Renewal of commercial policies is often arranged between brokers and underwriters in an informal manner. But it is important for both sides to be clear as to precisely what is being agreed on, particularly where one side seeks to introduce changes to cover, as a recent Court of Appeal case has confirmed (GNER vs Avon Insurance).
The case arose from a train derailment at Sandy, Bedfordshire, in 1998. Avon insured GNER, the train company, for material damage and business interruption risks for its locomotives, under a policy placed by their brokers Lambert Fenchurch in 1996. Cover was on the terms of a wording drawn up by Lambert Fenchurch, which included an exception for damage arising from faulty workmanship.
In February 1997, Jardines replaced Lambert Fenchurch as GNER's brokers. In February 1998, Jardines provided Avon with renewal information in a presentation document called "Request for Property Insurance Quotation".
They included in this document a new wording more favourable to GNER, limiting the faulty workmanship exception to faulty workmanship "on the part of GNER or any employees other than drivers or guards". Significantly, there was no covering letter explaining the purpose or content of the document.
The Jardines broker and Avon's underwriter then met to negotiate and discussed the premium and excess, etc. The broker did not, however, draw the underwriter's attention to the new wording. In March 1998, Jardines faxed Avon, offering "renewal of the policy" and suggesting a premium and excess. The underwriter wrote "agreed" on the fax, and faxed it back to Jardines.
Three months later, on June 16, 1998, the train came off the rails. The derailment was traced to faulty workmanship – but by the manufacturers of an engine wheel, not by GNER. The loss was therefore within the original exception for faulty workmanship, but not the later Jardines exception. GNER claimed for loss of revenue and additional costs, but Avon refused to indemnify, relying on the original wording.
GNER argued that the document had been enough to bring the new wording to the attention of Avon's underwriter. Therefore the later wording put forward by Jardines formed part of the policy – consequently the losses fell to be indemnified. Proceedings were issued and the question of which wording applied was tried as a preliminary issue.
At first instance, the Commercial Court found for Avon; GNER appealed. The Court of Appeal gave judgment in May 2001, dismissing the appeal.
The Court of Appeal held that Jardines' offer to "renew" the policy must have been an offer to renew on the previous year's terms. It was a striking fact that the Jardines wording was not referred to during the meeting between the broker and the underwriter. Furthermore, the evidence of both the broker and the underwriter was that they would regard it as incumbent on a broker, introducing changes, to seek the underwriter's specific acceptance of them.
The only negotiation on renewal had concerned commercial terms, such as the premium and excess, not the wording and exception clauses.
The most important implication for brokers and insurers is that, where they are seeking to introduce specific changes to cover, they must actively draw the attention of the other party to the changes, and seek their written agreement to them. Although, here, brokers were seeking to change the terms, the same must also apply where changes are sought by underwriters. This is particularly important where the changes to cover affect the limits of the policy. Here, the new wording was in a presentation document, without even a covering letter, and this was wholly insufficient to bring it to the underwriter's attention.