PCW Syndicates v PCW Reinsurers
| Jurisdiction | England & Wales |
| Judge | Staughton,Rose,Saville L JJ |
| Judgment Date | 31 July 1995 |
| Court | Court of Appeal (Civil Division) |
| Date | 31 July 1995 |
Court of Appeal (Civil Division)
Staughton, Rose and Saville L JJ
Michael Beloff QC and Richard Jacobs (instructed by Ince & Co) for the insurers PCW Ltd.
Kenneth Rokison QC and John Lockey (instructed by D J Freeman) for the reinsurers.
The following cases were referred to in the judgments:
Belmont Finance Corp Ltd v Williams Furniture Ltd & OrsELR [1979] Ch 250.
Blackburn Low & Co v HaslamELR (1888) 21 QBD 144.
Blackburn, Low & Co v VigorsELR (1886) 17 QBD 553 (CA); (1887) 12 App Cas 531 (HL).
Bolton (HL) (Engineering) Co Ltd v T J Graham & Sons LtdELR [1957] 1 QB 159.
Cave v CaveELR (1880) 15 ChD 639.
Deutsche Ruckversicherung Aktiengesellschaft v Walbrook Insurance Co Ltd [1994] CLC 415; [1995] 1 WLR 1017
El Ajou v Dollar Land Holdings plcUNK [1994] BCC 143; [1994] 2 All ER 685.
Espin v PembertonENR (1859) 3 De G & J 547; 44 ER 1380.
Fitzherbert v MatherENR (1785) 1 TR 12; 99 ER 944.
Group Josi Re v Walbrook Insurance Co Ltd & Ors [1995] CLC 1,532.
Hampshire Land Co, ReELR [1896] 2 Ch 743.
Kwei Tek Chao & Ors v British Traders and Shippers LtdELR [1954] 2 QB 459.
Lennard's Carrying Co Ltd v Asiatic Petroleum Co LtdELR [1915] AC 705.
Meridian Global Funds Management Asia Ltd v Securities CommissionUNK [1995] BCC 942; [1995] 2 AC 500.
Newsholme Bros v Road Transport and General Insurance Co LtdELR [1929] 2 KB 356.
Pan Atlantic Insurance Co Ltd & Ors v Pine Top Insurance Co Ltd [1994] CLC 868; [1995] 1 AC 501.
Proudfoot v MontefioreELR (1867) LR 2 QB 511.
Simner v New India Assurance Co Ltd [1995] LRLR 240.
Société Anonyme d'Intermediaries Luxembourgeois & Anor v Farex Gie & Ors [1994] CLC 1,094.
Tesco Stores Ltd v Brent London Borough CouncilENR [1993]2 A11 ER 718.
Tesco Supermarkets Ltd v NattrassELR [1972] AC 153.
Thames & Mersey Marine insurance Co Ltd v Gunford Ship Co Ltd & AnorELR [1911] AC 529.
Insurance — Reinsurance — Avoidance for non-disclosure — Fraud on principal by agent of insured — Whether fraud to be disclosed by agent to principal “in ordinary course of business”— Whether knowledge of fraud to be imputed to principal — Whether “agent to insure” included intermediate agent — Whether reinsurer entitled to avoid policy for non-disclosure of agent's fraud on principal —Marine Insurance Act 1906, s. 18, 19.
This was an appeal by reinsurers against the decision of Waller J on a preliminary issue concerning the avoidance of reinsurance contracts for non-disclosure.
The plaintiff names were members of 56 syndicates at Lloyd's. Their underwriting was managed between 1967 and 1982 by PCW Underwriting Agencies Ltd (“PCW Ltd”), who arranged reinsurance with 24 insurance companies and 62 other Lloyd's syndicates (“the reinsurers”). The reinsurers sought to avoid the reinsurance contracts for non-disclosure of fraud by certain individuals at PCW Ltd Who misappropriated premiums received for the insurers and applied them for their own purposes. The fraud was said to be a material circumstance within s. 18 of the Marine Insurance Act 1906 which ought to have been disclosed to the reinsurers at the time the contract was made, but was not.
A preliminary issue was determined by Waller J who held that, on any of the alternative assumptions put before him, there was no obligation to disclose dishonest conduct which amounted to a fraud on the names. The reinsurers appealed.
Held, dismissing the reinsurers' appeal:
1. For the purposes of s. 18(1) of the Marine Insurance Act 1906 which required an assured to disclose to an insurer every material circumstance known to the assured, where the assured was a company “knowledge” was not restricted to what was known by the directing mind and will but included knowledge held by employees whose business it was to arrange insurance for the company, and might include the knowledge of some other employees. (Meridian Global Funds Management Asia Ltd v Securities CommissionUNK[1995] BCC 942applied.)
