Rathbone Brothers Plc & Anor v Novae Corporate Underwriting Ltd

Lord Justice Elias :

These appeals concern disputes about the construction and effect of the excess layer of a professional indemnity policy issued to Rathbone Brothers plc (“Rathbone plc”) by the members of Lloyd’s Syndicate 2007 and other underwriters (“the excess insurers”) for the 2008 year of account. Rathbone plc is a substantial international group whose trust business included the management of family trusts for wealthy clients. The disputes arise out of litigation before the courts of Jersey brought by certain beneficiaries of a discretionary trust set up by the late Mr Jack Walker, an industrialist and for many years chairman of Blackburn Rovers FC (“the Walker Trust”). These beneficiaries allege that the trustees, who at the material time included Paul Egerton-Vernon (“PEV”), a solicitor who acted as an employee of, and subsequently a consultant to, Rathbone plc’s Jersey subsidiary, made poor investment decisions in breach of their professional and fiduciary duties from the end of 1999.

The excess insurers contend that for various reasons PEV is not covered by the policy either at all or with respect to the particular liability in issue. Furthermore, they submit that even if they are liable to PEV, they are only liable for the excess after other sources of insurance and indemnity have been exhausted. This includes an indemnity under which Rathbone has contractually agreed to indemnify PEV from liability up to a certain level (£40 million per event excluding fraud and wilful misconduct). Furthermore, the insurers submit that they are entitled to be subrogated to PEV’s contractual right to the indemnity. The underwriter of the primary policy, AIG, played no part in these proceedings. It has accepted cover whilst reserving its position depending on the outcome of these proceedings.

Burton J found that PEV could recover under the policy and that the excess insurers were not entitled to rely upon the excess clause. However, he held that they were subrogated to PEV’s right to sue on the indemnity once they had paid out under the policy. The excess insurers appeal the two findings which went against them and Rathbone plc appeals the finding that the insurers have an effective right of subrogation against them.

The background

PEV has been a solicitor since 1971. He moved to Jersey in 1984 and thereafter developed an international practice in trusts. He has been a trustee of a substantial number of trusts, including the Walker Trust. When he first w