Temple Legal Protection Limited V QBE Insurance (Europe) Limited
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Temple entered into an underwriting agency agreement (or binder) with QBE which came into effect on 1st January 2006. This authorised Temple to write after the event (ATE) legal expenses insurance on QBE's behalf and to delegate authority to "coverholders" to issue policies, receive and hold premium and claims monies, settle claims and market the policies.
The coverholders were mostly firms of solicitors whose clients required ATE cover. On occasion, Temple issued policies directly to claimants.
The policies covered the insured in respect of claims made during the period of cover, which ran from inception to the end of the litigation. During that time, the solicitors handling the litigation were required to report to Temple on progress.
Unfortunately, the relationship between Temple and QBE deteriorated. On 11th August 2006, Temple gave the required 240 days' notice to terminate the binder, which would have expired in April 2007. On 1st October, however, it ceased writing new business for QBE altogether because it had entered into an agreement with another insurer.
QBE claimed the binder was terminated with immediate effect (or at the latest within 60 days) because of Temple's repudiatory breach in entering into an agreement with another insurer. On 4th January 2007, it wrote to Temple stating that it would assume all claims handling functions including the conduct of run-off claims (claims arising out of business written during the currency of the binder). Temple, however, maintained it was entitled to carry on dealing with the run-off.
The termination provisions under the binder included either party giving not less than 240 days' notice. The binder would also terminate automatically if Temple went into liquidation or ceased to be authorised by the FSA.
Under section 9.4, QBE was entitled to cancel the binder at any time with immediate effect if Temple was in material breach and had not remedied the situation within 60 days of QBE's notice. Other triggers for immediate termination included a Temple director or employee being charged or convicted of dishonesty or fraud, a change of control, or Temple entering into an underwriting agreement with another insurer.
Section 9 also set out which provisions of the binder survived termination. These included Temple's obligation to hold premium and claims monies in a trust account and the provisions regarding bordereau accounts and settlements.
Section 10 dealt with the effects of termination. Temple's authority to offer or renew insurance would cease immediately, but it could still cancel, extend, amend or alter existing policies.
Under section 10.2.2, "unless otherwise agreed in writing by QBE" Temple remained liable to perform its obligations in respect of all existing policies until they expired, "PROVIDED that if Termination occurs pursuant to [withdrawal of FSA authorisation] Temple has no liability to perform such obligations".
There were no other provisions that specifically addressed the issue of run-off.
QBE argued that Temple was not entitled to carry on the run-off after termination. There was no clear provision in the binder entitling it to do so. In the absence of a specific provision to the contrary, a principal who loses trust and confidence in his agent is entitled to bring the agency relationship to an end.
Temple, however, maintained that, on its true construction, the binder envisaged Temple handling the run-off, the only exception being if Temple's FSA authorisation had been withdrawn.
The dispute went to arbitration. The arbitrator held that QBE was free to terminate Temple's authority to conduct the run-off by unilateral notice and had done so in its letter of 4th January 2007. Temple appealed on the grounds that the arbitrator's decision erred in law.
High Court judgment
The judge agreed with the arbitrator. If Temple's interpretation of the binder were correct, QBE would not be able to remove Temple as run-off agent, even if it had legitimate concerns about Temple's honesty or competence. The judge thought that would be a surprising result.
Section 10.2.2 dealt with the situation where Temple did not wish to act by stating that, unless QBE agreed otherwise, Temple remained liable to do so, unless its FSA authorisation had been withdrawn. But the clause was drafted in terms of an obligation to continue to act, not an entitlement to do so.
Taking into account the binder terms, the factual background, the commercial context and the general law of agency, the judge concluded there was not enough to establish Temple's entitlement to conduct the run-off. Temple appealed
Appeal Court judgment
The Court of Appeal upheld the judgment. The binder did not give Temple the right to insist on conducting the run off against QBE's wishes.
Both parties relied on an exhaustive analysis of the language used in the binder, the coverholder agreements and certificates of insurance to support their case. Ultimately, however, the Court of Appeal found it more helpful to consider the overall structure of the arrangements.
Under the binder, QBE authorised Temple to write insurance on its behalf and to delegate that authority to coverholders. QBE was not a party to the coverholder agreements, nor did it need to be for the scheme to work.
The contracts of insurance, however, were between QBE and individual litigants. If Temple for some reason became unwilling or unable to administer them, there was no reason why QBE could not do so itself, or delegate the task to another agent. There was nothing that rendered the continued involvement of Temple essential.
And while section 10 of the binder gave Temple the authority it would need to continue managing the business after its authority to underwrite had been withdrawn, this did not amount to a right to continue exercising that authority contrary to QBE's wishes.
The relationship between QBE and Temple was fundamentally one of principal and agent, a fiduciary relationship built on the principal's trust and confidence in the agent.
In general, a principal can revoke an agent's authority at will, even if it has agreed not to do so. It would be unusual and uncommercial for a principal to be obliged to allow its agent to continue to act on his behalf once the necessary degree of trust and confidence had been lost.
Only in rare and limited circumstances is an agent's authority truly irrevocable and, in the Court of Appeal's view, these circumstances did not apply here.
The decision emphasises the need to address in the underwriting agency agreement what will happen in the event of termination - taking into account all the different circumstances in which termination might arise.
An insurer may be happy for the agent to continue managing the run-off after termination in some circumstances but not in others.
Clause 10.2.2 in this binder covered the situation where Temple no longer wished to conduct the run-off, but failed to contemplate the possibility that QBE might not want Temple to continue. As a result, the binder simply incorporated the normal common law position – that a principal can unilaterally terminate an agent's authority.