions. Travelers have suggested that it took place on only one occasion and that that was before 16^th May or, at any rate, that the reinsurance subjectivity was removed before that date.
87. It was the evidence of Mr Earl, Insurers' expert, that, if The Independent had removed its reinsurance subjectivity and increased its line to 30% before 18^th or 29^th May or 2^nd June, Aon would be likely to have shown FLD, Chiyoda and MEB, who scratched on those dates, the 30% slip with the reinsurance subjectivity removed and the increased line. This is because a broker who is trying to persuade potential followers to sign up would prefer to show them a larger line from the leader and one which was not subject to reinsurance.
88. Against that, Mr Castle sent a fax to Standard Life at 15:05 on 19^th May confirming that cover had been effected for a limit of £ 75 million subject to receipt of satisfactory proposal forms and supporting information including a Millennium questionnaire. It is difficult to see how he could have brought himself to write that if The Independent's line was still 25% and the reinsurance subjectivity was in place.
89. The likelihood, as it seems to me, is that the increase of The Independent's to 30% and the lifting of the reinsurance subjectivity occurred on 19^th May 1998, or possibly 18^th May 1998. I say that for a number of reasons. First, the two are likely to have gone together because the willingness of The Independent to increase its line would be dependent on it having reinsurance for such a line and the availability of reinsurance would or could depend on the extent of the line. Further, whilst it is difficult to infer much from the crossings out of "25%" and "Sub R/I" there is nothing to suggest that they happened on separate occasions. Second, if the two went together, then by 19^th May there would have been at least 96.666% cover and reinsurance for The Independent. That is not 100% but it would mean that the letter of 19^th May was not thoroughly misleading. Moreover it seems to me likely that the AST underwriter who wrote "- 8.333% of (sic) Excess L/S" expected that the 75% would be obtained from a combination of the primary and excess lineslips, making 100%. In that case the letter of 19^th May makes sense. In the event the excess lineslip was not used^[24]. Third, if cover had been obtained by Thursday 14^th or Friday 15^th May, it seems surprising that no confirmation was given until the afternoon of Tuesday 19^th May. It is more likely that the 30% was obtained and the "sub R/I" removed on 19^th May, on which date Mr Castle informed Standard Life that 100% cover had been effected. Fourth, if the lifting of the reinsurance subjectivity occurred on 19^th May, the point that it would have been commercially sensible to use a slip showing a 30% line and no R/I subjectivity would not apply to the FLD scratch on 18^th May 1998, although it would to the two further scratches obtained on 29^th May and 2^nd June 1998. Nevertheless in circumstances where two slips were in circulation it is not surprising that one of them recorded the change to The Independent scratch and that another, which did not, was used to secure other scratches. Thereafter it became apparent that only 96.666% (30% and 66.666%) was available (what exactly happened in relation to the excess line slip is unclear but some problem must have arisen – hence the delay after 18^th May and further lines were then solicited from Chiyoda and DJ Mann).
90. I decline to infer that, prior to 19^th May, there were promised lines which would take the total to 100%. There is no evidence from anyone that he promised or received the promise of a line; and it is unlikely that either Chiyoda or DJ Mann gave by 19^th May a promise of a line, which was never in fact scratched until 29^th May or 2^nd June. Even if there were promised lines, they are likely to have been either indications or themselves subject to subjects. It may be that some indication was given by Chiyoda or DJ Mann prior to 29^th May and 2^nd June or that they would be interested in subscribing; but even that seems to me unlikely.
91. 9^th June 1998 is the date when DJM scratched the 30% slip for 4.5%. It is possible that the increase from 25% to 30% and the removal of the reinsurance subjectivity was only achieved after 9^th June. This seems to me unlikely. If that were so the amount subscribed by 9^th June would have been 92.666% (25 + 66.666 + 1). In that event the likelihood is that Aon would have been able to persuade DJM to scratch the 7.334% needed, if necessary by offering them the reinsurance being obtained for The Independent. If the 30% had been written and the reinsurance subjectivity removed by 9^th June the amount subscribed would have been 97.666%. The likelihood, as it seems to me, is that DJ Mann wanted to write 4.5% and no less (hence their subscription was "To stand" – a qualification less apposite if the level of subscription was only 92.666%) which would produce a total subscription of 102.1666%. As a result the lineslip was cut back to 64.5% which allowed DJM its 4.5%.
92. The limitations of the available evidence (including the fact that Aon's placing files have apparently been lost) make any conclusion difficult and I have hesitated before making any finding at all. The finding that I have made is not favourable to Travelers. They have not persuaded me that the insurance with The Independent was no longer subject to reinsurance at any earlier date than 19^th or, at best 18^th May.
93. In any event the proposal form subjectivities could not have been satisfied or removed until after 22^nd May because none of the forms other than the one for the Bank had been provided to Aon until then.
94. On 9^th June 1998, Mr Castle sent a letter/fax to Mr McConnell in relation to the outstanding points following renewal of the programme, those being (a) the proposal form for Ireland, (b) the 'confirmation of no claims' letter,^[25] and (c) Standard Life's response to the points arising from the Canadian survey.

Signing of the Placing Slip – 11 June 1998 onwards

95. From 11^th June 1998 onwards, underwriters stamped and/or scratched another version of the slip ("the Placing Slip"). The Placing Slip had the dates of the proposal forms inserted,^[26] and the manuscript amendments to the limit and the premium typed up. It also had an additional term not in the preliminary slips: "Open Market lines agree to pay Facility Administration and Servicing Fee as outlined in Binding Authority FB9700259 (not to go in policy)."^[27]
96. On the slip the following lines were stamped and scratched, without qualification, on the following dates:

a)	30 %	The Independent	11th June 1998
b)	4.5 %	DJM	16th June 1998
c)	1 %	Chiyoda Europe	25th June 1998
d)	64.5%	Aon line slip	Scratched by the five binding underwriters on 17th (AST), 25th (RCV) and 30th (MEB) June 1998 and on a date or dates which are not clear in the case of SJB and FLD.
	100%

As appears, the participation of the Aon line slip was scaled down from 66.666% so as to make 100%.

Cover notes – 10^th July 1998

97. On 10^th July 1998, Aon sent a cover note to Standard Life.

Later events

98. The proposal form for Ireland dated 24^th August 1998 was sent by Standard Life to Aon on 25^th August 1998. A proposal form for Prime Health was dated 24^th August 1998. An endorsement was agreed amending the slip to include reference to these proposal forms. The policy was not issued until October 1998.
99. There was a meeting on 9^th October 1998 between Standard Life and Aon, at which (inter alia) the policy wording and cover was reviewed, although the focus was on who was an Officer and a Director for the purposes of Exclusion 1b in the policy. There was a further meeting on 15^th October between Standard Life and Aon at which:

"In addition the following matters were raised for our response and comments

1. Is the £25,000,000 deductible capped or is this each and every loss".

It was the evidence of Lindsay Easton, a risk co-ordinator in the Corporate Risk Department of Standard Life, that this was not followed up. There is nothing to suggest that it was.

100. In November 1998, Mr Castle arranged PI cover for Standard Life Bank Limited and Standard Life Investments Limited (two of Standard Life's subsidiary companies) for the period 15^th November 1998 to 14^th May 2001. This cover operated as a layer of cover (£ 24.5 million excess of £ 500,000) below the cover provided by the 1998-2001 Policy. The excess in the policy schedules was described as "GBP 500,000 each and every claim and/or claimant including costs and expenses capped at GBP 1,500,000 in the aggregate."
101. Around this time Mr de Zulueta ceased to be involved in the Standard Life Account and his role was taken over by Christopher Root who was an Aon Director.

1999

102. On 10^th November 1999 Mr Castle asked RPC to undertake a review of the policy wording. RPC were provided with a copy of the policy wording and Schedule for the 1998-2001 cover which contained the words "and/or claimant" in paragraph 4(ii) of the Schedule. Nothing in their subsequent advice referred to the excess or the effect of the "and/or claimant" wording.
103. At the end of 1999, John Castle was replaced by Mark Pearce, another Aon account executive. From around this time Mr Castle ceased to have any involvement in the Standard Life Account.

2001-2004

104. The PI cover was renewed (by Mr Root and Mr Pearce) with effect from 15^th May 2001, again for a 3 year period, with limits of £ 100 million excess of £ 25 million. The words "and/or claimant" were removed from the slip for the 2001/2004 cover and from the schedule to the 2001/2004 policy. According to Mr Root of Aon, the "and/or claimant" wording was removed because Aon was concerned to bring the wording into line with standard market wording at the time. "Each and every claim and/or claimant" was not in common use whereas "each and every claim" was.

The underlying claims and the claim against Aon

105. From 2001 onwards some 97,000 individual investors brought claims against Standard Life for alleged mis-selling of mortgage endowment policies. These claims were for no more than £ 20,000 but in the aggregate exceeded £ 100 million. As I have said, when in April 2001 Standard Life notified the insurers under the 1998-2001 policy of the circumstances giving rise to the claims the insurers rejected the claim on the basis that the policy contained a per claimant deductible (in the Schedule) so that the excess read "£25,000,000 each and every claim and/or claimant". In the subsequent proceedings by Standard Life against its insurers and, alternatively, Aon Tomlinson J reached the conclusions which are summarised in para 5 above.
106. In May 2004 Aon gave notice to Travelers of Standard Life's claim against it and of its claim under the Deed. That claim was ultimately settled by an agreement of 28^th July 2009 on the basis that Travelers agreed to pay 60% of Aon's liability to Standard Life up to a maximum of $ 32.5 million.

