General Insuring Clauses in Banker’s Blanket Bond(BBB)

1. Infidelity of Employees

Losses by reason of and solely and directly caused by dishonest or fraudulent acts of any
Employee, wherever committed and whether committed alone or in collusion with others, which
acts have been committed by said Employee with the intention either to cause the Assured to
sustain such loss or to obtain an improper personal financial gain to said Employee.

.: Special Circumstances

The Insuring Clause mentioned above covers only such direct financial loss that results from
dishonest or fraudulent acts committed by an Employee whereby an improper personal financial
gain is obtained by such Employee. Salary, fees, commissions, bonuses, salary increases,
promotions, profit sharing and other emoluments or benefits including business entertainment
do not constitute improper personal financial gain.

2. Premises

Losses by reason of:

(a) Property within the Premises being lost through:

(i) Theft committed by persons present on the Premises, or

(ii) a mysterious unexplainable disappearance, or

(iii) being damaged, destroyed or misplaced, while such Property is within the Premises,

(b) Property in the possession of any customer of the Assured, or of any representative of such
customer, being lost through Theft while such customer or representative is within the Premises
of the Assured but excluding in any event loss caused by such customer or representative of
such customer.

.: Special Exclusion

This Insuring Clause does not cover loss of or damage to Property which arises directly or
indirectly by reason of or in connection with Terrorism. However, this Special Exclusion shall not
apply to loss or damage caused by Theft or any attempt thereat.
3. Transit

Losses by reason of:

(a) Property being lost or damaged from any cause while in transit anywhere in the custody of
any Employee or while in transit anywhere in the custody of any Security Company during the
transporting of said Property in an armoured motor vehicle on behalf of the Assured,

(b) any non-negotiable instruments being lost or damaged from any cause while in transit
anywhere the custody of any Security Company.

.: Special Condition

Transit shall be deemed to commence from the time the transporting person receives such
items from or on behalf of the Assured and shall be deemed to end immediately upon delivery
to the designated recipient or its agent.

4. Forgery/ Fraudulent Alteration

Losses by reason of:

(a) the Forged Signature on or Fraudulent Alteration of any Cheques, Bills of Exchange, Bankers
Drafts, Bankers Acceptances or Certificates of Deposit issued by the Assured, or

(b) the Forged Signature on or Fraudulent Alteration of any Withdrawal Receipts or Promissory
Notes payable at and paid by the Assured.

.: Special Condition

The foregoing instruments must be in written characters and of a nature with which the
employee acting thereupon is conversant. The Assured must have relied upon the Forged
Signature or the Fraudulent Alteration either of which shall have been material and shall have
caused the loss.

5. Forged Securities

Loss by reason of the Assured having in good faith and in the ordinary course of business acted
upon Securities or Similar Written Instruments that:

(i) bear a Forged Signature, or

(ii) bear a Fraudulent Alteration, or

(iii) are Counterfeit, or

(iv) are lost or stolen.

.: Special Conditions

1. Actual physical possession of Conditions Securities or Similar Written Instruments by the

Assured or, with respect to Loans in which the Assured participates, by the Assured's
correspondent bank, at the time the Assured acts upon said items is a condition precedent to
recovery under this Policy. Concerning Loans, such physical possession must be continuous, up
to and including the time that any loss by reason of such Securities or Similar Written
Instruments is discovered.

2. Securities or Similar Written Instruments which are either lodged or deposited with another
Banking Institution or recognized Depository for safekeeping purposes by the Assured (or its
correspondent bank), or are placed in the custody of a transfer or registration agent by the
Assured (or its correspondent bank) for the purpose of exchange, conversion, registration or
transfer in the usual course of business, shall be deemed to be in continuous physical
possession.

3. The foregoing Securities or Similar Written Instruments must be in written characters and of
a nature with which the Employee acting thereupon is conversant. The Assured must have
relied upon the Forged Signature or the Fraudulent Alteration either of which shall have been
material or shall have caused the loss.

