Axa Versicherung AG v Arab Insurance Group (B.S.C.)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Males,MR JUSTICE MALES |
| Judgment Date | 07 July 2015 |
| Neutral Citation | [2015] EWHC 1939 (Comm) |
| Date | 07 July 2015 |
| Docket Number | Case No: 2013 Folio 493 |
| Court | Queen's Bench Division (Commercial Court) |
[2015] EWHC 1939 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Males
Case No: 2013 Folio 493
Mr Charles Kimmins QC and Mr Michael Holmes (instructed by Hogan Lovells LLP) for the Claimant
Mr Simon Bryan QC and Mr Guy Blackwood QC (instructed by Holman Fenwick Willan LLP) for the Defendant
Hearing dates: 3 rd– 18 th June 2015
INTRODUCTION
The principal issue in this action is whether the claimant reinsurer ("Axa") is entitled to avoid two reinsurance treaties entered into with the defendant reinsured ("Arig") and to recover in consequence the net sum of about US $5.15 million paid to Arig under those two treaties.
The first treaty was entered into in 1996 by Axa's predecessor in title, Albingia Versicherungs-AG ("Albingia"). It was a "first loss treaty" covering the first US $500,000 of losses for any one accident or occurrence on Arig's book of inwards marine energy construction risks attaching during the period 1 January 1996 to 30 June 1997. There was no aggregate limit. It was "facultative/obligatory" in nature, meaning that Arig could choose which risks to cede to the treaties. Albingia's line was 50%, the remaining 50% being written by another reinsurer, Rhine Re.
Axa seeks to avoid this treaty for non-disclosure of loss statistics relating to Arig's existing book of inwards marine energy construction risks written during the period 1989 to 1995, alternatively for misrepresentation, the representation alleged being to the effect that there were no such statistics. It contends that disclosure of these statistics would have revealed a dreadful picture of past losses incurred by Arig in writing such risks and that, if these had been disclosed, Albingia would not have written the treaty.
The second treaty was the 1997 renewal of the 1996 treaty. It covered risks attaching during the period from 1 July 1997 to 30 June 1998. Axa seeks to avoid this renewal treaty on the same grounds and, in addition, for non-disclosure of three incidents which either had resulted or were likely to result in claims against Arig under the 1996 treaty. It contends that one of these incidents, a claim or potential claim by Clyde Petroleum, was material in its own right and therefore ought to have been disclosed, as was the cumulative effect of all three incidents together. Axa contends further that by reason of the Clyde Petroleum incident a representation by Arig to the effect that there had so far been only one claim under the 1996 treaty (as it happens a separate claim by Clyde Petroleum) was a misrepresentation which also entitles it to avoid the 1997 treaty.
Arig accepts that past loss statistics relating to insurance written by a proposed reinsured will generally, or at any rate may, be material as affecting the judgement of a prudent reinsurer deciding whether to accept the offered risk or upon what terms to do so and must therefore be disclosed. That this will generally be the case is well established as illustrated, for example, by the statement in Arnould's Law of Marine Insurance & Average, (18 th Edition 2013), para 16.160:
"This issue is always a question of fact in all the circumstances and the materiality or otherwise of previous casualties will often be a function of the type of cover under consideration. Thus, previous casualties or other aspects of the assured's loss experience may be material for disclosure. In the case of reinsurance, the loss history will invariably be material."
