International insurance relies heavily on emails. But when things go wrong with a contract, can emails be to blame? Ling Ong looks at the case Allianz v Aigaion.
The increased globalisation of the (re)insurance industry has necessitated business being conducted electronically with negotiations carried out over emails rather than the traditional method of face to face negotiations.
From a legal perspective, this method of transacting business can lead to complications when considering fundamental issues such as whether a contract had been entered into, and if so, on what terms.
To return to basics, under English law, a contract can only be concluded where there has been an offer made by one party and accepted by another in circumstances where there was appropriate contractual intention and consideration given.
Within a subscription market, the broker acts as the agent of the (re)insured in placing the slip before the underwriter. Following the Court of Appeal decision in Fennia v Patria , it is now established that the presentation of the slip by the broker to the underwriter constitutes the offer, and the initialling of the slip by the underwriter takes effect as an acceptance of the offer with the result that the contract is formed at that point.
This is unless the underwriter varies the terms of the slip before subscribing. When this happens, the situation becomes reversed. The amendment constitutes a counter-offer and it is for the broker to accept, or not accept, the revised terms.
In reality, this may not present much difficulty if the amendment was made during the course of face to face discussions which result in the slip being amended and then initialled by the underwriter. However, where these negotiations are conducted over email, problems may arise as highlighted in the recent case of Allianz Insurance Co Egypt v Aigaion Insurance Co SA .
In that matter, all transactions between the reinsurers (Aigaion) and the brokers (Chelid) were dealt with over email. Reinsurers had quoted for a marine reinsurance policy on the basis of a class warranty. However, when the slip was prepared and sent by the brokers to the reinsurers, the warranty was omitted. This was undetected by reinsurers who replied with an email that: “Cover is bound with effect from 31.03.05 as we had quoted”.
Reinsurers argued that there was no contract which came into existence because the offer (on the slip) was without the warranty, and the acceptance was “as we had quoted” which meant that it was on the basis of the warranty. As a result, the offer and the acceptance “passed one another in the night”.
The Court of Appeal examined the email correspondence and found that the mutual indicia of finality was so strong that it would have been wrong to find the email exchange as ending in a mere offer and counter-offer. A reasonable reader of the emails would have concluded that reinsurers were agreeing to the terms set out on the slip on the basis that that was what they had quoted. Although the email from reinsurers did not refer to the slip, it was speaking by reference to it. The email was sent on the same document containing the incoming email from the brokers with the slip. The court therefore found that reinsurers’ email constituted an acceptance of the terms set out on the slip even though the slip was different from the terms quoted and agreed.
In reaching this decision, the court had to find first that the slip did not include the warranty. In doing so, it held that the slip was intended to be the definitive reference point (in the absence of the issuance of policy documentation) of the terms of the contract.
The court’s conclusion is unsurprising: if the slip had been scratched or signed by the underwriter rather than simply been forwarded back by reinsurers under cover of an email, there would not have been any dispute that the contract had been concluded on the terms of the slip.
Ling Ong is a Partner, London Market Team, Weightmans