"Securities or Similar Written Instruments" as used herein means only the original or what
purport to be the original items set forth below

(a) Share certificates, bearer stock, certificates of stock, warrants or rights to subscribe,
allotment letters, bonds, debentures or coupons issued by limited companies or corporations, or

(b) Bonds similar in form to corporate bonds issued by partnerships, which bonds are secured
by mortgages, deeds of trust or collateral trust agreements,

(c) Government or Government Guaranteed and Local Authority stocks, certificates of

indebtedness, bonds, coupons or warrants issued by the Government of any Country or by any
of its respective Agencies, States, Provinces, Counties, Cities, Towns or Municipalities, or

(d) Deeds of trust, mortgages upon real property and upon interests in real property and
assignments of such mortgages, or

(e) Promissory Notes except:

(i) those issued or purporting to have been issued for use as currency,

(ii) those secured or purporting to be secured directly or indirectly by assigned accounts or

what purport to be assigned accounts, or

(iii) when payable at and paid by the Assured, or

(f) Certificates of Deposit when pledged to the Assured as security for a Loan except Certificates
of Deposit issued by the Assured, or

(g) Letters of Credit.

"Counterfeit" as used herein, means the reproduction of an authentic Security or Similar Written
Instrument, as set forth above, such that the Assured is deceived on the basis of the quality of
the imitation so as to believe that said item is the authentic original instrument. Fictitious
instruments which merely contain fraudulent misrepresentations of fact are not counterfeit.

6. Counterfeit Currency

Loss by reason of the receipt by the Assured in good faith and in the ordinary course of
business of any counterfeit paper currency or coin issued or purporting to have been issued as
legal tender in any Country.

7. Office and Contents

Loss:

(a) through damage to Premises of the Assured, directly caused by Theft, or attempt thereat, or
to the interior of such Premises by vandalism or malicious mischief,

(b) through damage to Contents within the Premises of the Assured, directly caused by Theft,
or attempt thereat, or by vandalism or malicious mischief.

.: Special Definition

"Contents" as used in the Insuring Clause above means furnishings, fixtures, equipment,
stationery, or safes and vaults, either owned by the Assured or for which the Assured is liable in
the event of such loss, but does not include computers, computer programs, computer tapes,
disks and other media, computer data and any other computer or computer related equipment.

.: Special Exclusion

This Insuring Clause does not cover loss caused by fire and loss or damage which arises directly
or indirectly by reason of or in connection with Terrorism.
General Exclusions from the BBB Policy

1. Any loss:

(a) sustained prior to the Retroactive Date or any loss involving any act, transaction, or event
which occurred or commenced prior to the Retroactive Date, or

(b) discovered prior to the inception date of the Policy Period, or

(с) discovered subsequent to the termination of this Policy, or

(d) notified to a prior insurer.

2. Any and all damages of any description (whether fines, penalties, punitive, exemplary or
other) for which the Assured is legally liable, other than direct compensatory damages (but not
multiples thereof) awarded to a third party to reimburse said party for funds or property
actually lost which represent direct financial loss covered by this Policy.

3. Any loss or deprivation of income or profits, including but not limited to loss or deprivation of
interest, dividends, fees, commissions and the like.

4. Indirect or consequential loss of any nature.

5. Costs, fees and other expenses incurred by the Assured in establishing, or attempting to
establish, the existence of or amount of loss covered by this Policy.

6. Costs, fees or other expenses incurred by the Assured in defending any claim except legal
fees and legal expenses of outside counsel to the extent recoverable under the Policy, if any.

7. Any loss of or damage to any property whatsoever by reason of wear, tear, gradual
deterioration, moth or vermin.

8. Any loss of or damage to any property whatsoever resulting directly or indirectly from
typhoon, hurricane, cyclone, volcanic eruption, earthquake, subterranean fire or other
convulsion of nature and contemporaneous or ensuing loss or damage by fire, flood or looting.
9. Any loss or damage which arises directly or indirectly by reason of or in connection with war,
invasion, act of foreign enemy, hostilities or warlike operations (whether war has been declared
or not), civil war, rebellion, revolution, insurrection, civil commotion assuming the proportion of
or amounting to a popular uprising, military or usurped power, martial law, riot or the act of any
lawfully constituted Authority.

[In any claim, and in any action, suit or other proceeding to enforce a claim under this Policy
for loss or damage, the burden of proving that such loss or damage does not fall within this
General Exclusion shall be upon the Assured]

10. Any loss or destruction of or damage to any property whatsoever or any loss or expense
whatsoever resulting or arising therefrom or any consequential loss or any legal liability of
whatsoever nature directly or indirectly caused by or contributed to by or arising from:

(a) ionising radiation or contamination by radioactivity from any nuclear fuel or from any
nuclear waste from the combustion of nuclear fuel, or

(b) the radioactive, toxic, explosive or other hazardous properties of any explosive nuclear
assembly or nuclear component thereof.