Was Travelers liable to Aon under the Deed?

Travelers' submissions

107. Travelers submits that it was so liable. The negligence of Aon as brokers which led to it being liable occurred after Completion. But there was a continuing series of related events, occurrences or matters which amounted to, or would amount to, an Indemnified Claim, so that clause 4.14 of the Deed was engaged. Although clause 2.4.2 provides that Travelers is not liable for any obligations and liabilities arising out of Aon's own negligent act, error or omission, the Deed does not simply exclude all obligations or liabilities which arise post-Completion. The Indemnity Exclusions apply to (i) obligations and liabilities relating to Minet's operations as defined in Clause 2.3^[28] which straddle the completion date; and (ii) obligations and liabilities of an Aon company (as opposed to a Minet Company) arising out of the Aon company's own negligence i.e. which arise exclusively out of Aon's own negligence. Where a mistake by Minet occurs before Completion and continues to operate after Completion, resulting in an Indemnified Claim, Clause 4.14 qualifies the Clause 2.4.2 exclusion by deeming the post-Completion events, occurrences or matters to have taken place before Completion. If there be any doubt about the matter, clause 2.3 calls for the most favourable interpretation to be adopted.
108. The parties recognised in Clause 4.8 of the Deed^[29] that Aon was intending to reorganise the Minet Group after Completion which it did by, inter alia, transferring Minet's business to Aon and absorbing Minet's assets and its employees (in particular those in the SRS broking team) into Aon. Clause 4.14 catered for just such a situation and meant that it was necessary to consider whether the post-Completion events, occurrences or matters were in truth of Aon's own making or whether they formed part of a continuing series of related events, occurrence or matters which arose out of Minet's wrongful pre-Completion acts. The purpose of the deeming provision in clause 4.14 was that negligent errors by Minet/SRS staff after they had joined Aon which continued and related to acts, errors or omissions made whilst they were Minet/SRS staff were deemed to have taken place before Completion i.e. to be a continuation of Minet's Wrongful Acts. It is sufficient for clause 4.14 to operate that a mistake or a state of affairs, including a state of mind, which occurred pre-Completion is continued and repeated post-Completion and that that repetition gives rise to a loss to Aon.

Discussion

109. The indemnity provided by clause 2 of the Deed is, in essence, in respect of any "loss, liability, claim or cost" which Minet Guernsey/ Minet New York and Aon Corporation, or their subsidiaries or subsidiary undertakings, may at any time suffer arising out of pre-Completion events or matters relating to the business of or the conduct of business by those two Minet companies or their subsidiaries. The loss may be physical or economic (e.g. a loss of profit or a cost). "Liability" must mean legal liability but "claim" or "cost" extends the ambit of the indemnity to the costs incurred by Minet/Aon either on its own account or by payment to claimants or others in dealing with claims (as is recognised in the words at the end of clause 2.1^[30]), as well as the cost of repairing or making good physical damage.
110. The effect of clause 4.14 (which has nothing to do with clause 4.8 which relates to assignment of rights under the Deed) is that, if there is a series of related events, occurrences or matters which amount, or would amount, to an Indemnified Claim any such events etc. that arise or occur during the 12 months following Completion are deemed to have arisen or occurred before Completion. Since an Indemnified Claim is defined as any loss etc. referred to in clause 2 and clause 2 refers to losses, etc. arising out of pre-Completion events clause 4.14 might, at first blush, appear superfluous. Prima facie a series of events amounting to an Indemnified Claim is one arising out of pre-Completion events. The sense of the clause – manifested by the words "or would amount" – is that, if there is a continuing series of related events etc. some of which occur during the 12 months after Completion and which, had they all taken place before Completion, would have meant that there was a loss, liability, claim or cost arising out of events occurring on or before Completion relating to the business of, or the conduct of business by, any Group Company, then the series will be deemed to have arisen before Completion.
111. The series may be constituted by one or more events occurring before and one or more occurring after Completion. But the clause, even if generously interpreted, does not, as is common ground, contemplate a series which occurs entirely within the 12 months after completion. The clause operates by way of exception from the basic position that all the events which constitute an Indemnified Claim must occur before Completion. In that context what it contemplates is a continuance after Completion of a series of events which began before it. Such of them as occur after Completion are then deemed to have occurred prior to Completion. Nevertheless, if there is a series of related events straddling Completion, insurers accept that it is not necessary that the proximate act of negligence giving rise to the claim occurred before Completion. The events, occurrences or matters may be physical events or acts or omissions giving rise to loss or liability. But they must be in some way related to each other and part of a continuing series.
112. It is necessary that the continuing series of related events or matters "amount or would amount to an Indemnified Claim". The nature of the unifying factor which is to make the events related (to use the language of Lord Hoffmann in Lloyds TSB General Insurance Holdings v Lloyd's Branch Group Insurance Co Ltd [2003] 4 AER 43) is, therefore, that together they amount to such a Claim – in the present case a Claim in respect of the broking of the 1998-2001 insurance. Events which are precursors to but do not amount to an Indemnified Claim do not count. Nor is "a continuing series of related events which amount or would amount to an Indemnified Claim" constituted by several repeated series of events each of which constitutes what might have been a separate Indemnified Claim in relation to separate insurances.
113. An Indemnified Claim is a loss, liability, claim or cost which Aon, inter alios, may at any time suffer or incur anywhere in the world arising out of an event or matter occurring before Completion. It is plain, therefore, that the loss or liability may arise at any time. If the broker is sued for negligence his loss (or some of it) may not arise until he is successfully sued. His liability may arise when he makes the placement, insofar as the claim is in contract, or only when the assured suffers loss, insofar as the claim is in tort. But the loss and liability must, subject to clause 4.14, arise out of a pre-completion event. That seems to me to require, so far as presently relevant, that the negligently broked placement has occurred before Completion, since until then there is no event or matter out of which any liability or loss will arise. When, but only when, placement has occurred there will be a cause of action in contract, which may at that moment only sound in nominal damages but may give rise to a much larger claim. There will also be an inchoate action in tort in the sense that, so soon as the assured suffers loss, he will have a claim and Aon a liability. Consistently with that clause 4.14 addresses the situation where a series of events "amount[s] or would amount" to an Indemnified Claim. The events other than loss which give rise to the cause of action must have occurred, even if the loss or the full extent of liability occurs later.

No continuing series of related events amounting to an Indemnified Claim

114. In the present case there was a repeated failure by Minet - in the person of Mr de Zulueta in respect of the 1995/6 placement, then in the person of Mr Castle and Mr de Zulueta in respect of 1996/7 and Mr Castle in respect of 1997/8, followed by a failure of Mr Castle as an employee of Aon (with Mr de Zulueta being involved to some extent) in 1998/2001 - to realise that the "and/or claimant" wording prevented or might prevent the aggregation of small claims, which, as they knew, Standard Life wanted the insurance to cover, as a result of which on each separate occasion insurance which included those words was negligently arranged.
115. Those matters do not, in my view, constitute a continuing series of related events amounting to an Indemnified Claim. The Indemnified Claim in suit is constituted by the negligent broking of the 1998-2001 policy, which had new (and greatly expanded) limits, new insurers and new brokers. The earlier failures leading to the earlier negligent brokes constituted what could have been different Indemnified Claims in respect of earlier years, if loss or liability had ever resulted – which itself would depend on whether there was any claim by Standard Life. Clause 4.14 would have applied if, say, there was a claim in respect of the 1997/8 policy and certain acts, such as obtaining binding scratches from underwriters, were carried out by Minet in the 12 months after Completion. But no such claim was made. If clause 4.14 was to backdate events simply because they were traceable to some initial and continuing blind spot, different wording was needed.

