The Zephyr 1 relates to a Lloyd’s broker who sought to place various insurances in respect of a vessel. Since “all risks” underwriters on hull machinery often reinsure that part of the risk relating to total loss, he first obtained a reinsurance quotation from a “total loss leader” on a slip; the initial quotation was obtained before he had received a definite order to place the insurance. When actual firm instructions were given, he obtained signatures to an all risks slip and further signatures to the total loss reinsurance slip, several of the all risks underwriters indicating that they wanted such reinsurance. The difficulty arose because of the practice of “signing down”. It appears that brokers sometimes obtain more signatures than are necessary to cover 100% of the risk, with the result that all underwriters on the slip have their share of the risk abated below the proportion for which they have signed. Brokers presenting a slip for signature may give an indication of the extent to which the slip may thus “sign” and hence underwriters may accept part of a risk in the expectation that their exposure will not in the event be as great as is nominally indicated.

In this case the broker, when he obtained the signatures of total loss reinsurers, indicated (as the judge found) that the slip would sign down to one-third of the nominal liability. Subsequently he did not obtain sufficient other signatures to achieve this, not because he was unable to do so but because he did not devote the time to it; it seems that he may also not have appreciated the true position and hence the necessity of getting more signatures. Some of the reinsuring underwriters disputed their liability; and argued also, if they were wrong on this, that the broker was liable to them because he had not procured the relevant signing down and thus not diminished their exposure as they had expected.

One possible basis for the broker’s liability was based on the law of agency. It was arguable that, in offering total loss reinsurance to the all risks underwriters in this way, he was acting as agent of the reinsurers, while acting as agent for the assured in obtaining all risks cover. As such, he was in breach of his duty to his principals. Hobhouse, J., held, however, that he acted as agent first of the assured (a proposition well established), and then of the all risks underwriters requiring reinsurance, by adhering on their behalf to the slip signed by the total loss reinsurance underwriters in so far as he had cover available. The latter conclusion, that he acts for the all risks underwriter, is an extension of the general proposition that the broker is the agent of the assured and not the insurer. This may well be the appropriate analysis; but for a broker himself it must often be difficult to determine for whom he should regard himself as acting.