HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [QBD (Comm)]

This was the trial of three preliminary issues in relation to the interpretation of financial contingency insurance written by the claimant insurers, “HIH”, for the benefit of the first defendant bank, “Chase”, which acted as agent for the banks which participated in a loan syndicate to provide finance for the production of five films.

HIH issued a line slip facility, which was a contract for insurance, under which declarations were made by off-slips in respect of a number of films. HIH claimed to be entitled to avoid or rescind the line slip facility and/or the declarations made under it because of non-disclosure and misrepresentations made by the second and third defendant brokers, “Heaths”, in the course of negotiations leading to the insurance. HIH alleged that the non-disclosures and misrepresentations were fraudulent or negligent. HIH also sought in the alternative damages from Chase and Heaths for the alleged non-disclosures and misrepresentations. HIH's case was that Heaths represented that the policies were substantially the same as policies concluded in previous years whereas the later policy terms were materially different. It was also alleged that Heaths had wrongly represented that the previous insurance had been claims free and had misrepresented the reasons why other insurers had withdrawn from the insurance. HIH also alleged fraudulent or negligent non-disclosure of material facts by Heaths.

The insurance contained a “truth of statement” clause which provided that the insured would not have any duty or obligation to make any representation, warranty or disclosure of any nature, express or implied, such duty and obligation being waived by the insurers; and that the insured should have no liability of any nature to the insurers for any information provided by any other parties; and that any such information provided by or non-disclosure by other parties should not be a ground or grounds for avoidance of the insurers' obligations under the policy or cancellation thereof. Chase argued that the truth of statement clause excluded Heaths' duty of disclosure as agent and also limited the authority of Heaths to make any representation on behalf of Chase, and excluded the consequences of any misrepresentation by Heaths.

The preliminary issues ordered to be tried were whether on the true construction of the line slip and off-slips HIH on the assumed facts was entitled (1) to avoid or rescind the contracts of or for insurance as against Chase, and/or (2) to damages from Chase for misrepresentation or non-disclosure, and/or (3) damages from Heaths for non-disclosure.

Held ruling accordingly:

1. The duty of utmost good faith was imposed on the assured and the insurer by virtue of the general law and independent of the contract of insurance itself. The duty, which comprehended a duty not to misrepresent and to disclose all material facts was unitary and absolute in the sense that it did not matter whether the misrepresentation or non-disclosure was deliberate, reckless, negligent or inadvertent. The only remedy was avoidance. (Banque Keyser Ullmann SA v Skandia (UK) Insurance Co LtdELR[1990] 1 QB 665 (CA)applied.)

2. It was possible in principle to limit or exclude by contractual wording the right to avoid for a breach of the duty of utmost good faith. The duties of disclosure of one or both parties could be limited or excluded altogether and the liability for or remedies for non-disclosure or misrepresentation could be limited or excluded. (Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co LtdUNK[1993] 1 Ll Rep 496 (CA); [1994] CLC 868; [1995] 1 AC 501 (HL) and Toomey v Eagle Star Insurance Co Ltd (No. 2)UNK[1995] 2 Ll Rep 88considered.)

3. It was legally possible to have a clause in a contract of or for insurance which excluded liability of an agent of the insured for fraudulent misrepresentation or non-disclosure. It was also possible to have a clause in a contract of insurance which excluded or limited the consequences of the deliberate or fraudulent non-disclosure of material facts by the agent of the assured. (S Pearson & Son Ltd v Dublin CorpELR[1907] AC 351considered.)

4. The rules of construction in Canada Steamship Lines Ltd v The KingELR [1952] AC 192 relating to exclusion clauses did not apply to a clause which was directed at excluding liability for the breach of a particular type of absolute duty, where the breach could be established whether or not negligence or fraud was proved, such as the duty of utmost good faith in contracts of insurance.

5. The line slip facility, as a contract for insurance, was not a contract of the utmost good faith. The categories of contract which gave rise in law to an obligation of utmost good faith were closed and were not to be extended incrementally to contracts analogous to contracts of insurance. In relation to the line slip, as opposed to the off-slips declared under it, there was no duty of utmost good faith on Chase or its agents and therefore no right to avoid. However there could be a right to rescind a contract for insurance on the ground of fraudulent pre-contract misrepresentation by way of partial non-disclosure by the insured's agent. (Pryke v Gibbs Hartley Cooper LtdUNK[1991] 1 Ll Rep 602applied.)

6. The truth of statement clause attempted to negate a duty to make representations or warranties. That was of no effect since there was no such duty. A statement that there was no such duty could not negate a representation voluntarily made by the insured or its consequences if it was a misrepresentation. The clause purported to negate the duty of disclosure in relation to the insured, Chase, but did not expressly negate any duty of disclosure placed on an agent in connection with a contract of insurance. The agent's duty of disclosure was an independent duty and continued even if Chase's duty was excluded. (Societe Anonyme d'Intermediaries Luxembourgeois v Farex GIEUNK[1995] 2 Ll Rep 116, PCW Syndicates v PCW Reinsurers[1995] CLC 1517applied.)

7. The wording of the clause did not expressly limit the authority of Heaths to act on behalf of and make statements for Chase.

8. The words “no liability … for any information” were not sufficiently clear to indicate an intention by the parties to exclude liability for misrepresentation made negligently or fraudulently. Further the...