Facts
Temple entered into an underwriting agency agreement (or binder)
with QBE which came into effect on 1st January 2006. This
authorised Temple to write "after the event" legal expenses
insurance on QBE's behalf and to delegate authority to
"coverholders" to issue policies, receive and hold premium and
claims monies, settle claims and market the policies.
The coverholders were mostly firms of solicitors whose clients
required ATE cover. On occasion, Temple issued policies directly to
claimants.
The relationship between Temple and QBE deteriorated. On 11th
August 2006, Temple gave the required 240 days' notice to terminate
the binder, which would have expired in April 2007. But on 1st
October, it ceased writing new business for QBE altogether because
it had entered into an agreement with another insurer.
QBE claimed the binder was terminated with immediate effect (or
at the latest within 60 days) because of Temple's repudiatory
breach in contracting with another insurer.
On 4th January 2007, it wrote to Temple stating that it would
assume all claims handling functions including the conduct of
run-off claims (claims arising out of business written during the
currency of the binder). Temple, however, maintained it was
entitled to carry on dealing with the run-off.
Binder terms
The termination provisions under the binder included either
party giving not less than 240 days' notice. The binder would also
terminate automatically if Temple went into liquidation or ceased
to be authorised by the FSA.
Under section 9.4, QBE was entitled to cancel the binder at any
time with immediate effect if Temple was in material breach and had
not remedied the situation within 60 days of QBE's notice. Other
triggers for immediate termination included a Temple director or
employee being charged or convicted of dishonesty or fraud, a
change of control, or Temple entering into an underwriting
agreement with another insurer.
Section 9 also set out which provisions of the binder survived
termination. These included Temple's obligation to hold premium and
claims monies in a trust account and the provisions regarding
bordereau accounts and settlements.
Section 10 dealt with the effects of termination. Temple's
authority to offer or renew insurance would cease immediately, but
it could still cancel, extend, amend or alter existing
policies.
Under section 10.2.2, "unless otherwise agreed in writing by
QBE" Temple remained liable to perform its obligations in respect
of all existing policies until they expired, "PROVIDED that if
Termination occurs pursuant to [withdrawal of FSA authorisation]
Temple has no liability to perform such obligations".
There were no other provisions that specifically addressed the
issue of run-off.
The issues
QBE argued that Temple was not entitled to carry on the run-off
after termination. There was no clear provision in the binder
entitling it to do so. In the absence of a specific provision to
the contrary, a principal who loses trust and confidence in his
agent is entitled to bring the agency relationship to an end.
Temple maintained that, on its true construction, the binder
envisaged Temple handling the run-off. The only exception to this
was if Temple's FSA authority had been withdrawn. There was a
complicated network of contractual relationships between Temple,
QBE, coverholders and insureds. Allowing QBE to step in and take
over the run-off would put Temple in breach of contractual
obligations owed to numerous third parties.
The dispute went to arbitration. The arbitrator held that QBE
was free to terminate Temple's authority to conduct the run-off by
unilateral notice and had done so in its letter of 4th January
2007. Temple appealed on the grounds that the arbitrator's decision
erred in law.
The judgment
The judge agreed with the arbitrator that Temple was not
entitled to deal with run-off claims following termination.
It is normal practice in the insurance market for the agent to
manage run-off business. And in this case, neither the binder nor
the other contractual documents provided a clear answer to the
question.
But if Temple's interpretation of the binder were correct, QBE
would not be able to remove Temple as run-off agent, even if it had
legitimate concerns about Temple's honesty or competence. The judge
thought that would be a surprising result.
Section 10.2.2 dealt with the situation where Temple did not
wish to act by stating that, unless QBE agreed otherwise, Temple
remained liable to do so, unless its FSA authorisation had been
withdrawn. The clause was drafted in terms of an obligation to
continue to act, not an entitlement.
The binder also specified those clauses that would survive
termination. These did not include Temple's obligation to use care,
skill and diligence, nor the provisions for reporting and settling
claims. If it had been intended that Temple would conduct the
run-off after termination, it would have been important for these
duties to continue.
As for Temple's obligations to third parties, the judge was
satisfied that these existed only for so long as Temple had
authority to manage the run-off.
Taking into account the binder terms, the "factual matrix"
behind it, the commercial context and the general law of agency,
the judge concluded there was not enough to establish Temple's
entitlement to conduct the run-off.
Commentary
The decision emphasises the need to address in the underwriting
agency agreement what will happen in the event of termination -
taking into account the different circumstances in which
termination might arise.
Clause 10.2.2 in this binder covered the situation where Temple
no longer wished to conduct the run-off but did not contemplate the
possibility that QBE might wish to remove Temple
unilaterally.
An insurer may be happy for the agent to continue managing the
run-off after termination in some circumstances but not in others.
A significant factor in the judge's decision appears to have been
that, if Temple were right about its entitlement, QBE would not be
able to remove Temple for any reason at all.
