advised in 1973 that it might be sued, at the SEC's behest, by ICC for legal malpractice. Over the next four years, Butowsky and the law firm engaged in extensive negotiations in order to resolve the matter out of court, but these proved unsuccessful and in 1977 Butowsky filed three malpractice suits on behalf of the Commission and ICC alleging that H&H had breached its fiduciary duties to ICC while serving as its corporate counsel. Plaintiff undertook the defense of these cases and expended approximately $3.3 million in litigation costs and another $730,000 in its June 1981 settlement of the actions. It recouped approximately $1.2 million of these expenses from an insurance policy covering ICC's directors and officers and, in February 1982, requested that defendants contribute another $1.4 million. Defendants' refusal to do so precipitated this lawsuit.
During the late 1960's and early 1970's H&H purchased legal malpractice insurance from Travelers covering any acts, errors or omissions committed, or alleged to have been committed, by the firm in the United States, Canada, or any U.S. territories. This domestic primary coverage insured H&H up to $1 million for each malpractice claim brought against it, with a $3 million aggregate liability limit. The policy required the firm, upon learning of any act or omission which might give rise to a claim, to give "written notice . . . to the company [Travelers] or any of its authorized agents as soon as practicable . . . ." Travelers Policy Number LLB 2070462, Plaintiff's Exhibit 1 (emphasis added). In addition to this coverage, H&H purchased several policies from Lloyd's of London underwriters. The first of these was an excess domestic policy issued by underwriters different from the defendants to this action; this policy covered acts or omissions occurring in the same geographical area as the Travelers domestic policy, and provided protection in the event H&H's liability on a given claim exceeded the liability limits of the primary domestic policy. H & H also obtained an overseas primary policy from the defendants in this case, a group of Lloyd's underwriters known as the R.E. Thomson syndicate, as well as an overseas excess policy from still a third group of Lloyd's underwriters. These policies provided coverage for legal negligence occurring in western Europe, see Travelers Indemnity Co. v. Steven Booker, et al., 657 F. Supp. 280, slip op at 4 (D.D.C. 1986) (the "May 16, 1986 Opinion") and it is upon the overseas primary policy that plaintiff bases its entitlement to contribution in this case.
At this juncture a short digression into the mechanics of the Lloyd's of London insurance market is appropriate. Contrary to the popular conception, Lloyd's is not a monolithic institution, nor does it operate in the same manner as a corporation in this country. The corporation known as Lloyd's of London provides a physical site for the sales of insurance by underwriters that are members of the corporation, as well as support and incidental services to those members. The corporation itself, however, is not at risk on any of the insurance sold by underwriting members. The purchase and sale of insurance takes place on the floor of the underwriting room at Lloyd's, or in the offices of individual insurance companies in London. Members subscribe to cover all or part of a proposed risk placement at their own election, frequently under the auspices of a syndicate -- an entity comprised of a group of underwriters ranging in number from two or three to several hundred. The first syndicate to sign a slip of insurance becomes the lead underwriter on the policy. On the overseas primary policy at issue in this lawsuit, the R.E. Thomson syndicate was the lead underwriter.
Persons wishing to purchase insurance from Lloyd's may not do so directly, but must instead act through a broker who has been approved by Lloyd's to place risks with Lloyd's syndicates. Usually an applicant must first contact an outside broker, who will then contact a "Lloyd's broker" to place the insurance through Lloyd's. It is the recognized custom and usage of the London insurance market that the broker is the agent of the insured for most purposes, including the initial placement of the risk. Edinburgh Assurance Co. v. R.L. Burns Corp., 479 F. Supp. 138, 144 (C.D. Cal. 1979), aff'd except as to pre-judgment interest, 669 F.2d 1259 (9th Cir. 1982). Brokers approach individual underwriters, or underwriting agencies which manage individual syndicates, and submit for consideration a broker's slip which sets out the details of the risk to be placed. The broker negotiates both the insurance terms and the premium rates and, as noted above, the first underwriter to reach an agreement on these terms and to subscribe to the slip becomes the lead underwriter. The underwriter initials the slip and indicates the percentage of the risk to which he is subscribing; the broker then approaches successive underwriters until all of the risk has been placed. Once the Lloyd's broker has succeeded in obtaining subscriptions for 100 percent of the risk, he forwards the completed insurance policy and slip to the Lloyd's Policy Signing Office for approval.
In the event that the insured seeks to recover under the policy, it is the broker's responsibility "to present his client's claim, and present it in the best way possible, to the underwriters." Id. at 146. Claims are submitted, at the direction of the insured, to either the lead underwriter or the Lloyd's Underwriters' Claims Office, a central facility maintained by Lloyd's as a service to members. In either event, the lead underwriter typically handles the claim and the other subscribers follow the decision of the lead underwriter absent a major disagreement. If the underwriters of the policy do not agree to pay on the claim, they present their objections or questions to the broker, who forwards them to the insured for response. If the underwriters agree to accept the claim, they may either pay the broker, who in turn transmits a check to the insured, or Lloyd's may pay the insured directly.
At all times relevant to this suit, H&H obtained its insurance coverage from Grayson & Dickinson (G&D), a Washington, D.C. insurance agent. In the early 1970's, H&H dispatched several of its attorneys to Geneva, Switzerland, in order to perform certain work for ICC, and G&D sought overseas malpractice coverage for this work. In 1971, G&D contacted Stewart, Smith Management Corporation (Stewart Smith), an insurance brokerage firm located principally in New York and New Jersey, in order to purchase insurance from Lloyd's. Stewart Smith forwarded H&H's application to Stewart Wrightson, Ltd., a Lloyd's broker with its principal place of business in London. Stewart Wrightson placed H&H's risk through Sedgwick Forbes, the Lloyd's underwriting agency which manages the R.E. Thomson syndicate. As a result, the R.E. Thomson syndicate became the lead underwriter on H&H's policy; Steven Booker, a named defendant in this case, was at all relevant times the Sedgwick Forbes employee who would have had responsibility for processing any H&H claims presented by Stewart Wrightson.
Beginning on September 23, 1971, defendants issued six consecutive Form U (Overseas) Lloyd's Professional Indemnity Policies (Solicitors), the last of which lapsed on September 23, 1977. Each of these primary overseas policies included the following conditions concerning notice of claims:
2. The Assured shall as a condition precedent to their right to be indemnified under this Policy give to the Underwriters immediate notice in writing