11. Any loss of or damage to any item (including Property)

(a) contained in customers' safe deposit boxes, or

(b) held by the Assured in safe custody on behalf of customers other than identifiable securities
actually held by the Assured for said customers, except to the extent that such loss or damage
is covered under the Infidelity Clause.

12. Any loss through the surrender of property as a result of a threat to do bodily harm to any
person or to do damage to any property whatsoever of the Assured or otherwise except when:
(a) such threat is perpetrated by an Employee with the intention to obtain an improper personal
financial gain to such Employee and such loss is covered by the Infidelity Clause above, or

(b) surrender of property occurs within the Premises as a direct result of a threat by a person
within the Premises to do bodily harm to a person physically present within the Premises and
such loss is covered by the Premise Clause above, or

(c) surrender of property occurs during Transit as a direct result of a threat to do bodily harm to
the transporting person or persons provided that when the transit was initiated, there was no
knowledge by the Assured of any such threat and such loss is covered by the Transit Clause
above.

13. Any loss resulting directly or indirectly from any items which are or purport to be bills of
lading, shipping documents, warehouse receipts, trust receipts, accounts receivable, or any
other bills, documents or receipts similar in nature or effect or serving a similar purpose, except
to the extent that such loss is covered by the Infidelity Clause above, or except for the physical
loss of any such item to the extent that such physical loss is covered by the Insuring Clauses
mentioned above.

14. Any loss resulting from the use or purported use of any credit, debit, charge, access,
convenience, identification or other cards, whether such cards were issued, or purport to have
been issued, by the Assured or by anyone other than the Assured, except to the extent that
such loss is covered by the Infidelity Clause.

15. Any loss of unsold travellers cheques placed in the custody of the Assured with authority to
sell except to the extent that such loss is covered by Insuring Clauses stated above and
provided also that such cheques are later paid or honoured by the Issuer thereof and the
Assured is legally liable for such loss.

16. Any loss resulting from the input, modification or destruction of electronic data, including
programs, except to the extent that such loss is covered under the Infidelity Clause above.

17. Any loss resulting from instructions or messages sent to the Assured and received by or
input by the Assured into its computer systems or into any teletype terminal, teleprinter, video
display terminal or the like except to the extent that such loss is covered under the Infidelity
Clause above.

[Note: Claims for computer crimes shall only be covered if the said crimes are perpetrated by
dishonest or fraudulent acts of the Assured’s employees under the Infidelity Clause]

18. Any loss resulting wholly or partially from the failure of a financial or depository institution
(or its receiver or liquidator)

(a) to pay, return or deliver funds or property held by it in any capacity, or

(b) to reimburse the Assured for any loss for which the financial or depository institution or its
employees are liable, except to the extent that such loss is covered by the Infidelity Clause
above.

19. Any loss resulting wholly or partially from any act or omission of any Director of the Assured
except to the extent that the Director is deemed to be an Employee under the Policy.

[Claims for breach of professional duty are only covered if the breach is perpetrated by
dishonest or fraudulent acts of the Assured’s employees under the Infidelity Clause]

Case Law With Regards to the BBB Policy (Common Law Cases)

Brotherton v. Aseguradora Colseguros SA [2003] EWCA Civ 705

In this case, the insurers gave banker's bond and professional negligence indemnity cover to a
Colombian bank and obtained reinsurance. At the time of the reinsurance contract the insurers
failed to disclose that allegations of serious impropriety had been made in the Colombian media
against the president and other senior officials of the bank. The reinsurers claimed to be
entitled to avoid the reinsurance for non-disclosure. The insurers submitted that they were
entitled to prove at trial that the allegations (and the arrest of and charges against the
president of the bank) were entirely without foundation. The reinsurers sought an order barring
the insurers from seeking to rely at trial on evidence not available at the time of contract and
submitted that the materiality of any circumstances could be judged only by reference to the
situation at the time of risk. This court held that proof at trial that the allegations were
unfounded based on information that only came to light after the contract was made could not
affect either the materiality of the non-disclosure or (which is relevant to an issue discussed
below) the good faith of the avoidance. The only proper questions for decision at trial were
whether there had been non-disclosure which was material and which had induced the
reinsurance.

