ROYAL EXCHANGE ASSURANCE v. HULLETT AND OTHERS.

(1941) 71 Ll.L.Rep. 117

KING'S BENCH DIVISION.

Before Mr. Justice Atkinson.

Insurance-Reinsurance-Financial guarantee risks-Insurances effected by various companies indemnifying banks against non-payment of advances made to film producing companies-Admittedly financial guarantee risks- Reinsurance policies issued by Royal Exchange Assurance (claimants) indemnifying companies against loss (under policies guaranteeing due repayment of advances made by banks) "by reason of the shortage, if any, between the share of the receipts received by the banks in respect of the production of [certain] films and the amount of the said advances" . . . . "Warranted free from any claim for shortage arising solely from the insolvency of any of the parties participating in the production, distribution and/or hire of the films, it being understood and agreed that underwriters hereon shall only be liable for such shortage as may arise in the event of the failure of the producers to make good such shortage" - Reinsurance policy previously issued by Lloyd's underwriters (respondents) covering liability of claimants in respect of "'Excess of Loss' policies or contracts of insurance or reinsurance underwritten by the reassured in their marine department in respect of which premium is credited to the reassured's 1936 underwriting account"-"Notwithstanding anything contained herein to the contrary this reinsurance excludes all liability in respect of 'Excess of Loss' insurances or reinsurances on . . . Financial Guarantee Risks"-Advances by banks not repaid by film producing companies - Liability of companies - Liability of claimants under reinsurance policies issued to companies-Right to indemnity from respondent-Whether risks undertaken by claimants in respect of financial guarantee risks- Agreement between Lloyd's underwriters not to financial guarantee risks-Test to be applied in deciding whether an insurance a violation of agreement: "Whether the terms thereof are such that the financial default or insolvency of any party will of itself without pre-condition cause a loss under the policy, or brings into operation a peril or contingency insured against which will cause a loss under the policy" - Provision in arbitration clause in respondents' policy that "the arbitrators and the umpire shall interpret this reinsurance as an honourable engagement and they shall make their award with a view to effecting the general purpose of this reinsurance in a reasonable manner rather than in accordance with the literal interpretation of the language" - Whether definition of financial guarantee risks binding as between claimants and respondents - Effect of intimation by Chairman of Lloyd's (as the result of approach by broker placing risk with claimants) that proposed wording of reinsurance policies would be satisfactory from the point of view of the financial guarantee risks agreement - Arbitration - Award of sole arbitrator that risks covered by the policy issued by the claimants were financial guarantee risks-Case stated-Question for Court: Whether upon the true construction of the policies the policy issued by the claimants was in respect of reinsurance on financial guarantee risks.