National Oil Corporation ("National Oil") was the state-owned Libyan oil corporation which was insured, in accordance with Libyan law, through a locally-admitted insurer, which in turn was reinsured 100% in the international markets.
In 2004 the United Insurance Company of Libya ("United Insurance") appointed Aon to place the reinsurance of the National Oil risk which United Insurance fronted. Subsequently, United Insurance asked Aon to place the reinsurance of another Libyan company, General Company for Chemical Industries ("Chemical Industries") on the basis that the risk was attached to the National Oil cover. Shortly after, United Insurance asked Aon to replace the Chemical Industries cover as a stand-alone risk at a higher cost. United Insurance also retained Aon’s commission on the placement.
In 2005 United Insurance appointed Aon in relation to the renewal of the National Oil risk. However, there had been disagreement about the ceding commission payable to United Insurance the previous year and this continued in relation to the 2005 renewal. Aon eventually advised United Insurance that it was unable to submit terms due to the dispute. Aon quoted to another Libyan insurer which tendered successfully for National Oil’s 2005 business.
United Insurance commenced proceedings against Aon alleging that:
- In relation to the 2004 National Oil placement, Aon was in breach of fiduciary duty in misrepresenting and concealing the commission that it had earned and that consequently Aon was obliged to account to United Insurance for all the brokerage received.
- In relation to the Chemical Industries cover, Aon was in breach of contract for not placing the risk in accordance with its instructions from United Insurance since, as an attachment to the National Oil risk, there was a risk of avoidance once it became known that the two companies were not related.
- In relation to the 2005 National Oil renewal, Aon had acted in breach of contract and fiduciary duty by inducing
United Insurance to instruct Aon as its sole broker, then failing to inform it in good time that it would refuse to tender if the commission was not agreed. Consequently Aon was obliged to account to United Insurance for all brokerage received from the other Libyan insurer.
Aon counterclaimed for its unpaid commission in relation to the Chemical Industries placement. United Insurance was unsuccessful on all counts.
Mr Justice Langley held that the commission for the 2004 year was agreed freely, if reluctantly, by United Insurance, who had not been misled in any way.
United Insurance had originally told Aon that Chemical Industries and National Oil had cross-ownership and instructed that the Chemical Industries cover should be placed as an attachment to the National Oil cover. Aon was entitled to recover its unpaid commission under its counterclaim.
In relation to the 2005 National Oil tender, Mr Justice Langley held that there was no pre-existing exclusive agency governing Aon’s and United Insurance’s relationship. United Insurance itself had chosen to seek competitive tenders from other brokers. Ceding commission had been an issue from the previous year and Aon had warned United Insurance that if it was not agreed, Aon would not quote to United Insurance. Although there was a continuing "relationship" between Aon and United Insurance in the sense of working together on the tender, there was never an agreement on the terms upon which that might occur. There was no relevant contract nor did Aon owe any fiduciary duty to United Insurance. Both knew that other brokers and local insurers were interested and neither agreed to exclusivity.
Mr Justice Langley closed by observing that United Insurance’s case had not been improved by including references to fiduciary duties. Although the judge’s finding, that there was no basis upon which Aon should be ordered to pay to United Insurance either its profits or its "entire receipts", appears to have been made based upon the facts of the case, it would appear to suggest that it may not be easy for a reinsured to establish a fiduciary duty in the context of a typical reinsured-broker relationship.