Dunlop had instructed Erinaceous Insurance to renew professional indemnity insurance for the companies in Dunlop’s group and to procure a primary layer of insurance cover of £10 million and an excess layer of £10 million. Erinaceous Insurance engaged a sub-broker (Lockton) to place the cover. Dunlop faced numerous claims arising out of allegedly negligent and/or fraudulent valuations but the excess insurers denied liability on the basis that the insurance did not cover valuations. Dunlop commenced proceedings against Erinaceous Insurance for failing to comply with their instructions by obtaining excess insurance which contained a condition limiting cover to liability arising from the insured’s commercial property management activities. Erinaceous in turn sought an indemnity or contribution from Lockton as sub-broker. No claim had been made against the excess insurers for an indemnity under the policy in the instant proceedings or any other action.
Erinaceous Insurance made an application under Civil Procedure Rule (CPR) 19.2(2) to have the excess insurers joined as defendants so that they would be bound by any decision of the court. Erinaceous Insurance argued that the policy, correctly construed, did cover valuations or alternatively that the policy should be rectified. At first instance, Mr Justice Field found that the rectification case was so weak that the excess insurers should not be put to the inconvenience and expense of defending such a claim. The Judge also decided that although the policy construction case had a reasonable prospect of success, it was not clear that claims would be made against the excess insurers and if they were, the claims could be tried quickly in separate proceedings.
On appeal, Lord Justice Rix found that the rectification case was necessarily a fact-based enquiry and should not be dealt with summarily: there were a number of issues which required full consideration. The agreed issues for trial would require the excess insurers to provide documents and evidence, even if they were not joined as parties, and it was only a small step from this to joinder. It was also desirable that the excess insurers be able to contribute to the construction case and be bound by its outcome. The judge allowed the appeal and ordered that the excess insurers be joined to the proceedings.
This case is notable because although no claims had been pursued against the excess insurers, the Court of Appeal held the view that effective management of the litigation required their participation.