Clause 2.4.2

116. Assume, however, that that analysis is incorrect and that the repeated failure of perception over the years including 1998 constitutes a qualifying series. On that assumption, if (i) Mr Castle had remained employed by Minet, (ii) Minet had remained Standard Life's brokers, and (iii) the 1998-2001 insurance had been effected in the year after Completion, the indemnity would have operated. But Mr Castle ceased to be a Minet employee after the sale and acted in relation to the 1998 renewal as an Aon employee. The liability to Standard Life for which Aon seeks an indemnity from Travelers arose because Aon, who were then Standard Life's brokers, negligently allowed Standard Life to enter into the 1998-2001 renewal with the "and/or claimant" wording still there. That circumstance, as it seems to me, falls plainly within clause 2.4.2.
117. I do not regard it as justifiable to construe clause 2.4.2 as if it read "arising exclusively out of its own negligence". That would be to re-draft the clause (by adding in what is not there) under the guise of adopting the interpretation most favourable to the Buyer. Such an interpretation lacks commercial sense. It is difficult to see by what rationale Aon should be entitled to recover when 95% at fault.
118. Nor is there any legitimate method of interpretation by which one could construe clause 4.14 as overriding clause 2.4.2, particularly when the obligation in clause 2.3 to adopt the most favourable interpretation is not expressed to apply to clause 2.4.2 or clause 4.14. The exclusion in clause 2.4.2 is preserved by clause 4.14 which requires the series to amount to an Indemnified Claim which is a "claim referred to in Clause 2 other than an Indemnity Exclusion". Clause 4.14 can deem things to have happened earlier than they did. But it cannot turn events which amount to a claim against Aon into an Indemnified Claim against Minet.
119. In any event, the relevant liability, namely the liability of Aon to compensate Standard Life for the loss it suffered because the 1998-2001 policy precluded the aggregation that Standard Life was led to believe it allowed, did, in my view, arise solely from and was attributable to Aon's negligence. Mr Castle's blind spot persisted from 1996 until 1998 but, so far as the 1998-2001 renewal was concerned, it was without causative effect until the 1998 renewal date. What caused the relevant loss and gave rise to what is alleged to be an Indemnified Claim was the liability of Aon to Standard Life in respect of the broking in 1998 by Mr Castle, its employee, of the 1998-2001 policy containing a "per claimant" deductible. The fact that the negligence involved in this claim was a reprise of an earlier (1995) and continuing (1996/7/8) failure to perceive the significance of the "and/or claimant" amendment to the description of the excess, despite Mr Castle's appearance as a new pair of eyes, and that Mr Castle knew of Standard Life's requirements for protection against an accumulation of small claims from 1996 to 1998 cannot alter that^[31]. What mattered was that the insurance broked by Aon in 1998 did not meet Standard Life's then needs as Aon should then have known. Those needs included the ability to aggregate a series of small claims from a common cause or source, as Aon knew in 1998, and as any reasonably competent broker looking at Standard Life in 1998 would have known (as Tomlinson J held).
120. The indemnity is against liability "arising out of" events. In Coxe v Employers' Liability Assurance Company Ltd [1916] 2 KB 629, 634 Scrutton J observed that the words "caused by" and "arising from" had always been construed as relating to the proximate cause. To similar effect, in The Evaggelos Th [1971] 2 Lloyd's Rep 2000 Donaldson J held that a provision in the charter whereby the charterers indemnified the owners "from all consequences or liabilities that may arise from the Captain ...complying with their orders" required the owners to prove that the proximate cause of the loss of their vessel was compliance with such orders.
121. However, in Coxe Scrutton J found the notion of an indirect proximate cause unintelligible. Clause 2 of the Deed does not refer to liability arising indirectly. But clause 4.14 refers to "the provisions of clause 2 providing for indemnification arising directly or indirectly out of any event or matter occurring on or before Completion". In the light of that and the obligation under clause 2.3 to interpret the indemnity provisions in 2.1 and 2.2 in the manner most favourable to the Buyer it seems to me that those clauses should be construed as capable of applying to liability indirectly arising out of pre-Completion events.
122. In Dunthorne v Bentley [1999] 1 Lloyds 560 the question was whether an accident was "caused by or arising out" of the use of a car within the meaning of section 145 (3) (a) of the Road Traffic Act 1938. The Court of Appeal, following Commonwealth authority, regarded "arising out of" as have a wider connotation than "caused by". Not without some hesitation the Court held that the conduct of Mrs Bentley in crossing the road to get assistance as a result of which an accident occurred arose out of her use of the car. That was, of course, a case of statutory construction, not the construction of a contract of indemnity, and the presence of "caused by" indicated that "arising out of" had some wider meaning.
123. The Court made clear that "arising out of" still required a degree of causal connection. As Lord Justice Pill observed "arising out of extends the test, with the result that it includes less immediate consequences. It still excludes the use of the vehicle being causally concomitant but not causally connected with the act in question. I do not regard that as a general principle".
124. In Kajima v The Underwriter Insurance Co [2008] Lloyd IR 391. 408. para 97 Akenhead J observed that "arising out of" can have a wider significance than "caused by".
125. In Scott v Copenhagen Reinsurance Co (UK) Ltd [2003] Lloyd's IR 696 Rix LJ had to consider the significance, in an insurance policy, of the phrase "arising out of". The question was whether the loss of a BA aircraft which was badly damaged by coalition fire at Kuwait airport arose out of the capture of the airport during the invasion by Iraq six months previously. He said:

"67 I revert to Mr Boyd's four principal submissions. The first (paragraph 26 above) was that the causal link expressed by the phrase "arising out of" is a weak one, and that therefore and possibly in any event there was nothing that occurred after the initial invasion and capture of the airport that out-weighed their significance for the purposes of causation.

68 In my judgment, however, there is nothing in the authorities to support that submission as a matter of principle. On the contrary, it seems to me that in Dawson's Field, and again in Caudle v Sharp a significant causal relationship was, albeit implicitly, imposed. In those cases Mr Kerr and this court found the relevant event (or occurrence) in the nearer events, rather than the more distant. In the latter case the concept of remoteness was expressly adverted to. I accept that in Dawson's Field the choice was obscured by the fact that the hijackings could not be regarded as a single event, and for that reason could not even be a candidate. Nevertheless, it seems to me to be inherent in the concept of aggregation ("arising out of one event") that a significant causal link is required. In this connection I would refer to Lord Hoffman's substantial contribution in recent years to an understanding of what lies behind the courts' intuitive judgment on issues of causation: see, for instance, Empress Car Co (Abertillery) Ltd v National River Authority [1999] 2 AC22 at 29/35. Lord Hoffman emphasises that it is not possible to give an informed answer to a question of causation when attributing responsibility under some rule without knowing the purpose and scope of the rule. In the present context, the purpose and scope of the rule has to be found in the concept of aggregation inherent in wording such as "arising out of one event". A plurality of losses is to be regarded as a single aggregated loss if they can be sufficiently linked to a single unifying event by being causally connected to it. The aggregating function of such a clause is antagonistic to a weak or loose causal relationship between losses and the required unifying event. This is the more easily seen by acknowledging that, once a merely weak causal connection is required, there is in principle no limit to the theoretical possibility of tracing back to the causes of causes. The question therefore in my judgment becomes: Is there one event that should be regarded as the cause of these losses as constituting for the purpose of aggregation under this policy one loss?"

126. In respect of "Attributable to" Travelers referred me to Lloyds TSB General Insurance Holdings v Lloyds Bank Group Insurance Co. Limited [2003] 4 All ER 43 as indicating that it did not mean proximate cause. In that case Lord Hoffman said, at [15]-[16], with reference to Municipal Mutual v Sea Insurance [1998] Lloyd's Rep IR 421:

"The more general the description of the act or event, the wider the scope of the clause. For example, in Municipal Mutual … the unifying clause was expressed in very general terms: "…all occurrences of a series consequent on or attributable to one source or original cause …".

This meant that as long as one could find any act, event or state of affairs which could properly be described as a cause of more than one loss, they formed part of a series for the purposes of the aggregation clause. Hobhouse LJ held that a series of losses caused by theft and vandalism from the port of Sunderland over a period of time were attributable to one original cause, namely the inadequacy of the port's system for protecting the goods of which it was bailee."

127. Care needs to be exercised in relation to this passage for a number of reasons. First, it was concerned with occurrences attributable to "one source or original cause", which involves a considerably looser causal connection than proximate cause. Second, the strength of the causal connection required differs according to the context in which the question is asked. Third, clause 2.2 is dealing with loss etc. arising out of events attributable to or arising out of negligent acts. If the loss does not arise out of the relevant event the question of what the event is attributable to does not arise. Fourth, there is no reason why attributable to cannot import a test of proximate cause. In Royal Exchange Assurance v Kingsley [1923] AC 235. 244 the Privy Council referred to loss as being "directly and naturally attributable to unseaworthiness" when applying a proximate cause test.
128. I am prepared to accept that "arising out of" in clauses 2.1, 2.3 and 4.14, interpreted in the light of clause 2.3 and the opening words of clause 4.14, does not dictate a proximate cause test, and that a somewhat weaker causal connection is allowed. That is to some extent supported by the fact that the loss or liability may arise from a combination of related events, occurrences or matters. Thus the clause may provide indemnity in respect of indirect loss^[32].
129. That does not, however, determine what degree of causal connection is required and whether or not Aon's liability and resulting loss arose directly or indirectly out of a Pre-Completion event or matter or a continuing series of related events or matters spanning Completion and occurring no later than 12 months after Completion within the meaning of the relevant clauses.
130. In my judgment a relatively strong degree of causal connection is required and Aon's liability did not so arise. Aon's liability arose from its failure in the period between January and June 1998 to perceive that the proposed wording of the 1998 – 2001 cover did not clearly produce the insurance which Standard Life wanted and was led to believe it had. The fact that Minet Ltd and Mr Castle had failed to spot the problem with the wordings in earlier years did not in any significant sense cause Aon to be liable in respect of the 1998 – 2001 cover. It was the negligence of Aon, which, alone, acted as broker for 1998-2001 and which, alone, owed duties in that respect to Standard Life and was in breach of them, that gave rise to the liability for which it claimed indemnity. This is not a case of liability attributable to concurrent causes (whether proximate or not). Aon could not have claimed a contribution from Minet on the grounds that they were both to blame.
131. I am fortified in reaching that conclusion by three considerations. First, in considering what gives rise to liability it is necessary to analyse what would have to be established if liability was to be shown. For that purpose it would not in any way be necessary, or sufficient, to show that Minet or Mr Castle had failed to spot the problem before 1998. Second, clause 2 presents an antithesis between liability arising from Minet's and liability arising from Aon's negligence. It may be that there are circumstances in which both Minet and Aon could be liable. But that is not the present case. It does not seem to me that the clause was intended to create an indemnity where the duty and the breach are that of Aon and where Minet owed, in relation to the placement giving rise to liability, no duty and was not in breach. Third, it would appear to follow from Travelers' interpretation that a failure by Mr Castle long after 1998 (say in 2001) to appreciate the significance of the "and/or claimant" extension, when renewing Standard Life's cover, would still bring Aon within the clause on the footing that what happened in 2001 arose out of his continuing blind spot from 1996 onwards.
132. In any question of causation it is usually possible to trace back to some event or matter which can be postulated as the, or a, cause of the result or consequence in question. If and insofar as Mr Castle's blind spot before 1998 can be considered a cause of Aon's liability at all, or Aon's liability can be said to arise therefrom, I am satisfied that, in the context of the Deed, there was an insufficient causal link. Whatever happened before 1998 was eclipsed by Aon's failings in that year.

