Legal - Good news for London Market brokers: You CAN offset claims for unpaid premiums.

(From Reinsurance)

In recent years, the role of brokers has been closely scrutinised. Both the courts and regulators have commented - sometimes critically - on how brokers conduct their business. It is less common for brokers to be the aggrieved party.

However, this was the position in which brokers found themselves in the recent case, Heath Lambert v Banesco Seguros CA (9 June 2006). Banesco insured a fleet of vessels in Venezuela. A Venezuelan broker, Scort, acting for Banesco, instructed Heath to place marine facultative reinsurance in the London Market. In doing so, Heath became liable to pay the premium. However, neither the Venezuelan reinsured, nor the broker, reimbursed Heath for the premium.

When claims became payable by the London Market reinsurers, Heath decided to take matters into their own hands. They asserted a lien over the claims monies paid to them under the reinsurance, proposing to pass to the reinsured the net amount, after deducting the premium they were owed.

The reinsured initially argued that Heath had paid the premiums to reinsurers when they need not have done. If they paid as a volunteer, then there was no liability and they could not expect to be indemnified. This argument was rightly rejected in earlier litigation: the Marine Insurance Act 1906 provides that the broker is "directly responsible" for the premium for marine business governed by English law. It is less clear is whether it would have been any difference had the business been non-marine.

The amounts in issue were not huge by modern standards, but a protracted dispute arose, with numerous visits to the courtroom.

Case history