Corby District Council v Holst & Co Ltd and others [1985] 1 All ER 321

In 1980 the plaintiff property owners paid the defendant contractors an agreed sum in
settlement of a claim by the contractors arising out of a building contract which had been
referred to arbitration. Under that settlement the contractors were required to provide security
for the repayment of the agreed sum paid by the owners if the owners succeeded in a
counterclaim against the contractors which they were in the mean time proceeding with in the
High Court. The contractors provided security by way of a banker's bond for the agreed
amount. In October 1984, prior to the trial of the High Court action, the contractors offered in a
'without prejudice' letter to pay to the owners a secured sum by banker's bond in settlement of
the claim against them. The contractors also applied to the court for an order that the offer be
treated as if the secured sum had been paid into court under RSC Ord 22, r 1(1)a for the
purposes of awarding costs at the trial. The judge refused to make the order and the
contractors appealed, contending that, by analogy with the procedure under Ord 22, r
8(2)b whereby a sum paid into court by a defendant to an Ord 14 summons was treated not
merely as security but as an offer and as if it had in fact been paid into court under Ord 22, r 1,
the court should use its inherent jurisdiction to devise an equivalent procedure where security
was provided other than by payment into court.
a
Rule 1(1), so far as material, provides: 'In any action for a debt or damages any defendant
may at any time pay into Court a sum of money in satisfaction of the cause of action in respect
of which the plaintiff claims … '
b
Rule 8(2), so far as material, provides: '… a party who has paid money into court in
pursuance of an order made under Order 14—(a) may by notice to the other party appropriate
the whole or any part of the money … to any particular claim … and money appropriated in
accordance with this rule shall be deemed to be money paid into court in accordance with rule 1
…’

The Judge held that there was no express jurisdiction under the Rules of the Supreme Court to
make an order that an offer of settlement contained in a 'without prejudice' letter was to be
treated for the purposes of awarding costs as though payment into court had been made
pursuant to RSC Ord 22, r 1, and, although the court had an inherent jurisdiction to control its
own proceedings, its power under that jurisdiction was limited to the doing of acts necessary to
maintain its essential character as a court, and the order sought by the contractors did not fall
within that category. Furthermore, since costs in legal proceedings were a matter for the
discretion of the trial judge, where a sum secured by a banker's bond was offered by way of
settlement in a 'without prejudice' letter it was for the trial judge to determine, in the exercise
of his discretion, whether that offer was to be treated for all purposes, including costs, as
though the sum so secured had been paid into court under Ord 22, r 1 and what weight was to
be given to it, and it would be improper to usurp and so fetter his discretion by directing, in
advance of the trial, that the bond be treated by the judge in a particular way.

Seymour and another v Caroline Ockwell & Co and another [2005] EWHC 1137

The claim in this action is one for damages for negligent financial advice. It is brought by the
Claimants, Mr and Mrs Seymour, against the firm founded and run by their friend and financial
adviser, Miss Caroline Ockwell. The Seymours also seek to bring a direct claim against Zurich
IFA Limited (“ZIFA”). Miss Ockwell consulted ZIFA about suitable investments for Mr and Mrs
Seymour and ZIFA, through Miss Ockwell, provided certain information to the Seymours about
the investment they decided to make. On the strength of Miss Ockwell's advice, and the
information supplied by ZIFA, the Seymours invested a sum of £500,000 in the Imperial
Consolidated Alpha + Fixed Income Fund (“the Alpha Fund”). The investment was made at the
end of 2000. Within weeks doubts began to surface about the administration of the Alpha Fund.
In July 2002 the Fund collapsed and was placed into administrative receivership. The Seymours
lost all of their money.

The Claimants allege that Miss Ockwell acted in breach of the contractual and tortious duties of
care which she admittedly owed to them. They allege that ZIFA owed them a similar duty of
care in tort but this is strongly disputed. In addition there are claims against Miss Ockwell and
ZIFA for breach of statutory duty under ss 62 and 76 of the Financial Services Act 1986 (“the
Act”). If she is found liable to the Claimants, Miss Ockwell seeks an indemnity or contribution
from ZIFA on the ground that ZIFA's representatives were negligent in recommending to her
the Alpha Fund as appropriate for the Seymours. The claim is resisted on a number of grounds.