Clause 2.4.2

133. If that be too robust a view and Aon's liability arose, within the meaning of clause 2, both out of its own negligence and breach of duty and Minet's earlier failure to spot the significance of the "and/or claimant" provision, nevertheless clause 2.4.2 precludes recovery. Clauses 2.1 and 2.2 make plain that the indemnity set out in those clauses is not applicable to the Indemnity Exclusions. They thus contemplate that circumstances might fall within clauses 2.1 and 2.2 (apart from the Indemnity Exclusion) and 2.4.2. In such a case the indemnity provided for by clauses 2.1 and 2.2 will not apply. In the present case the circumstances do fall within clause 2.4.2. Aon's liability arises out of its own negligence, which was, indeed, the proximate cause of the loss and liability. If Travelers is liable, it would be giving an indemnity in respect of Aon's negligence.
134. Some reliance was placed by Travelers on the fact that the words "(other than a Group company)" appear in parentheses in clause 2.4.2 when they do not do so in the definition of "Buyer Group Company" as "any subsidiary or subsidiary undertaking of the Buyer at the date of this Deed or acquired or formed by the Buyer after the date of this Deed other than a Group Company". This difference was said to stipulate or emphasise that the Aon negligence exclusion does not apply to negligence claims which in truth arise out of or are attributable to Minet negligence. I cannot regard the insertion of parentheses as having any such significance. The words, whether in parentheses or not, are there because Minet would after the date of the Deed be a Buyer Group Company.

Aon's negligence

135. The evidence of Mr McGrath was that the change in the structure of the 1998-2001 policy and the increase in the amount of the excess would not in and of themselves cause a reasonably competent broker to review the "and/or claimant wording". It may be that the change would not itself be a trigger for reconsideration. But, whether that is so or not, it was incumbent on the broker to satisfy himself, in 1998 as much as in earlier years, that the policy, so far as possible, clearly fulfilled the needs of his client. Aon was, in my judgment, subject, on renewal in 1998, to the same duty as is imposed on a broker at an original placement namely a duty to take reasonable care to ensure that his client's insurance needs are clearly met. That is part of the reason why he gets paid as much on renewal as on placement.
136. That was the effect of the evidence of Standard Life's expert before Tomlinson J (Graham McKean) and the proposition was then accepted by Aon. It was also the evidence of the Insurers' expert in this action, Mr Earl. Mr McGrath for Travelers accepted that there was a duty on a broker each year to see if the wording reflected the client's needs but the thrust of his evidence appeared initially to be that the duty would be complied with if, having ascertained that his client's needs had not changed, he rolls forward the cover on the terms of the previous year. I disagree. The broker is under a duty to consider the terms of the insurance and their suitability each year. That is particularly so where, as here, the insurance for 1998-2001 was markedly different from earlier years - with an excess point increased tenfold (from £ 2.5 to £ 25 million), an upper limit doubled (from £ 52.5 to £ 100 million), the structure changed from three layers to one, and the term increased from 1 year to 3.
137. The 1998-2001 insurance was very far from a routine renewal. Aon's failure to perceive the problem was egregious. To appreciate the problem of the "and/or claimant" wording did not require any knowledge of past history. The phrase "claim and/or claimant" was most unusual; and any reference to a "per claimant" excess was, as Mr McGrath agreed, "obviously dangerous and ambiguous". The wording was plain to see in the cover note which was signed off by two Aon directors. Further, if in 1998 Aon had properly addressed itself to the slips for the expiring year, it would have found obvious inconsistencies. The description is "each and every claim and/or claimant" in the primary slip. It is "each and every claim" in the first excess slip; whereas in the second excess slip, the words "and/or claimant" have been added in manuscript by the underwriter.
138. The increase in the excess from £ 2.5 to £ 25 million should itself have caused any reasonably competent broker to consider afresh whether the terms of the excess were appropriate. I accept the evidence of Mr Earl to this effect. Here the excess had increased to £ 25 million and the obvious question was whether the insurance was only supposed to respond if the claim of an individual claimant exceeded £ 25 million – an enormous figure. It would be open to Standard Life to decide that they would accept such an excess, so that the insurance would only respond in the case of a very large claim, e.g. in respect of their pension fund operations, although such a claim was unlikely. But the size of the excess, at a time when an aggregation of small claims was a very real possibility, called for close attention to what the excess was intended to mean. In the state of the market in 1998 an excess point of £ 25 million could probably have been composed of any Standard Life losses whether related or not. This was the evidence at the Standard Life trial; it is entirely credible; and Mr McGrath agreed with it. Standard Life understood the deductible to be £ 25 million per claim, including a series of related claims, and, in those circumstances did not want to pay more for the ability to aggregate non related claims by way of a £ 7.5 million aggregate cap. If they had understood that the deductible operated per claimant, they would be likely to have been interested in swapping that for an aggregate deductible if the type of excess they thought they were obtaining was not available.
139. In those circumstances it does not seem to me necessary to resolve the question as to whether, as Mr Earl says, Aon should (i) have ensured that the work of Mr Castle was peer reviewed by another member of Aon's PI unit and (ii) carried out a review of all major accounts of Minet which it was acquiring including Standard Life; or whether, as Mr McGrath says, peer review was not something to be expected of a reasonably competent broker as at 1998 (because it only started to occur about 3-4 years later) and that a review of major accounts on acquisition was not standard either. Nor is it necessary to determine whether either of these reviews would have picked up the problem in the definition. One way or the other – review or no review - it should have been picked up. If a broker fails to appreciate that the insurance he has broked does not fulfil the needs of his client when, had he looked at it with any care, that ought to have been apparent, it is no defence to say that he did not look at the terms of the insurance again because the wording did not change from the wording in previous years when he had also failed to spot the problem.
140. It was also submitted that this exclusion cannot apply where the relevant negligent act is that of a former subsidiary undertaking of Minet which has been incorporated into an Aon company, or an employee of such a former subsidiary who is now an employee of Aon. This is said to be because clause 2.2.1 provides an indemnity in respect of liability incurred by a Buyer Group Company (i.e. an Aon company) arising from an act of a Group Company (i.e. a Minet company) or an employee of such an undertaking. It is said that, if Insurers' argument were correct as to the ambit of clause 2.4.2, these aspects of clause 2.2.1 would be devoid of content.
141. I do not accept this analysis. First, the indemnity set out in clauses 2.1 and 2.2 does not apply to the Indemnity Exclusions. Second, clause 2.4.2 does not exclude from the exception for liabilities arising out of Aon's own negligent act liabilities arising from the acts of Aon employees previously employed by Minet. Third, the liability incurred by Aon does not arise from an act of a Group Company or an employee thereof. It arises from an act of an Aon employee – Mr Castle – in effecting the 1998-2001 insurance. Fourth, clause 2.2.1 will apply if Aon has, by a transfer to it of Minet liabilities whether by statutory transfer, assumption of liability, novation or otherwise, become liable for what is a Minet obligation.

Responsibility for insurance under the Sale Agreement

142. Some light is cast on the validity of the parties' interpretations by a consideration of how the parties dealt with the allocation of responsibility via insurance.
143. Clause 12.9 of the Sale Agreement provides:

"12.9 Prior Acts Coverage

The Buyer and the Seller agree to cooperate to determine and implement a cost-effective means to obtain prior acts coverage for the Group Companies' professional liability insurance with costs and premium to be paid by the Seller."

144. The co-operation provided for by this clause extended to cover for Minet only and in relation to prior acts. It did not extend to obtaining professional indemnity cover for Aon.
145. Clause 3 of the Deed provides:

"3. CONDUCT OF CLAIMS

3.1 If, in respect of any Indemnified Claim the Group Company is entitled to claim under any policy of insurance, then to the extent of any recovery under any such policy of insurance any such loss, liability, claim or cost shall not be the subject of a claim under clause 2. In the event that the Buyer, a Buyer Group Company or Group Company is obliged to pay and pays, or makes payment with an insurer's consent, in respect of an Indemnified Claim or any part of an Indemnified Claim which is the subject of such policy of insurance but in respect of which insurers have refused, declined or delayed for more than 25 days in making payment, then the Seller shall within 5 days of demand advance funds required to pay such a claim on an interest free basis to the Buyer (on its own behalf or as trustee in accordance with clause 4.4) or the Group Company, such funds to be repayable upon and to the extent of recovery under any policy of insurance. The Buyer shall procure that each Group Company shall pursue such insurance recoveries to the extent reasonably required by the Seller.

3.2 If any Indemnified Claim arises or is made against the Buyer or a Buyer Group Company or Group Company, the Buyer, the relevant Buyer Group Company or Group Company shall as soon as is reasonably practical give notice to the Seller of such occurrence (but during the period of 3 months following Completion the failure to do so does not relieve the Seller from any liability under clause 2 and thereafter only in so far as the delay in notifying the Seller has any adverse affect on the Seller's liability). The Seller shall:

3.2.1 have the sole conduct of such actions in connection with any such claim, in the name of the relevant Group Company against any third party and the Buyer and/or the relevant Group Company or Buyer Group Company shall give or cause to be given to the Seller all such assistance as the Seller may reasonably require in avoiding, disputing, resisting, settling, compromising, defending or appealing any such claim; and

3.2.2 instruct such solicitors or other professional advisors as the Seller may nominate, having first consulted with the Buyer, to act on behalf of the Buyer or the appropriate Group Company or Buyer Group Company but to act in accordance with the Seller's sole instructions taking into account the reasonable comments of the Buyer;

3.2.3 keep the Buyer informed of any developments in connection with any action taken by the Seller on behalf of the Buyer and any Group Company or Buyer Group Company;

the Buyer shall, if requested by the Seller, co-operate with the Seller in seeking to obtain the consent of the Group Companies' errors and omissions insurers to the conduct of claims by the Buyer.

