The slip that came back short
On 14 November a London wholesale broker presents a combined property and business interruption risk for a Norwegian salmon-processing group to a Lloyd's syndicate. The slip shows total insured value of £180m and requests a 100% placement. The proposed structure is: leader A 35%, follower B 25%, follower C 20%, and the remaining 20% still open. A signs 32.5% 'as per slip', but adds a manuscript clause cutting the business interruption indemnity period from 18 to 12 months. B signs 25% 'as per leader'. C signs 20% but strikes out the 12-month wording and writes '18 months, subject to leader's agreement'. The broker then issues a placing message to the insured confirming '100% bound', relying on a telephone indication from market D for the final 20%. D's underwriter had said the line was 'subject to satisfactory survey' and has not signed the slip. The survey is not booked until January. The insured's cover was due to incept on 1 December and its old programme expires on 30 November.
1. At the point the placing message was issued, was the risk 100% bound? Analyse each line, including A's manuscript clause and C's alteration.
Read the worked answer
No. In the subscription market the slip is not a single contract with one insurer; each underwriter who signs is bound severally for the share and on the terms they sign. The placing message therefore has to be tested line by line.
- A: signed 32.5%, not the 35% sought. A is bound for 32.5% on the terms of the slip as amended by the manuscript clause. The 2.5% shortfall is open.
- B: signed 25% 'as per leader'. B signed after A's manuscript clause, so B is bound on the led terms, including the 12-month BI period, for 25%.
- C: signed 20% but struck out the 12-month wording and substituted 18 months 'subject to leader's agreement'. That is not an acceptance of the slip terms; it is a counter-offer. C is not bound unless and until the altered terms are accepted by the leader and, because it changes B's terms too, by B.
- D: a telephone indication 'subject to satisfactory survey' is conditional and D has not signed. No binding line exists.
So the maximum firmly bound is 57.5% (A 32.5% + B 25%). The broker's '100% bound' message is wrong and must be corrected immediately. It also misrepresents the position to the insured, creating a potential professional negligence exposure if the insured relies on it and suffers a gap.
2. What is the legal effect of C's alteration, and what should the broker do before the 1 December inception?
Read the worked answer
C's deletion and manuscript addition operate as a counter-offer, not a binding acceptance. English contract law requires acceptance to be unqualified; a purported acceptance that introduces new terms does not complete the contract. The broker should not treat the 20% as placed.
Before 1 December the broker has three practical routes:
- Ask C to withdraw the alteration and sign the slip as led. If C agrees, C's 20% is bound on the 12-month basis.
- Ask A (and B) to agree to 18 months for the whole placement. A can agree for its own line; B must also agree because B's 'as per leader' signature does not give A authority to rewrite B's contract after B has signed. A 'follow the leader' clause may give the leader authority over claims and routine matters, but it should not be assumed to permit a substantive policy amendment.
- Treat C's 20% as open and place it elsewhere on the led terms.
Whichever route is used, the broker must tell the insured and the other underwriters what has happened. Silence risks the insured assuming full cover and the leader assuming the slip is complete. The correction should be in writing and before inception.
3. Can the broker rely on D's telephone indication, and what should the placing message have said?
Read the worked answer
The broker cannot rely on D's indication. A line expressed as 'subject to satisfactory survey' is conditional; the condition has not been satisfied and D has not signed. In London market practice a slip signature is the usual evidence of binding, and an oral indication can in principle create a contract, but only if the parties intend to be bound and no condition is outstanding. Here both the condition and the absence of a signature point the other way.
The placing message should have said something like: 'Bound 57.5% (A 32.5%, B 25%); 20% held by C on altered terms not agreed; 20% open with D subject to survey; 2.5% open at A's line.' It should also have stated the conditions and the outstanding items.
The broker should now: (i) issue a correction to the insured and all underwriters; (ii) obtain D's survey or a clean signature; (iii) resolve C; (iv) arrange alternative cover for any unplaced share before 1 December; and (v) record the file. If the insured has already relied on '100% bound', the broker should notify its E&O insurers promptly.