In Beazley Underwriting Ltd and Anor v Travelers Companies Inc [2011] EWHC 1520 (Comm) it was held that an insured could not claim under its professional indemnity insurance to recover settlement monies paid to brokers under a deed of indemnity when it was not in fact liable.

In 1997, Travelers sold the Minet broking group to Aon. Under a deed of indemnity, Travelers agreed to indemnify Aon against any loss, liability, claim or cost arising from Minet's conduct occurring on or before the date of sale. If there was a continuing series of related events or occurrences occurring in the 12 months after completion, the deed provided that these would be deemed to have arisen before the sale. Travelers purchased professional indemnity insurance from Beazley and Liberty Mutual to protect against potential losses under the deed.

A claim was later brought against Aon and, in Standard Life Assurance Ltd v Oak Dedicated Ltd [2008] EWHC 222 (Comm), it was found liable for negligently providing cover that did not meet Standard Life's needs. This defective policy was for the period 1998-2001 and was a renewal of an earlier policy placed by Minet. Aon then claimed against Travelers under the deed of indemnity. This claim was settled by Travelers, which then sought an indemnity from Beazley and Liberty Mutual.

Mr Justice Clarke held that the insurers were not liable. This was because Travelers itself was not liable to Aon under the deed of indemnity. There was no "loss, liability, claim or cost" arising out of events before completion as it was only Aon's negligence (and not Minet's) which resulted in the 1998-2001 policy being inadequate. Aon's duty to its client at renewal "was the same duty as is imposed on a broker at an original placement, namely a duty to take reasonable care to ensure that his client's insurance needs are clearly met." Further, it could not be said that earlier failures by Minet constituted a "continuing series of related events" resulting in indemnity under the deed because they were separate events.

Clarke J went on to say that even if Travelers had been liable under the deed of indemnity, it was not entitled to claim under the PI policy because the policy only covered acts committed by Minet or its employees, and not Aon. The Judge found that the deed and the insurance policy were congruent, such that Travelers was insured to indemnify for Minet's failures, but not required to indemnify Aon for its liabilities to Standard Life.

As a final point, Clarke J held that Aon's negligence occurred more than 12 months after the date of sale. This was because the slips that were scratched before the 12 month period ended included subjectivities with regards to reinsurance, satisfactory proposal forms, and a Y2K questionnaire. Clarke J said the subjectivities were classic qualifications of acceptance that were not routine or administrative. Also, the subjectivities were not to be regarded as giving rise to binding but conditional contracts. Instead, the subjects were "matters which, of their nature, required to be satisfied before underwriters accepted the risk," and so underwriters were not on risk until the subjects were satisfied or waived.