…

3.4 Notwithstanding clause 3.2, the Buyer shall, at its election, have the sole conduct of any claim against the Buyer or Buyer Group Company (other than with respect to an Indemnified Claim) with respect to any matter relating to an Indemnified Claim in which the Buyer or Buyer Group Company is defending itself against any action, counterclaim, or third party action brought in the name of the Seller or a Group Company seeking contribution, indemnity, or other relief, and the Buyer or relevant Buyer Group Company shall have the sole conduct of the defence of any claim at its expense:"

146. Clause 3 operates as follows:

a) Clause 3.1. If the Indemnified Claim is made against a Minet Group Company, Aon Corporation is not to claim on Travelers under the Deed, to the extent that recovery is made from Insurers. However, if Aon Corporation or its subsidiaries or a Minet Group company have to pay the Indemnified Claim, and Insurers then delay or decline payment, Travelers will fund the payment and will obtain reimbursement from any recovery under the insurance. Further Aon Corporation agrees to procure that the relevant Minet company will pursue the insurance recovery;

b) Clause 3.2. If the Indemnified Claim is made against Aon Corporation or its subsidiaries such as Aon Limited, (as will happen where a former Minet company is incorporated into Aon and Aon becomes liable to the third party for Minet's prior acts), Travelers are to have sole conduct of the defence and Aon will give all reasonable assistance;

c) Clause 3.4. If Travelers or a Group Company starts proceedings against Aon Corporation or its subsidiaries, in relation to any Indemnified Claim, for a contribution Aon Corporation or the relevant subsidiary will have the conduct of the defence to that claim; and

d) There is no provision relating to the effect of Aon's own Professional Indemnity insurance.

147. An obvious reason why Clause 3 does not deal with recoveries under Aon Corporation's insurance is because any claim which is brought under that insurance will be for Aon's "own negligent acts" and outside the ambit of Travelers' liability under the Deed by reason of the Indemnity Exclusion. Aon could be expected to claim on its own insurance in respect of its own negligence.
148. If there are proceedings for an Indemnified Claim, clause 3.4 expressly contemplates that Travelers may make a contribution claim on Aon "with respect to any matter relating to an Indemnified Claim". Such a related claim would arise if Minet caused loss to an assured by something it did prior to Completion, but Aon could and should have corrected that error after Completion (e.g. by a client review), yet failed to do so. The Insurers submit that this demonstrates a far more balanced agreement than Travelers' submissions wish to recognise. I agree.
149. Accordingly Travelers was not, in my judgment liable to Aon under the Deed.

Is Travelers entitled to an indemnity under the contracts of insurance?

150. The Beazley policy of September 2004 provided as follows:

"THE SCHEDULE

The Insured:

(1) Minet Group and any Company forming part of the Minet managed Group of companies throughout the world… and any other Party as declared to and accepted by Syndicate 623 and as per expiring Policy/ies^[33] at or prior to the Date of Sale ("the Minet Companies").

(2) The St. Paul Companies Inc. but solely in respect of any Claim arising out of a Wrongful Act of any of the Minet Companies and/or liability it may incur under the Deed of Indemnity between The St Paul Companies Inc, Aon Corporation and the Minet Companies dated 16^th May 1997 ("the 1997 Deed") to indemnify Aon Corporation and/or the Minet Companies in respect of Claims Insured under this Policy…

1.2 This Policy and the Schedule shall be read together as one contract and any word or expression to which a specific meaning has been attached in any part of this Policy or Schedule shall bear such specific meaning wherever it may appear, unless stated to the contrary.

1.3 Date of Sale is 16^th May 1997

1.4 "Wrongful Act" means

(a) breach of duty or breach of warranty of authority or defamation arising out of and in the course of the Insured's activities by reason of any act, error or omission: or

(b) any other insured event referred to in the extensions to this policy

INSURING CLAUSE

2.1 Insurers severally agree … to indemnify the Insured up to the Limits of Insurance for liability, costs and expenses in relation to any:

(i) Claim(s) first made against the Minet Companies as defined in Paragraph 14.1

Or

(ii) Circumstance(s) defined in Paragraph 14.2

during the Period of Insurance and notified within 90 days after the end thereof for any Wrongful Act committed prior to the Date of Sale by:

(i) the Minet Companies

(ii) their predecessors in business

(iii) the Chairman, Chief Executive Officer, any member of the Executive Management Group or of the Senior Management Group or any Director or Consultant or any person at any time employed by or acting as an agent of the Minet Companies or such predecessors in business

(iv) any other firm or person with whom the Minet Companies have been acting or for whose activities the Minet Companies or such predecessors in business is/are responsible.

A series of events, occurrences or matters occurring during the 12 months following the Date of Sale related to any Wrongful Act occurring prior to the Date of Sale shall be deemed to have arisen or occurred prior to the Date of Sale."

2.2 It is hereby agreed that a Claim or Circumstances relating to any one insured company or person is deemed for Policy purposes to be a Claim or Circumstance relating to all insured companies and/or persons.

2.3 If and to the extent that the St Paul Companies Inc makes payment to or on behalf of any of the Minet Companies or Aon Corporation under the 1997 Deed in respect of any Claim insured under this Policy the St Paul Companies Inc shall be entitled to be indemnified under this Policy in respect of such payment subject always to the terms, conditions and exclusions hereof."

151. The Liberty Policy identified the Insured as "Minet Group and the St. Paul Companies Inc, as expressed in the Primary Policy" and provided that "Except as otherwise provided herein this Policy is subject to the same terms, exclusions, conditions and definitions as the Underlying Policy."

Travelers' submissions

152. Travelers submit that the wording must be looked at in its context. The policy wording was based on Minet's original PI insurance (due for renewal at the Date of Sale) which was then adapted to produce insurance covering St Paul/Travelers' liability under the Deed. The terms were tailored to mirror certain specific liabilities under the Deed and, in particular in order to reflect clause 4.14 of the Deed and extend cover to liability for negligence which continued after the sale. By the time that the contracts of insurance in suit were placed (in 2003) 6 years had elapsed since the Minet sale (in 1997) so that claims under clause 2 of the Deed were beginning to tail off. But there was still a risk of claims under clause 2 taken with clause 4.14.
153. The inclusion of the words "and/or" in the definition of the Insured ("The St. Paul Companies Inc. but solely in respect of any Claim arising out of a Wrongful Act of any of the Minet Companies and/or liability it may incur under the Deed of Indemnity") recognizes that liability under the Deed might not necessarily occur only as a result of a Wrongful Act by Minet. This is reinforced by clause 2.3 which recognizes that St Paul/Travelers might make a payment either to or on behalf of Aon Corporation under the Deed in respect of a claim insured under the policy.
154. The requirements of clause 2.1 are met. Mr Castle was a person employed by one of the Minet companies. During the period of the policy a claim was made or circumstances were notified in respect of his Wrongful Acts committed prior to the Date of Sale i.e. 16^th May 1997. Standard Life's claim against Aon was based on the fact that Mr Castle had failed to appreciate the significance of the "and/or claimant" wording in circumstances where, given his previous involvement with Standard Life's insurance, he knew that Standard Life required aggregated cover for mass claims. Aon's negligence in placing the 1998-2001 policy (within 12 months of the Date of Sale) related to Mr Castle's earlier Wrongful Acts because it consisted of his failure to appreciate, and continuance in, his earlier error. The placement of the 1998-2001 policy with each of the leading underwriters constituted a series of occurrences or matters during the 12 months following the Date of Sale within the meaning of the last sentence of clause 2.1 and these are, therefore, deemed to have arisen or occurred prior to the Date of Sale.
155. In the alternative the deeming provision in the last sentence of clause 2.1 has the effect of deeming post-Completion acts or omissions to be pre-Completion acts or omissions of Minet; and this mirrors the deeming provision of clause 4.14 of the Deed.

The insurers' submissions

156. The Insurers submit that, even if Aon's claim under the Deed was valid, the contracts of insurance do not respond to Travelers' claim. Travelers/St Paul was an insured in respect of Claims first made (or Circumstances) against the Minet Companies during the Period of Insurance for any Wrongful Act committed prior to the Date of Sale by the Minet Companies or (so far as presently relevant) any person employed by the Minet companies and in respect of any liability Travelers might incur under the Deed to indemnify Aon Corporation or the Minet Companies in respect of Claims Insured under the policy. Travelers, as an indemnifying party under the Deed, had an insurable interest in Minet's liability for pre-Completion professional negligence. The effect of the insurance was that, if Travelers were a paying party, it could claim. But it was under no better position under the insurance than a Minet company.
157. If Travelers are right, the claim to which the Deed responds is not a claim made against a Minet Company in respect of any Wrongful Act committed by any of the Minet companies or their employees. It is a claim made against Aon in respect of a Wrongful Act committed by Aon and its employees. Further Aon committed the Wrongful Act for which the Claim is made after the Date of Sale. But by clause 2.1 (ii) the policy requires the claim to be for a Wrongful Act committed prior to the Date of Sale. The clause at the end of 2.1 would apply if the claim related to a Wrongful Act (such as the negligent drafting of a policy) by Minet which occurred before the Date of Sale and was followed by a series of events relating to that Act (such as the production of the policy to the insurer) after the Date of the Sale. But in the present case there was no Wrongful Act committed by Minet prior to the Date of Sale in respect of which a Claim was made.