Carter on Reinsurance (5 th Edition, 2013) page 197 is to the same effect:
"Details of the loss experience of the account to be reinsured have always been required by reinsurers when negotiating the terms for a new treaty…"
However, Arig's case is that in the particular circumstances of this case disclosure of its historic loss statistics would not have influenced the judgement of a prudent underwriter considering whether to write the 1996 or 1997 treaties. This is for two main reasons. The first is that energy construction risks are each unique, so that little or nothing is to be gained from considering past results achieved by the reinsured on the insurance of such risks. Energy construction reinsurance is therefore said to be an exception to the general position stated above. The second is that in mid-1991 there was a change of underwriter at Arig and that the new underwriter, Mr Lars Hylander, introduced a radical change of underwriting policy so that henceforth a much more rigorous approach to the selection of risks was adopted. Therefore, it is said, disclosure of loss statistics which in many cases related to risks written by a different underwriter, in different market conditions and pursuant to a different underwriting strategy, was unnecessary. Arig denies that any representation was made as to the non-existence of such statistics. It contends further that Axa has failed to prove that any non-disclosure or misrepresentation concerning these matters induced Albingia's underwriter to write the treaties in question, contending that Albingia would have been written them on the same terms even if there had been a fair presentation of the full facts which as well as past loss statistics would have included Arig's change in underwriter and underwriting policy.
As to the 1997 renewal, Arig contends that none of the three incidents complained about on renewal was material to Albingia's 1997 decision to renew the risk which it had written and, once again, that Albingia has failed to prove its case on inducement.
Further, Arig contends that even if it would at one time have been possible for Albingia (or Axa as its successor) to avoid the treaties, it is now far too late to do so almost 20 years after the event.
There is in addition a separate dispute, which only arises if Axa's avoidance case fails. It concerns one of the individual cessions to the 1996 treaty. Under the heading "Information N.L.O.W." (which stands for "No Limitation Or Warranty") in the 1996 treaty it was provided that "Arig will not cede any layered contracts which represent less than 20% of the full contract value." The dispute is whether Arig did cede a layered contract which represented less than this 20% figure; if so, whether the provision in question was a contractual restriction on the risks which Arig was entitled to cede as distinct from a mere statement of intent; and if the former, whether Axa's claim to recover the payment made on this risk is now time barred.
Finally, Arig counterclaims for sums which it says are due to it under the treaties. Axa contends that, even if its avoidance case fails, the counterclaim is (partly) time barred.
THE EVIDENCE
As will be apparent from this brief summary, most of the events with which this action is concerned took place almost twenty years ago or in some cases even more. While that may represent no more than the twinkling of an eye to those engaged in long tail reinsurance business, the inevitable consequences are that the available documents, voluminous as they are, are incomplete and that the witnesses cannot be expected to have any (let alone any precise or detailed) recollection of most of the matters about which they gave evidence. To their credit the witnesses did not pretend that they had any such recollection, but acknowledged that much of their evidence consisted of assertion as to what they said or did based upon their belief that it was what they would have done in the circumstances in view of their normal working practices. I have therefore approached such evidence with caution in making the findings set out below, recognising the danger that it is affected by hindsight knowledge of how matters have turned out and on occasion by an element of wishful thinking.
The need for caution applies with even greater force to hypothetical evidence as to what a witness would have done if circumstances had been different – in particular, on the issue of inducement, as to whether or not a risk would have been accepted if matters which were not in fact disclosed had been disclosed. Whether a reinsurance underwriter will be willing to write a risk or on what terms will depend on many considerations – not merely the bare facts relating to the risk itself, but such matters as the terms in which it is presented by the broker, the underwriter's view of the reinsured company and its underwriter, the reinsurer's book as a whole and the way in which the particular risk will fit into his overall strategy, his commercial relationships with the reinsured and the broker, and prevailing and anticipated market conditions. It will very often be difficult for a witness to think himself back into all of the circumstances as they existed at the time which would have had a bearing on his decision whether to write a particular risk in circumstances which are inevitably hypothetical since ex hypothesi there was no fair presentation of the risk. In a case such as the present which is litigated so long after the events in question that the witness has no recollection at all of the actual transaction, this difficulty is particularly acute.
Despite the usual limitations of witness recollection, exacerbated in this case by the length of time which has passed, I consider that all of the witnesses were doing their best to assist. As usual, however, where documents are available they represent much the best evidence not only of what the parties did, but also of what they were thinking at the time.
Axa's principal witness of fact was Mr Thomas Holzapfel, who was Albingia's head of inwards treaty business from 1985 (and later head of outwards treaty business as well) until he left the...
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