Whether the reference to “Underwriters” in a settlement agreement included a reference to employees and agents

http://www.bailii.org/ew/cases/EWHC/Comm/2014/3068.html

This case has been previously reported in Weekly Updates 46/11, 46/12, 40/13 and 28/14. The insured’s claim for damages for late payment (after its insurers refused to pay) failed in English court proceedings after the insured was refused permission by Tomlinson J to amend its Particulars of Claim to include a claim for damages for late payment. The parties then entered into three settlement agreements (one with the Companies market, one with the Lloyd’s market and one with the Hellenic Hull Mutual) which provided for English law and jurisdiction and contained an indemnity agreement, whereby the insured agreed to indemnify the insurers against any claim brought by the insured’s companies. Three years after the settlement, the insured commenced proceedings in Greece against the insurer (and insurers’ former employees, solicitors and loss adjusters) seeking compensation for loss of hire and loss of opportunity. The insurers commenced proceedings in England alleging a breach of the settlement agreements and/or exclusive jurisdiction clauses in the policy and settlement agreements and the Court of Appeal ruled in favour of the insurers.

This issue in this case was who exactly was covered by those settlements agreements: was it the Underwriters alone or also the individual underwriters and employees of those insurers (the insured having made certain allegations against these individuals). The relevant wording in the Hellenic settlement agreement (which had slightly different wording to the other two settlement agreements) had referred to “full and final settlement of all and any claims” that the insured may have “against the Underwriters [i.e. the Hellenic] and/or against any of its servants and/or agents”.

However, the insured sought to rely on the fact that there had been no reference to agents or servants of the insurers in the preamble to the settlement agreement, arguing that where a contract contains a defined term which clearly in the preamble means one thing (i.e. the Hellenic and not their employees, servants or agents), the court will not conclude that the defined term must mean something  else when it is used elsewhere in the contract, unless that construction would be absurd.

That argument was rejected by Flaux J. It would result in an absurd commercial result if the insured was still, post-settlement, entitled to sue the insurers’ employees who would then seek an indemnity from those insurers (thus leaving the insurers still exposed to liability following the settlement). It is a principle of English law that general releases are intended to provide a cleanbreak (as supported by the use of the words “full and final settlement” in the agreement). Furthermore, under the joint tortfeasor rule, the insured must be taken to have intended to settle against both the insurers and their employees or agents irrespective of whether the servants and/or agents are expressly referred to in the settlement agreements (which, in two of the agreements, they were not). The word “Underwriters” was therefore taken to mean the corporate entities or Lloyd’s syndicates and their respective employees). Furthermore, where the agreement did expressly refer to servants and/or agents (which the Hellenic settlement agreement did), the lawyers and loss adjusters who acted for the insurers at the time of the settlement agreement also fell within the meaning of “servants and/or agents” and were entitled to enforce the terms of the settlement by a claim for damages pursuant to the Contracts (Rights of Third Parties) Act 1999.