Discussion

158. In my judgment the Insurers' submissions are well founded. The cover afforded by the policy is, so far as presently relevant, in essence one in respect of liability in relation to claims made against the Minet companies for breach of duty arising out of and in the course of the activities of the Insured (i.e. the Minet Group) in respect of Wrongful Acts committed prior to the Date of Sale by the Minet Companies or any Minet Employee. It seems to me plain that the breach of duty must have been committed by a Minet company or someone who was a Minet company employee at the time of the breach not only because the claim has to be one against a Minet company but also because the insuring clause must be read as a composite whole such that the claim in respect of the Wrongful Act must be one for which a Minet company is responsible and the act must be committed by someone who fell within the description in clauses 2.1 (ii) (i) – (iv) at the time that the act was committed.
159. The policy also provides for events occurring during the 12 months after the Date of Sale which are related to any Wrongful Act committed prior to the Date of Sale to be deemed to have arisen or occurred prior to the Date of Sale. Both that provision and the words of the body of clause 2.1 itself ("Claim … for any Wrongful Act committed prior to the Date of Sale") require the claim to be for a Wrongful Act committed by Minet prior to the Date of Sale even though there may be related events in the 12 months thereafter. The claim in suit is not of that character, being a claim in respect of the actions of Aon after the Date of Sale. Further any deemed chronological shift cannot deem the acts or omissions of someone other than Minet (e.g. Aon) to be treated as Minet's acts. Nor does the clause make a claim against Aon a claim against Minet. The policy provides for St Paul to be an insured, but only in respect of claims arising out of a Wrongful Act of any of the Minet companies, as to which see the previous paragraph, or in respect of liability which St Paul may incur under the Deed to indemnify Aon Corporation and/or the Minet Companies in respect of Claims Insured under the Policy i.e. claims arising out of a Wrongful Act of any of the Minet companies committed prior to the Date of Sale.
160. Travelers submits that the literal meaning of the words must not be permitted to prevail in order to defeat the purpose of the cover, which was that it should extend to cover any negligence claims that might be made which are the subject of indemnity by St Paul under the Deed. That submission assumes that, contrary to what I have decided, Aon was entitled to an indemnity under the Deed. In any event it seems to me that the meaning of the words is too clear to be overridden by any such purposive construction.
161. Travelers also relied on the fact that the insurance covered claims made between May 2003 and May 2004 by which time, it is claimed, the vast majority of pre-Completion claims would have been time barred, such that the insurance can only have been intended for clause 4.14 claims. These considerations, it is submitted, support the construction for which it contends. I do not agree. The Latent Damage Act 1986 affords considerable scope for claims against professionals beyond the expiry of the contractual limitation period. Further, even if claims under clause 4.14 were the focus of attention, that does little to solve the question whether this particular claim was covered.
162. I do not regard the evidence of Mr Calvin Branton, Travelers' American lawyer, as taking matters any further. He did not himself meet or correspond with any insurer and much of his evidence deals with negotiations on prior years (when Beazley was not even on the policy albeit the wording was substantively the same) and Travelers' subjective intent, neither of which are admissible for the purpose of construction. In any event the negotiating history indicates that Travelers' intention behind the wording was that the Insurers would indemnify them in circumstances in which Travelers had paid a claim under the Deed which would otherwise be covered under the policy, i.e. a claim against Minet: see DJ Freeman's letter of 13^th January 1999.

Congruence

163. The Deed and the contracts of insurance fit together. Under the Deed Travelers is not liable to indemnify Aon in respect of its liabilities to Standard Life and is not insured for that purpose. Insofar as it was liable to indemnify Minet for its liabilities it was insured.
164. The result of this analysis is that it could in some circumstances make a critical difference whether insurance was negligently broked by Minet or by Aon even if, whichever company it was, the same individual(s) would have been involved. I do not find this an odd result which should cause one to question the analysis. Aon had a free hand as to who it took into its employ. That it should be responsible for the defaults of those whom it chose to employ without indemnity from Travelers does not seem to me particularly surprising, even if the employees had previously been employed by Minet and might have stayed with Minet, but in the event did not. The scheme of the Deed was that Minet negligence provided for in the March 1997 accounts was not covered; Minet negligence pre-Completion which was not provided for was covered; and Aon negligence post-Completion was not. Clause 4.14, which provided a deemed chronological shift, protected Aon in the event that an Indemnified Claim arose from events before and after Completion. So there would be indemnity in respect of liability for a Minet placement where the placement straddled Completion if there was a series of the nature specified in clause 4.14. But that clause did not extend indemnity to Aon in respect of its own negligence for which its own insurance policies ought appropriately to respond.

Was Standard Life uninsured in respect of 1998 – 2001 for period after 16 May 1998?

165. In those circumstances it is not necessary to decide whether Standard Life was in fact uninsured until a date after 16^th May 1998. But since considerable evidence has been deployed and argument addressed to this issue I propose to decide it.
166. In the light of the facts recounted in paras 67 to 91 above I am satisfied on the balance of probabilities:

a) that the reinsurance subjectivity was not removed before 16^th May; and

b) that the proposal forms and Y2K subjectivities were in force until the final placing slip without subjectivities which began to be scratched on 11^th June 1998. There is no evidence or indication in the papers that they were lifted at any point before then.

167. It is, accordingly, necessary to decide what is the effect of a scratch made subject to (a) reinsurance; (b) satisfactory proposal form; (c) Y2K questionnaire.
168. As to that there are a number of possible analyses:

a) the "subject" is a qualification of the underwriter's acceptance so that until the subject is satisfied and the subjectivity is removed or waived, e.g. by further unqualified scratches, there is no binding contract;

b) the "subject" means that there is a contract which binds conditionally but the insurance is only operative if the subject is lifted; and

c) the effect of the "subjects" was that Standard Life was held covered for a period.

169. The traditional analysis is the first of those alternatives. A draft slip is an offer to contract and each unconditional subscription to it by an underwriter constitutes an acceptance for the line accepted: Gen Re v Fenna Patria [1983] QB 856. If the underwriter qualifies his acceptance by putting a subjectivity next to his scratch there has been no acceptance of the offer. This appears from SAIL v Farex [1995] LR 116; Arnould at para 2-10 and MacGillivray at paras 2-034 and 33-026.
170. In SAIL v Farex, SAIL were the reinsureds claiming under two contracts of reinsurance, for 1989 and 1990, with Farex as reinsurers. The contracts (as it was supposed^[34]) of reinsurance were placed and accepted by means of a lineslip subscribed as to 100% by Farex. The line slip for 1989 was accepted by Farex on 17^th November 1988 "subject to reinsurance and security". Those words were written in pencil by Farex on the original slip, and were deleted by the brokers when the reinsurance (with, as it happened, Travelers) was confirmed. The lineslip for 1990 was accepted on 6^th October 1989 with the words "subject Reinsurance and security to be agreed by Farex" written in ink.
171. Evans J, as he then was, heard a summary judgment application by the claimants. They contended that the words "subject to reinsurance" which the underwriter had added next to his acceptance of the line slip became a term of the reinsurance or had the effect of creating a condition precedent to any liability of the underwriter under it. The Judge rejected this contention as not seriously arguable. At page 121, he said:

"I need not consider these matters further, however, because in my judgment it is not seriously arguable that the words added to the line slip in November, 1988 did have the effect of creating either a contractual term or a condition precedent to the operation of the reinsurance. They clearly were added to Farex's acceptance of the risk as a qualification of that acceptance, so that the acceptance was not to be binding on Farex until such time as the "subject" was lifted. That occurred when Farex was satisfied as to the reinsurance/retrocession arrangements made and the security provided thereby. Farex itself lifted the "subject", thereby removing the qualification from its acceptance. The fact that the words were written in pencil and so written in the normal course of business establishes this beyond any doubt. The words were intended to be erased when the slip became binding according to its terms. [The broker] understood correctly that he was intended to do this, and the defendants do not suggest that he was not entitled to do so.

This conclusion is reinforced, in my judgment, when reference is made to the terms of acceptance in October, 1989. This time, the words "subject reinsurance and security to be agreed by Farex" were written in ink but they were not intended to have any different effect. Until such time as the reinsurance arrangements were agreed by Farex, there was no contract, at most an agreement to agree. It was only when the "subjectivity" was lifted that there could be any binding agreement, and that is what duly occurred.

I hold, therefore, that the defendants' contentions that the "subject" clauses were terms of the 1989 and 1990 reinsurance contracts, or were conditions precedent to the operation of those contracts, are wrong in law. These contentions do not give rise to a triable issue under O. 14, and the issue raised by par. (a) of the O. 14A summons must be answered in the plaintiffs' favour."