2. By s. 18 of the Marine Insurance Act 1906 the person seeking insurance had first to disclose what was known to him. A company was to disclose what was known to a director or an employee at an appropriate level. Everything which in the ordinary course of business ought to be known to him had to be disclosed.
3. Fraud perpetrated by an agent against his principal could never be a matter which was communicated in the ordinary course of business. Since the dishonesty of certain individuals at PCW Ltd could not in the ordinary course of business be known to the PCW insurers, there was no duty to disclose that fraud under s. 18 of the 1906 Act. (Re Hampshire Land CoELR(1896) 2 Ch 743followed.)
4. The Hampshire Land principle was not confined to cases where the agent's knowledge was by law to be imputed or attributed to the principal, or deemed to be the knowledge of the principal. The doctrine would extend to any case where the principal's rights were affected if the agent did not make disclosure to a third party. Where, therefore, fraud against his principal was committed by an agent to insure, knowledge was not imputed to the principal for the purposes ofs. 19 of the 1906 Act. Accordingly the reinsurers were not entitled to avoid the reinsurance contracts for non-disclosure of the fraud.
(Per Rose and Saville L JJ) An “agent to insure” within s. 19 of the 1906 Act only encompassed those who actually dealt with the insurers concerned and made the contracts in question. It did not extend to intermediate agents. Since the managing agents did not actually deal with the reinsuring underwriters nor make the reinsurance contracts, which were placed through brokers, they were not privy to the fraud.
Staughton LJ: The issue in this appeal is whether the agent of a person who wishes to be insured is bound to disclose to the intended insurer that he has been defrauding his principal. Or more accurately, can the insurer avoid the contract if such disclosure is not made? One might have thought that question was one of statutory construction, and not difficult to resolve. It has not been so treated in these proceedings.
The problem arises here in a reinsurance context. The claimants are the members of 56 syndicates at Lloyd's. I shall call them the insurers, for that is what they were, although they have also been referred to as the names. Their underwriting was managed, in the period from 1967– 1982, by PCW Underwriting Agencies Ltd. Part of that management process was the task of arranging reinsurance of the insurers” liability, if and to the extent that it was appropriate to do so. Reinsurance was arranged with 24 insurance companies and 62 other Lloyd's syndicates (“the reinsurers”). They have purported to avoid the reinsurance contracts for non-disclosure.
The non-disclosure alleged is that over the years in question a number of individuals at PCW Underwriting Agencies Ltd (which I shall call PCW Ltd for short) were misappropriating premiums received for the benefit of the insurers, and applying them for their own purposes. This is said to have been material information for the reinsurers, although it would not have any direct effect on the incidence of the risks that they took upon themselves; it is said to be relevant to the moral hazard. As I understand that expression it means or includes the risk that a person will either deliberately bring about losses so that he may make a claim, or else invent fictitious losses. When there is insurance on jewellery or other possessions it may not be too difficult to claim for a loss of property that never existed, or that has not in truth been lost. Whether there is moral hazard in the present context of reinsurance, and whether the alleged dishonesty at PCW Ltd was relevant to it, are questions which we do not at present have to determine.
There was initially an attempt to resolve the whole dispute in arbitration proceedings. But for one reason or another that did not happen; and an agreement was reached to refer a preliminary issue to Waller J as a judge-arbitrator under the Arbitration Act 1975. By that agreement the parties consented to their being an appeal from the award of the judge-arbitrator to this court. But we have only such jurisdiction as is allowed to us by the Arbitration Act 1979. and the arbitration agreement which the parties concluded.
There is a similar dispute proceeding between other parties. Initially there were two actions in the Commercial Court. One was between Deutsche Ruckversicherung AG v Walbrook Insurance Co Ltd & Ors, the other between Group Josi Re and defendants similarly described. In those actions, which were consolidated, the plaintiffs were reinsurers and the defendants insurers. In point of form the claim was for an injunction restraining the insurers from seeking to operate letters of credit opened by the reinsurers. But somewhere along the road to that relief it is or may be necessary to decide whether the reinsurance contracts have been avoided for non-disclosure. In those cases the nondisclosure was said to have been of misappropriation by HS Weavers (Underwriting) Agencies Ltd, to whom the insurers had delegated the placing, administration and handling of reinsurance.
At first the reinsurers obtained ex parte injunctions restraining the insurers from drawing on the letters of credit. Those were set aside by Clarke J in December 1993. But amended grounds of complaint had by then emerged from somebody's fertile brain, and they were considered by Phillips J in April 1994. He too rejected the application for interlocutory injunctions, see Deutsche Ruckversicherung Aktiengesellschaft v Walbrook Insurance Co Ltd[1994] CLC 415. But it seems that there are still interim injunctions pending a decision by this court (now 15 months later) whether there should be interim injunctions. That does not seem an entirely happy interruption of what is said to be the life-blood of commerce. But I had better not be too critical as...
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