Underwriter's right to inspect - custom or practice?

Traditionally, underwriters have not kept copies of documentation that they have been shown by brokers. Underwriters have relied on the notion that they can ask the broker to produce his file, as and when it may become necessary.

The recent decision of Goshawk Dedicated v. Tyser (2005) scrutinised this London Market 'custom'. The court was asked to decide whether a broker is obliged - and, if so, to what extent - to allow underwriters to inspect and copy categories of documents, some of which the underwriter has already seen.

The claimant Lloyd's syndicates contended that the defendant brokers should permit inspection and copying of certain categories of documents (claims files and placing/premium accounting information). The underwriters were in run-off and the information was required to determine the extent of their exposure.

It was an important factor in the case that the syndicates and brokers had signed a terms-of-business agreement after inception of the subject policies. The TOBA provided that the brokers would make various documents available for inspection on reasonable notice. This was subject to a clause providing that nothing should override the brokers' duty to their clients.

In a judgment that has effectively challenged market practice, Mr Justice Clarke held that brokers do not have to produce previously made available placing and claims/accounting documents to underwriters unless their client's consent has first been obtained.

Because a broker is the agent of the insured, their clients' rights 'trumped' those of the underwriter, which was contrary to the wording of the TOBA.

However, the decision is currently on appeal due to the potential erosion of a long-standing custom that underwriters were allowed to see and copy the brokers' files, as has been the case for many years. Whether this practice was ever a universal custom was questioned during the proceedings, as the Court stated that "a clear and invariable custom had not been established". It was described merely as a "common or habitual practice".