Insurance brokers negligence claims: two bites of the cherry?

Kennecott Utah Copper Corporation and others v Minet Limited and others - 30 July 2002

In the case of Kennecott Utah Copper Corporation and others v Minet Limited and others, the courts illustrated how firmly they deal with any attempt to claim against insurance brokers when litigation between parties to an insurance contract has already disposed of the issues without criticism of the broker. The case also highlighted the danger of settling a dispute with an insurer prior to an appeal where a contribution might be sought from a broker, unless a clear agreement exists preserving rights to claim against the broker in the future. The successful defences of the broker were issue estoppel and abuse of process.

Facts

TCI, an insurance company, retained Minet to place reinsurance cover for a copper smelting modernisation project (the "SMP"). The cover comprised a construction reinsurance and an operational reinsurance, to ensure that cover was effective from the start of construction of the SMP through to the point at which the SMP went into operation. On 16 September 1995 explosions destroyed a significant part of the SMP and gave rise to a claim on the operational policy. Operational reinsurers refused to indemnify on the basis that the SMP had not transferred from the construction policy to the operational policy because certain provisions which needed to be met prior to the SMP attaching to the operational cover had not been fulfilled.

Original litigation between TCI and reinsurers

The first claim by reinsurers, which it was agreed did not involve any allegation against the broker, was that TCI had not met the attachment provisions in the operational policy. The second claim was that the attachment provisions had been altered by the broker without authorisation. It was this that gave rise to allegations of professional negligence by the broker.

During the course of the litigation between TCI and reinsurers, Minet co-operated with TCI to defeat reinsurers' claim rather than being joined to the litigation. Minet also offered not to suggest that it was an abuse of process for TCI to pass on to Minet allegations of negligence pleaded in the future by reinsurers. This offer was never formally accepted, although TCI were subsequently to argue that it had been.

At the trial the Judge found that the relevant parts of the SMP had not attached to the operational reinsurance policy because the requirements of two attachment provisions had not been met, but these requirements were known to TCI and Minet were therefore not implicated. The claims against Minet, which had by this time been brought but held over, were dismissed on the basis that any negligence on the part of Minet could not have caused any loss. TCI appealed but settled with reinsurers before the matter reached the hearing for less than the full amount of the loss that they claimed to have suffered. These unrecovered losses were then claimed against Minet in the 2000 action.

Claim against Minet

Minet defended the 2000 claim on issue estoppel and abuse of process.

Issue estoppel arises when an issue forming a necessary ingredient in a cause of action has been litigated and decided, but in subsequent proceedings between the same parties involving a different cause of action to which the same issue is relevant, one of the parties seeks to re-open the issue. In the Minet action the Court found that the first judgment was fatal to any suggestion that what Minet negligently did or did not do could have caused any loss and TCI were estopped from re-opening the issue. Abuse of process occurs when a claim is made, or a defence raised, in later proceedings but the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. Minet submitted that the 2000 action was a vehicle to challenge the conclusions reached in the 1996 proceedings and Minet were therefore being "unjustly harassed". The Court found that TCI had had every opportunity to make their claim against Minet during the course of the 1996 action but chose not to. The Court also considered it unfair to re-open the attachment issue as this would harass Minet. Despite TCI's attempts to reserve its right to make further claims, it was decided that no agreement was actually reached between TCI and Minet.

For the future…

This case is helpful to brokers because of the robust approach by the courts in disallowing later claims. At the same time, though, it may mean that the broker's opportunities to exclude itself from the primary litigation between their client and (re-)insured become more limited as closer scrutiny is given to the broker's position at every stage of the primary litigation.

For further information, please contact Susan Hopcraft (nee North) by e-mail at susan.hopcraft@cms-cmck.com or on +44 (0)20 7367 3056.