HIH Casualty and General Insurance Ltd v New Hampshire Insurance Company [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | David Steel J. |
| Judgment Date | 04 December 2000 |
| Date | 04 December 2000 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court).
David Steel J.
Julian Flaux QC and Simon Picken (instructed by Holman Fenwick & Willan) for HIH.
Christopher Hancock QC and Sara Masters (instructed by Kennedys) for New Hampshire.
Stephen Ruttle QC (instructed by Davies Lavery) for Independent.
Peter Gross QC, Philip Edey and Michael Collett (instructed by D J Freeman) for Axa.
The following cases were referred to in the judgment:
Aughton Ltd v MF Kent Services LtdUNK (1991) 31 Con LR 60.
Australian Widows v National Mutual LifeELR [1914] AC 615.
Barnard v FaberELR [1893] 1 QB 340.
Canada Steamship Lines Ltd v The KingELR [1952] AC 192.
Charlesworth v FaberUNK (1900) 5 Com Cas 508.
Citadel Insurance Co v Atlantic Union Insurance Co SAUNK [1982] 2 Ll Rep 543.
CNA International Reinsurance Co Ltd v Companhia de Seguros Tranquilidade SA [1999] CLC 140.
Container Transport International Inc v Oceanus Mutual Underwriting Association (Bermuda) LtdUNK [1984] 1 Ll Rep 476.
Excess Insurance Co Ltd v Mander [1995] CLC 838.
Forsikringsaktieselskapet Vesta v ButcherELR [1989] AC 852.
Groupama Navigation et Transports & ors v Catatumbo CA Seguros [2000] CLC 1534.
HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2001] CLC 48.
Home Insurance Co of New York v Victoria-Montreal Fire Insurance CoELR [1907] AC 59.
Interfoto Picture Library Ltd v Stiletto Visual Programmes LtdELR [1989] QB 433.
Marten v Nippon Sea and Land Insurance CoUNK (1898) 3 Com Cas 164.
Norwich Union Fire Insurance Society v Colonial Mutual Fire Insurance CoELR [1922] 2 KB 461.
Pearson (S) & Son Ltd v Dublin CorpELR [1907] AC 351.
Pine Top Insurance Co Ltd v Unione Italiana Anglo Saxon Reinsurance Co LtdUNK [1987] 1 Ll Rep 476.
Property Insurance Co Ltd v National Protector Insurance Co Ltd (1913) 108 LT 104.
Thomas v Portsea Steamship Co LtdELR [1912] AC 1.
Toomey v Eagle Star Insurance Co Ltd (No. 2)UNK [1995] 2 Ll Rep 88.
Tor Line AB v Alltrans Group of Canada LtdWLR [1984] 1 WLR 476.
Youell v Bland Welch & Co LtdUNK [1992] 2 Ll Rep 127.
Insurance — Reinsurance — Breach of warranty — Film finance insurance policies written by claimant and reinsured by defendants — Whether insurance and reinsurance contained warranty that certain numbers of films would be made — Whether slip policies superseded by formal policy wording — Scope and effect of cancellation clause in underlying insurance — Whether clause incorporated into reinsurance — Whether clause prevented reliance by reinsured on remedies of non-disclosure and misrepresentation.
This was a trial of preliminary issues in an action by insurers, “HIH”, as the underwriter of two film finance insurance policies, against defendant reinsurers who declined to pay on grounds that HIH should not have paid its insured or because HIH was in breach of warranty or the duty of good faith.
The film finance policies were written by HIH in favour of “LDT”, an investment vehicle which made payments to the film producers in return for a share of the film revenues. Slip policies were subscribed by HIH for a 23-month period in which the producers would make respectively six and ten made-for-TV films. The sums insured were US$3.9m any one film and US$16.4m in the aggregate and US$2m and US$15.5m in the aggregate respectively. Pecuniary loss indemnity policies were shortly afterwards issued to LDT which provided that the insured peril was the failure of the balance in the account to which revenue would be paid to equal the sum insured in which case the insurer would pay the difference to the insured. Under cl. 8 of the policy wording HIH agreed not to avoid by reason of the invalidity or unenforceability of the underlying film production arrangements or for non-disclosure or misrepresentation or any other similar grounds, and agreed to waive all defences and rights of set-off or counterclaim which might be available against the assured so as to deny payment. The defendants reinsured 80 per cent of the risk on quota share reinsurance slip policies. The reinsurance was subject to all terms and conditions as original and was to follow the placement in all respects and provided “Cancellation Clause as Original Policy”. The reinsured agreed to obtain reinsurers' agreement to any amendment of the terms of the original policy and the At the end of the policy periods there was a substantial shortfall in the revenue earned and HIH made payments to LDT accordingly. The reinsurers refused to pay on the ground that HIH was not liable to LDT on various grounds relating to the coverage of the policies, alternatively because HIH was in breach of warranty or of the duty of good faith. HIH argued that it had no defence to LDT's claim by virtue of cl. 8. Preliminary issues were ordered to be tried as to whether the insurance and reinsurance contained a warranty that six or ten films respectively would be made; the scope and effect of cl. 8 and whether it was incorporated into the reinsurance.
