Julian Miller, reinsurance partner at Beachcroft LLP, looks at the findings of the Heath Lambert –vs- Banesco Seguros case.

In the insurance market, when something goes wrong, it has become common to blame the broker. Sometimes the broker is joined with minimal justification, as someone to hold accountable for the failings of another party.

It is less common for brokers to be the aggrieved party. This was the position in which brokers found themselves in the recent case Heath Lambert –vs- Banesco Seguros CA (June 9th 2006). A Venezuelan broker, acting for a local carrier, instructed Heath to place marine fac reinsurance in the London Market. In doing so, Heath became liable to pay the premium. Neither the Venezuelan reinsured, nor the producing broker, placed them in funds. To make matters worse, the producing broker ceased to trade.

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

The judge upheld Heath’s claim. The lien arose under section 53(2) Marine Insurance Act 1906 which provides: “Unless otherwise agreed, the broker has, as against the assured, a lien upon the policy for the amount of the premium and his charges….”. It made no difference that Heath was a sub-broker. Nor did it matter that Heath had obtained a judgment against the Venezuelan broker (which had not been met). Heath could assert the lien against the reinsured and recover the premium. The lien could be maintained up until payment to Heath of the premium, or discharge of the debt in some other way. The court accepted that any other result would be unfair.

This Viewpoint item appeared in issue 107 of JTW News - July - August 2006

Author: Julian Miller - Beachcroft LLP