172. This legal analysis is consistent with Mr Earl's evidence as to market practice: see paragraphs 63 to 73 of his supplemental report, which I accept.
173. In my judgment this analysis is applicable in the present case. I do not regard the preliminary slips as nothing more than quotation slips. They had been preceded by quotations – see paras 62 – 64 above. Further the notation "TBE" followed by several subjects takes the slip beyond a mere quotation. But the three subjects themselves, set out on the page adjacent to the scratches, are classic qualifications of acceptance. By them the underwriters were indicating that they would not go on risk unless (i) in the case of The Independent Aon had found acceptable reinsurance, (ii) in relation to other syndicates (a) the assured had completed (and signed) a proposal form for the underwriters to consider, and (b), before entering into a 3 year contract with no Y2K exclusion the underwriters were informed as to Standard Life's practice in relation to Y2K issues (then, although in retrospect unnecessarily, a matter of concern). One effect of such subjectivities is that the information provided had to be accurate as at the date when the proposal forms were signed and the Y2 questionnaire answered. It would not, for instance, be open to Standard Life to omit relevant information which arose only on 17^th May.
174. Since none of the subjectivities were satisfied by 16^th May 1998, there was, in my judgment between 16^th May and 11^th June 1998 no contract of insurance with the Independent (and there would have been none even if, contrary to my view, the Independent's reinsurance subjectivity had been removed before 16^th May). Nor during that period was there any contract with the syndicates on the primary line slip. Three binding underwriters scratched on 14^th May but two of them scratched with subjects and two were required to bind. The FLD and MEB scratches were on 18^th May 1998 and 2^nd June 1998 and also had subjects. Chiyoda and DJ Mann (who took 1% and 4.5% of the risk respectively) were, on any view, not bound before 16^th May 1998. They did not put down their scratches with subjects until 29^th May and 2^nd June 1998 and their unqualified scratches went down on 16^th and 25^th June 1998. Standard Life had no relevant cause of action by 16^th May (even an inchoate one in tort if damage resulted) and any continuing series of events or matters constituted by the Aon broke for 1998 up to 16^th May 1998 did not amount to an Indemnified Claim.
175. I do not accept that any of the three subjectivities in question can be regarded as routine or administrative and, on that account, not qualifications of acceptance. The concept of a "routine" subjectivity is somewhat elusive. There no doubt can be subjectivities which by virtue of their content or the form of wording used or otherwise cannot be treated as qualifications of the underwriter's acceptance as opposed to administrative requirements, or stipulations that are required to be satisfied during the course of the insurance as a condition of continued coverage. But the subjectivities in the present case do not, as it seems to me, fall within that category.
176. I was referred to Bonner v Cox Dedicated Corporate Member Ltd [2005] Lloyd's IR 569 in which a slip was scratched in pencil "subject re-referencing and new stamp with effect from 1 January 1999". Morison J regarded these as administrative formalities and not qualifications of acceptance. In addition the underwriter of the reinsured had told the broker that he wanted full disclosure of the understanding on which the cover and the reinsurance was being placed. A Memorandum of Understanding was later produced. The judge rejected the proposition that this was a stipulation which had to be fulfilled before the contract became effective in law rather than an acceptance of the reinsurance on condition that at some stage the reinsurers signed a document acknowledging the basis upon which the reinsurance had been tendered. There was no subjectivity to the contract entered into. The facts of that case are far removed from those of the present. It is, however, apparent from this case and others that the underwriter's stamp is not required in order for a contract to be formed.
177. Travelers placed reliance on Dunlop Haywards v Barbon [2010] Lloyds Rep IR 195. That was a claim against insurance brokers, who instructed placing brokers, for negligence. The placing broker went round the market with a quotation sheet which was subject to four subjectivities. He then prepared a Firm Order Note (FON) which was scratched as noted by underwriters. One of them scratched "subject to slip within 10 days". At the time when the firm orders were noted all of the subjectivities on the quotation sheets (which included the completion of signed and dated proposal forms) remained outstanding. It appears, however, that the FON sheets had no subjects written on them. The judgment records that "the policies incepted with effect from 1 May 2005 albeit with the subjectivities still in place at that stage" (76). In that case it was common ground between the parties that the FONs were of binding effect. The brokers' case [199] was that there was a binding contract of insurance for the 2005/6 year on terms agreed on 27^th and 28^th April 2005, being the dates when the FONs were taken round the market. The insurers' case was that the FONs took effect as a held covered agreement because of the presence of the subjectivities until and subject to the provision of the information required by the subjectivities.
178. I do not regard this case as an authority which should lead me to adopt a different analysis in the present case. It concerned FONs; it was common ground that there was a binding contract; and Sail v Farex was not referred to.

Conditional contract

179. The subjectivities cannot be regarded, in my judgment, as giving rise to binding but conditional contracts.
180. It is said that the parties cannot have intended that Standard Life should be without insurance from 15^th May 1998. If, however, it was without insurance for a period after that day that was no fault of the underwriters. The insurance was arranged late in the day – no doubt in part because Standard Life made a late decision to have cover at a much higher level and for a 3 year period. That situation could have been addressed by securing an extension of the expiring cover (as had occurred in years past) or agreeing with the new market that Standard Life would be held covered for a finite period before the 3 year cover was agreed. Neither of these expedients was sought. Proposal forms were not received by Aon until very late in the day although the fact that they were going to be needed was obvious and had been known for months before the expiry date of the previous cover: e.g. from the meeting on 22^nd January 1998. It may be that there was a lack of a sense of urgency because the size of the excess made the prospect of a claim in the immediate future appear remote. But, whatever the reason, the fact that, on one analysis, Standard Life was without cover until 11^th June cannot dictate the legal analysis of what occurred.
181. The subjects themselves are, in my view, matters which, of their nature, required to be satisfied before underwriters accepted the risk. In those circumstances the natural construction of the scratches with accompanying subjects is that the underwriters are not on risk until the subjects were satisfied (or waived).
182. I recognize that in The Zephyr [1984] 1 Lloyd's Rep 58 Hobhouse J had to consider a scratch written on a slip on Jan 9 "subject FSL TLO"^[35]. That was, however, a case in which the broker seeking all risks insurance for the owner of the vessel had already secured reinsurance for total loss. When the scratch was put down the underwriter told the broker that he wanted FSL TLO reinsurance and understood both that it was available and that the broker was accepting his order. Hobhouse J referred to the words as being part of the slip contract and introducing a condition into it. But, as he said, the words were actually merely intended as an aide memoire to the underwriter's assistant to complete the entry of the syndicate line in ink. On January 13^th a representative of the broker confirmed that the total loss only had been placed for the syndicate and the words were rubbed out. A formal reinsurance order was also written out on that date. Hobhouse J held that the syndicate was bound as from January 9^th "subject to the condition which was in truth satisfied: they were reinsured". This was, therefore, a case in which the condition was satisfied at the moment it was imposed i.e. on 9^th January on which date, as the judgment confirms, the syndicate's reinsurance order was accepted and the reinsurance contract was made, that acceptance being reconfirmed on 13^th January. I note that The Zephyr was cited to Evans J and referred to by him in Sail v Farex.
183. Any analysis of the legal position needs to address the question: what is to happen if a loss occurs after the inception date but before satisfaction of the subjectivities. Is the underwriter bound? If one of the subjectivities is the production of a particular document can the assured produce the document after the loss and claim on the insurance? Can the underwriter decline the cover after the loss becomes known and before the document is produced? Does it matter whether the document has anything to do with the loss?
184. If the scratching of the slip with subjectivities is a qualification of the acceptance, the answer is, in my view, tolerably clear. The scratched slip is a counter offer which may be revoked at any time prior to its acceptance. Further the duty of disclosure continues until the contract is made, so that a known loss before then would have to be declared. If there is a conditional contract it becomes unconditional on the fulfilment of the condition. But difficult questions might arise if, for instance, what is required is a signed and dated proposal form. Presumably the contents must be satisfactory to the underwriter. But if so, can he rely solely on the fact that the proposal form refers or should refer to the post inception loss?
185. If the correct analysis is that there is a conditional contract, there could be expected to be some limit to the time within which the subjectivities are to be satisfied. The usual implication when a period of time is unspecified is that the thing must be done within a reasonable time. That would leave the assured in a somewhat precarious position since whether or not the underwriter could become on risk (by the satisfaction of the subjectivities) would depend on what was held to be a reasonable time. If the subjectivities create a qualified acceptance the position is clear cut. There is no contract until the subjectivities are removed.
186. Whilst these considerations are not determinative, they tend to confirm me in the view that I have formed.
187. Another possibility is that the effect of the subjectivities is to create a contract subject to a condition subsequent so that the underwriter is on risk from the moment that he scratches the slip but, if the condition is not fulfilled within the time specified (or a reasonable time), he goes off cover but only from the time by which the condition had to be fulfilled. This would produce a similar uncertainty to that identified in para 185 if no time was specified. It would be akin to a held covered arrangement which I consider below.

Held covered

188. Insurers can grant cover on a "held covered" basis. This type of cover is a feature of the motor market and is also prevalent in fire, burglary and accident insurance. The evidence does not reveal to what extent it is a feature of the PI market. The insurers agree to hold the assured covered for a finite period typically pending the consideration by them of an applicant's proposal for insurance. It is a contract which is ancillary to the proposed contract.
189. The scratches in the present case do not, in my judgment, evidence or create a held covered insurance. The words "held covered" or words to similar effect are not used. Nor is there reason to imply them. The use of the words "subject to" next to the scratches is an indication that there is no cover for the moment, not that there is cover for some unexpressed period of time. The absence of any specified period is inconsistent with a held covered arrangement. If the underwriters had agreed that Standard Life should be held covered they would surely have specified a period^[36]; whereas, if the subjects operate as a qualification of the underwriter's acceptance there is no need to do so.
190. In any event a "held covered" analysis would not assist Travelers. Standard Life claimed on the 3 year contract of insurance because of a claim made against it in 2001 i.e. towards the end of the 3 year period beginning in 1998. It did not claim on some interim cover operating between May 15^th and June 11^th 1998. The critical question so far as clause 4.14 of the Deed is concerned is, therefore, when the subjectivities of the 3 year contract were lifted.