Held, ruling accordingly:
1. The insurance was contained in the slip policies subject to the terms and conditions contained in the later policy wording. Contrary to the argument of HIH the slips, which stated that the producers would produce and make the films, were not superseded by the formal policies. The slip policies contemplated the preparation of wording to be agreed without any inference that the wording should be in substitution for the slip policies.
2. The structure of the insurance only made sense in the context of cover for a specific number of films, since the premium was a percentage of the combined cost of producing all the films. It was therefore a term of the policy that the full number of films would be made. Such a term was to be taken as contained in the formal policies in any event, since any commercially realistic construction of the specified insured peril involved the premise that the projects were to be completed in order to generate the income. That term was a warranty, since it had a material bearing on the risk. The reinsurance contracts contained the same warranty. The reinsurance was expressed to be “as original”, the insurance and reinsurance were intended to be back-to-back and the history of the placement demonstrated that HIH was in effect fronting the insurance for a pool.
3. The clause of the reinsurance requiring the reinsurers' consent to amendment of the underlying policy was a warranty but did not cover immaterial amendments which did not affect the sense or substance of the underlying policy in a manner potentially prejudicial to the reinsurer.
4. The second part of cl. 8 was clearly confined to defences akin to rights of set-off and counterclaim which operated to deny payment, and did not affect defences relating to the policy coverage or breach of warranty which if successful meant that no amount was due. In relation to the first part of the clause, breach of warranty was not “other similar grounds”. It was not similar to invalidity or unenforceability of the underlying arrangements nor was it similar to non-disclosure or misrepresentation.
5. On balance the reference in the reinsurance conditions to “Cancellation Clause as Original Policy” was to cl. 8 (even though the clause was better classified as a non-cancellation clause), since there was no other clause to which the reference could sensibly refer. If that was wrong the clause had been incorporated by the general words of incorporation because it was germane to the reinsurance, made sense after only minor adaptation, did not contradict any express term of the reinsurance, was not inappropriate and was not so unusual that it would be unfair to treat the reinsurers as bound by it.
6. The effect of cl. 8 in the reinsurance was not solely to agree to follow settlements made by HIH where otherwise HIH would have a defence. The effect of the clause was to exclude the consequences of inadvertent concealment or misrepresentation whether careless or not.
David Steel J: Introduction
1. Pursuant to an order dated 22 August 2000, the court has heard argument on various preliminary issues that arise in relation to three related actions. In each of those three actions, the claimant was HIH Casualty and General Insurance Co Ltd (“HIH”). HIH had underwritten two film finance insurance policies. The insured was Law Debenture Trust (“LDT”). The disputes in the three actions relate to reinsurance of that cover.
2. The two underlying insurance policies concerned two separate groups of films: one with regard to a number of films to be co-produced by 7.23 Productions LLC and Flashpoint Ltd (“the 7.23 slate”); the other with regard to a number of films to be co-produced by Rojak Films Inc and Flashpoint Ltd (“the Rojak slate”). Axa Reassurance SA (“Axa”) and New Hampshire Insurance Co Ltd (“New Hampshire”) are reinsurers in respect of HIH's liability under both policies: Independent Insurance Co Ltd are reinsurers in respect of HIH's liability under the 7.23 policy only.
3. HIH, having paid LDT sums totalling over US$31m, seek to recover in the three actions contributions towards some 80 per cent of that sum under the reinsurance agreements. The reinsurers have refused to indemnify HIH on the grounds that HIH should not have met LDT's claims or alternatively that, whatever the position was under the insurance contract, they are not obliged to pay under the reinsurance contract for various reasons including breaches of warranty and breaches of the duty of good faith.
4. For the purposes of the preliminary issues, the parties have agreed that it be assumed that all the allegations of fact made by the reinsurers in the various defences and counterclaims are true. The preliminary issues focus on two matters; first, the question whether any terms of the underlying insurance and/or the reinsurance contract have been correctly...
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