Insurance: Joinder of Excess Layer Insurers to Litigation

The Court of Appeal has granted an application to join excess layer insurers to proceedings variously between the insured and its broker(s), reversing an earlier decision of the Commercial Court.

The history to this placement is complex as is the litigation’s procedural history. In short, the insured notified primary and excess layer insurers of claims arising out of valuations carried out by one of its employees. Excess insurers declined to indemnify the insured on the basis that the claims were not covered by the policy. The insured commenced proceedings against the producing broker on the basis that the broker had failed to fulfil his instructions in obtaining adequate insurance cover.

The producing broker then sought to add the Lloyd’s broker and have excess layer insurers joined as additional parties to the proceedings (under CPR 19.2(2)) in order to bind the excess layer insurers to the decision of the court on the construction of the policy and whether it should be rectified to afford cover to the insured. It is the joinder of the excess layer insurers that was the subject of the Court of Appeal’s interlocutory judgment.

The Court of Appeal overturned the first instance judge’s decision, dismissing excess layer insurers’ submission that the rectification claim could be disposed of summarily and held that the argument was not so weak as to prevent these insurers being joined. Even where one contract (a firm order noted endorsement) was superseded by another (the slip) in arguably different terms there could still be rectification of the slip and policy. The court held it was desirable for insurers to be joined to the proceedings to participate in arguments on rectification and construction and so that all parties would be bound by the result.

Comment

The litigation was initially issued against the producing broker alone. Subsequent claims were added against the Lloyd’s broker and excess layer insurers. In this case the court joined the excess layer insurers to the proceedings despite acknowledging that none of the parties to the appeal were in a position to assert a direct claim against the excess layer insurers. This decision indicates the courts may adopt a flexible approach in joining parties to proceedings in order to debate the interpretation and effect of the policy wording and to ensure all parties are bound by the results of the trial to the background of having all appropriate evidence before the court.

Further reading

Dunlop Haywards (DHL) Limited and Another v Erinaceous Insurance Services Limited and Another [2009] EWCA Civ 354

To read our Law Now on the Commercial Court decision on rectification and application to strike out the claim against the placing broker click here.