The judgment of Tomlinson J

191. In the Standard Life trial Tomlinson J held that "The Independent and no doubt all other underwriters plainly became bound earlier than 11 June…" He did not decide when any of the contracts were concluded. He did not need to do so. The only question before him was whether Standard Life's claim against Aon in contract was time-barred, which it would have been if the breach took place before 13^th May 1998. He was therefore only concerned with whether the breach took place before, or after, 13^th May 1998. Aon accepted that Standard Life's claim in tort was not time-barred.
192. The Judge expressed his conclusions on the point in paragraph 111 of the judgment.

"It is accepted that there is no limitation defence in tort. It is therefore unnecessary to consider the position in contract. In case for any reason it does become necessary to consider it I will state my conclusion very shortly. The question is whether the breach occurred before or after 13 May 1998. The activity surrounding the placement straddled that date. The actual renewal date was 15 May. However it was not until 13 May at the earliest that SLAC communicated to Aon its preferred option out of those presented. It was on that day that Mr Stretton gave his agreement to the high level deductible. In my judgment the relevant breach occurred when Aon actually concluded the contract or contracts of insurance on SLAC's behalf. That cannot have been before 13 May because until that time they had no instructions so to do. Traditionally the underwriters become bound when they scratch the slip. The earliest scratch is that of Mr Kerrison on 11 June. However, Mr Kerrison had on 8 May given his binding quotation on the various different bases open for 30 days. The Independent and no doubt other underwriters plainly became bound earlier than 11 June, but there cannot have been a contract with the Independent until the brokers informed Mr Kerrison of the option selected by the insured. That cannot have occurred before 13 May".

193. Tomlinson J was not addressed in detail on the date that the contracts were concluded; nor was he shown all the relevant documents. Standard Life's pleadings, and written opening and closing submissions asserted that Standard Life's cause of action accrued when the contracts were concluded, and that this was in June 1998 when the underwriters scratched the Placing Slip beginning with The Independent on 11^th June: see their written Opening Submissions, paragraph 102 and Closing Submissions, paragraph 179. Aon did not address the limitation point in written submissions because they accepted that Standard Life's claim in tort was not time-barred.^[37] In oral closing, Aon took the Judge to the documents of 13^th and 14^th May 1998 showing that Standard Life had decided upon the higher excess point, Aon's fax of 19^th May 1998 confirming that cover had been effected, and the Placing Slip with scratches on from 11^th June 1998, and noted that there were some loose ends regarding the placement history and how insurers became bound. Aon explained that there must have been further meetings and events which took place. The judge was not shown the two preliminary slips.
194. Tomlinson J's comment that "The Independent and no doubt all other underwriters plainly became bound earlier than 11 June 1998" must, therefore, be understood in light of what he was and was not shown. In the light of the far fuller picture and ampler submissions that I have received I am satisfied that The Independent and other underwriters did not become bound on or prior to 16^th May 1998.

Conclusion

195. For all these reasons Travelers claim fails and the insurers are entitled to appropriate declarations to the effect that they are not liable to indemnify Travelers under the contracts of insurance.
196. I invite counsel to draft an appropriate order to that effect.

Note 1   The unaudited combined consolidated profit and loss accounts and statement of cash flows and consolidated balance sheet of the Minet Guernsey Group and the Minet Inc Group for the period starting on 1 October 1996 and ending on 31 March 1997.    [Back]

Note 2   The first contracts were in respect of the years 1997-2000 and the second in respect of the years 2000-2003, Liberty participated on all 3 programmes. Beazley only participated in respect of the last one.     [Back]

Note 3   At the time named Aon Group Ltd.    [Back]

Note 4   Mr Kerrison’s manuscript “and/or claimant” amendment to the excess provision of the 1996 policy wording was incorporated by Mr Castle into the typed primary layer policy wording for that year and was replicated in the primary slips and policies for 1997 and 1998, although erroneously omitted from the typed versions of the 1996 and 1997 excess layer slips until added in manuscript by various underwriters (but not for the 1997 first excess).     [Back]

Note 5   The Deed contained a 20 year period for pollution and environmental claims, but apart from those, and claims under Clause 4.14, the vast majority of indemnity claims within Clause 2 were, it is said, likely to arise and be made within 6 years of the date of sale.    [Back]

Note 6   I have, therefore, adopted with amendments substantial portions of Travelers’ summary of the history.     [Back]

Note 7   Which was £ 2.5 million    [Back]

Note 8   See also Mr De Zulueta’s memo of 8 June 1995 item d) “REB [syndicate 702] has changed wdg claim definition for 95/96”.    [Back]

Note 9   Also referred to as an “aggregate cap”. Such a mechanism would allow Standard Life to aggregate claims without having to show they had a single cause.     [Back]

Note 10   It was subsequently agreed that Mr Castle would complete a draft wording for the 1996 cover as soon as possible.    [Back]

Note 11   The pre-tax loss was $ 13 million in 1993. It had been $ 433 million in 1992. The price of $ 70 million was for a business with a $ 200 million turnover. St Paul had originally paid $ 560 million for it.     [Back]

Note 12   Contrary to the finding of Tomlinson J in para 88 of the judgment, it appears that Mr de Zulueta did make the move to Aon, was involved in the Account at the time of the 1998 placement and continued to work for Aon until October 1998.     [Back]

Note 13   This is the agenda for the meeting. No meeting notes of this meeting exist.     [Back]

Note 14   This was a reference to the typed quote sheet of 23 April 1998.     [Back]

Note 15   Report and Accounts    [Back]

Note 16   Year 2000    [Back]

Note 17   It is unclear how the bottom £ 2.5 million disappeared so that cover was placed £ 75 million excess of £ 25 million. It is also unclear how Mr Castle persuaded Mr Kerrison to give cover for £ 75 million excess of £ 25 million at the same premium (£595,000) as he had quoted for £ 75 million excess of £ 27.5 million.    [Back]

Note 18   C1/9/422    [Back]

Note 19   Year 2000    [Back]

Note 20   The squiggle appears thus but is difficult to decipher    [Back]

Note 21   To Stand    [Back]

Note 22   The binding underwriters for UK risks.    [Back]

Note 23   There is a problem with this analysis. If 75% was amended to 66.666% after 19th May how is it that the 25% slip (which has 66.666% on it) was scratched by the underwriter for FLD on 18th May? It may be that he scratched when it said 75% but that seems to me unlikely: see para 85 (b).    [Back]

Note 24   It is not apparent to me from the papers who had authority to bind for the excess line slip and whether it was the same underwriters as for the primary line slip.    [Back]

Note 25   This is likely to be the letter required to obtain the no claims bonus for the 1997 year –see the letter of 24th August 1998 from Standard Life to Aon.    [Back]

Note 26   Other than for Ireland and Prime Health which were ‘tba’. The dates were from 17th April to 21st May 1998.    [Back]

Note 27   This is a reference to a fee in the Aon line-slip. Aon charged line slip underwriters 7.5% of the net written premiums for administration and now extended this charge to the open market.     [Back]

Note 28   This is a reference to the second half of clause 2.3 by which the parties recognised that there might on or before Completion be undischarged liabilities (e.g. for rent) of the type specified in clauses 2.3.1 – 2.3.13 for which, by the first half of clause 2.4 the Seller was not to be responsible to the extent that they related to the period starting on the day following Completion.     [Back]

Note 29    “The Seller acknowledges that after Completion the Buyer intends to reorganise the Group which may involve the transfer of an asset or liability of a Group Company or Buyer Group Company to another Group Company or Buyer Group Company…”    [Back]

Note 30   “including …each loss, liability and cost incurred as a result of investigating, defending or settling an actual or potential claim alleging such a liability”    [Back]

Note 31   It was common ground between Standard Life and Aon at the trial before Tomlinson J that Aon was to be judged on its conduct in placing the 1998-2001 insurance and not on what had been done by its predecessors.     [Back]

Note 32   Insurers suggest one example in that the clause provides indemnity in respect of the cost of investigating or defending ill-founded claims or investigating claims that might be made, but never are, (“including, without limitation, each loss, liability and cost incurred as a result of investigating, defending or settling an actual or potentials claim alleging such a liability”), which could be said to arise, but indirectly, from what Minet did.    [Back]

Note 33   This was a reference to the 1997-2000 and 2000-2003 policies taken out by Travelers and Minet following completion of the Sale.     [Back]

Note 34   By the time that the case reached the Court of Appeal the parties had conceded that the line slip was not a contract of insurance in any event.     [Back]

Note 35   Subject Full Signed Line Total Loss Only reinsurance.    [Back]

Note 36   Thus Mr Earl was disposed to accept that a scratch “subject to proposal form to be produced within 30 days” could operate as a held covered arrangement.    [Back]

Note 37   Aon accepted that Standard Life did not have the requisite knowledge until 2001 and accordingly its claim in tort was not time-barred. That left open the question of whether Standard Life’s claim in contract was time-barred in whole or part. However, given that Aon accepted it owed duties of care to Standard Life in tort co-extensive with its contractual duties, it said that this was not a matter which the Court needed to decide: see Aon’s written Opening Submissions, paras 77-78.     [Back]