MARKEL INTERNATIONAL INSURANCE CO V SURETY GUARANTEE CONSULTANTS LTD

[2008] EWHC 1135 (Comm), Queen’s Bench Division, Commercial Court, Mr Justice Teare, 3 June 2008

Insurance – Underwriting agent – Agent issuing surety bonds in excess of financial and geographical limits permitted by agency agreements – Liability of agency and of its controllers and employees – Whether individuals owed fiduciary duties to insurers – Conspiracy to injure – Knowing assistance with breach of fiduciary duty – Inducing breach of contract

There were here two separate actions, but the two actions were tried together because of similar issues and common defendants. The claimants were insurers Markel and QBE, and an underwriting agency Amalfi. The defendants were: an underwriting agent, SGC; two directors of SGC (H and W); an employee of SGC (F); a director of Templeton Insurance (B); and another insurance company, GCL. The basis of the claim was that the defendants were guilty of fraud in connection with the writing of surety bonds, ie, bonds designed to guarantee the performance of contractual obligations. With effect from 1 January 2005 Markel granted SGC a binding authority to SGC for the issue of surety bonds on behalf of Markel. Soon afterwards Markel’s speciality underwriter left to join to Amalfi, and it was understood that the business would go with him. Accordingly, the binding authority between Markel and SGC was terminated by Markel by letter dated 1 November 2005. On 1 October 2005 QBE granted Amalfi a binding authority to bind security bonds, and with effect from the same day Amalfi entered into an Underwriting Management Agreement with SGC under which SGC was “to submit for approval Surety Bonds.” The agreement between Amalfi and SGC was terminated by Amalfi on 21 August 2006. In the present case the claimants asserted that SGC secretly wrote bonds in excess of the financial limits permitted by the binding authorities, thereby exposing the claimants to greater liabilities than they had intended and also allowing SGC to obtain additional premium which they did not pass on to the claimants. There was a further allegation that the placing bordereaux supplied by SGC to the claimants did not disclose the amounts for which the bonds were written and indeed did not disclose all of the bonds themselves. The action was to recover excess losses – in that the claimants chose to honour the bonds rather than to deny liability for them – and the premium wrongly obtained by the defendants. The causes of action were breach of fiduciary duty, conspiracy to defraud, dishonest assistance in breach of trust or fiduciary duty by SGC and procurement of a breach of contract by SGC. The defences of the four individual defendants were that they had not acted dishonestly, and that to the extent that the bonds exceeded the permitted financial limits the surplus was taken up by Templeton as “silent co-surety” so that the claimants’ position had not been affected at all.