The prospectus for the Alpha Fund consisted of a front-sheet and Introduction of 11 pages,
which explained in outline the nature and structure of the Fund, followed by approximately 39
pages of additional information, including Subscription Application Procedures and a copy of the
Offering Memorandum containing the terms and conditions of any investment in the Fund. The
wording of the bankers' bond contained in the prospectus states that it covers loss resulting
solely and directly from dishonest or fraudulent acts by employees. But the bond expressly
excludes: “Any loss resulting wholly or partially from any act or default of any Director of the
Assured except when such Director is an Employee of the Assured and then only while such
Director is performing acts coming within the scope of the usual duties of an Employee of the
Assured”. The bond also excludes liability for any loss resulting directly or indirectly “from
complete or partial non-payment of a loan or default upon a loan or . . . note.”

The Offering Memorandum stated that none of the directors had a service contract, which
raised a moot point as to whether they were to be regarded as employees for the purposes of
the cover provided by the Bond. Miss Ockwell should have realised that any policy of
professional indemnity insurance was a poor substitute for the kind of security which would be
provided by, for example, a deposit of or charge over valuable assets, a bank guarantee or a
letter of credit from a well-recognised institution.

Standard Life Assurance Ltd v Oak Dedicated Ltd and others [2008] All ER (D) 177 (Feb)

Oak Dedicated Limited and other Insurers ("Insurers") provided professional indemnity cover to
Standard Life Assurance Limited ("Standard Life") of £75 million in excess of £25 million for
claims between 15 May 1998 and 4 May 2001. The excess was stated to be "£25 million each
and every claim and/or claimant including costs and expenses”. Standard Life notified Insurers
of a circumstance which may give rise to a claim in relation to the alleged mis-selling of
endowment policies. Ninety-seven thousand claims were subsequently made by investors.
Individually all claims were relatively small. However, if aggregated the claims produced an
aggregate total loss of over £100 million.

Standard Life argued that the claims arose from a single originating cause or source, so should
be aggregated. Insurers refused to provide an indemnity. They argued that for an indemnity to
be available there must be a single claim by a single claimant which exceeded the policy excess,
or a series of claims made by a single claimant which arose from an appropriate unifying cause
or source. Standard Life accepted that if the excess was stated to be £25 million for "each and
every claim and claimant" its effect would have been to impose a per claimant excess of the
type contended for by Insurers. However, those words were not used. The effect of the use of
"and/or claimant" was to allow for various permutations when aggregating claims. For example,
on an each and every claimant basis, so the excess could be satisfied by either a single claim or
a series of claims by one claimant whether related or not, or on an each and every claim basis,
so that the excess could be satisfied by either a single claim or a series of related claims by
different claimants.

In deciding the case the Commercial Court considered the commercial purpose of the contract.
A deductable pitched at £25 million did not have the air of a per claimant deductable – no claim
or even a series of claims by a single claimant was realistically ever likely to reach that level. If
Insurers had intended to exclude cover for a particular category of claims, such as those arising
from endowment policies, it would have been usual practice and relatively straightforward to
devise a suitable opt out, as was often done in relation to pensions mis-selling claims. The court
considered that no properly informed market professional would have considered it appropriate
to introduce a per claimant deductible across the board. This mitigated strongly against a
finding of an intention to include a per claimant excess. However, no witness at the trial could
provide a plausible explanation for the inclusion of the words "and/or claimant" in the excess
other than to achieve a per claimant excess. The Commercial Court therefore considered that
there was a common understanding in the market that the use of the word "claimant", qualified
by the words "each and every", in the excess, indicated an intention that the excess operated
by reference to each and every claimant.

As stated above, this proposition was accepted by Standard Life. The Commercial Court then
questioned whether the addition of the words "and/or" should be interpreted to signify that the
parties to this contract had a different intention. The Commercial Court concluded that it did.
The policy did not permit the aggregation of related claims by separate claimants. Standard Life
could not therefore recover from Insurers. It did however succeed in its alternative claim
against its insurance brokers, Aon, since a reasonably competent broker would have concluded
that the policy did not meet Standard Life’s requirements and at the relevant time coverage
without a per claimant deductible was readily available.