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Kate Payne, a partner in the commercial, regulatory and employement group at London-based solicitors Elborne Mitchell, was recently involved in obtaining an injunction on behalf of three former Marsh employees which prevented Marsh and McLennan Cos. bringing an action against them in New York. She talks to Business Insurance Europe about insurance litigation.
Q. The Court of Appeal in London recently issued an injunction that prevents Marsh McLennan Cos. from suing three, London-based former employees in New York. Although the executives were employed in London, all three were part of a benefits package administered in New York. What do you think is the significance of this ruling?
A. The Marsh McLennan Cos. 2000 Senior Executive Incentive and Stock Award Plan was a scheme, run and administered in New York, to reward senior Marsh executives worldwide with cash bonuses and stock options. Marsh argued that when the three executives, Julian Samengo-Turner, Ron Whyte and Marcus Hopkins, signed up to the plan, they were agreeing that questions over their conduct as Marsh executives should be dealt with under New York law and in the New York courts ... even though the three executives were based in London and their employment contracts were subject to English law.
They are expected to join the London-office of New York-headquartered rival broker Integro Insurance Brokers, after their notice period expires in early October. But in the European Union, employees are accorded the protection that they can only be sued by their employers in their home state. So the central question was whether or not the incentive plan could be said to stand apart from the employment arrangements. The Court of Appeal took a commonsense view about this and concluded that all the issues which Marsh wanted to argue about were aspects of the executives' employment arrangements. The Court of Appeal intervened to protect the executives and enforce the European rule.
Since stock options and incentive plans are common enough where senior executives are involved, the case has important ramifications for North American companies with employees based in the European Union.
Q. Do you think that the case is an example of an increasing trend for litigation between companiesparticularly brokersand former employees?
A. London insurance brokers have been second-to-none in seeking out business around the globe to bring to underwriters in London, most especially Lloyd's of London. That historical role has meant that brokers and their connections abroad are pivotal in bringing in the business. Moreover, it is often a very personal connection. In today's very competitive environment, the value of a well-connected broker is rising rapidly and this is reflected in high profile individuals being enticed away by rivals. It also explains why broking firms are inclined to be more aggressive these days when enforce contractual commitments against departing executives.
Q. The Law Commission and Scottish Law Commission recently published a consultation paper to make insurance contract law clear, up-to-date and fair. What do you think the impact of that consultation paper will be?
A. The Law Commission proposals for reform of insurance contract law were published on July 17, 2007. This is the latest stage in an unusually wide consultation process. This attempt to develop a head of steam on the issue no doubt reflects concerns on the part of the Law Commission and the legal community that the previous proposals for reform, in 1980, were met with a counter-offensive from the insurance industry, and the government left the proposals to gather dust on the shelf. Responses to these provisional proposals need to be made by November 16, 2007. After that, final proposals will be made and the Law Commission will hope that they are enacted this time.
The need for reform is well-recognized in legal circles. The United Kingdom has lagged behind other common law jurisdictions, such as Australia, where 19th century principles have been comprehensively overhauled. The focus on consumer insurance in the Law Commission proposals is noticeable. Much of the current burden on consumers will be ameliorated but, for business insurance, much of the old system will be retained, subject to some changes. It will still be the responsibility of business policyholders to make a full disclosure of the risk to underwriters, but a test of reasonableness will be introduced. There will be more flexibility for business policyholders and insurers to agree on the consequences of some failure in the process for placing insurance. Businesses will also benefit from some of the wider changes proposed to the insurance contract law regime and, of course, small businesses, with a turnover of less than £1 million (€1.5 million) can still make use of the (U.K.) Financial Ombudsman Service. This is a much more informal way of obtaining redress against their insurers.
Unsurprisingly, what the Law Commission proposals do not address are the problems associated with the development of European single market products. There is movement here too, although the theoretical problems linked to the reconciliation the common law rules that prevail in the United Kingdom with the civil law rules that prevail [in mainland Europe] are daunting indeed. But work is continuing, under the auspices of the European Commission, for the development of a body of European insurance contract legal rules which, it is hoped, might be adopted as a common framework for covering international risks in the European Union. It may be a long way off.