HIH CASUALTY AND GENERAL INSURANCE LTD. AND OTHERS v. CHASE MANHATTAN BANK AND OTHERS [2001] EWCA Civ 1250

An insurance clause may wholly waive an assured’s pre-contractual duty of disclosure. Where that duty is waived, the waiver also extends to the agent effecting the insurance in respect of information which the assured itself need not disclose.

General language excluding liability for information supplied by others, and excluding avoidance or cancellation, covered negligent misrepresentation and non-disclosure in this commercial insurance arrangement. It also excluded rescission. It did not, however, exclude the common-law remedies for an agent’s fraud. Fraud requires express language, or language which is its clear equivalent.

The relationship of insurer and assured does not ordinarily create an implied Hedley Byrne duty of care for negligent misstatement. Special facts may exceptionally justify such a duty.

The proceedings concerned film-finance insurance placed for the benefit of a lending syndicate represented by Chase. The insurers alleged that Heaths, Chase’s agent to insure, had made fraudulent or negligent misrepresentations and non-disclosures when placing the policies. The policies contained a "Truth of Statement" clause which sought to exclude Chase’s responsibility for information supplied by others and the insurers’ remedies.

At a preliminary-issues trial, Aikens J held that the clause did not protect Chase against Heaths’ negligent or fraudulent conduct: [2001] 1 Lloyd's Rep 30. Chase appealed. The insurers cross-appealed on the absence of a duty of care ruling and related issues. The central question was the extent to which the clause protected Chase from avoidance, rescission and damages arising from Heaths’ alleged conduct.

1. Appeal allowed in part; cross-appeal dismissed. Rix LJ gave the leading judgment, with which Lloyd J and Aldous LJ agreed. The Truth of Statement clause protected Chase against claims founded merely on Heaths’ negligence or non-disclosure. It did not protect Chase against a positive case of fraud capable of supporting common-law rescission for fraudulent misrepresentation or damages for deceit.

2. The relationship of insurer and assured, and the reciprocal duty of utmost good faith, did not in the ordinary case create a common-law duty of care not to make negligent misstatements. The duty of utmost good faith has its own remedy of avoidance under the Marine Insurance Act 1906. A duty of care could arise only on special facts showing an assumption of responsibility; none were pleaded.

3. There was no rule of public policy which invariably prevented a principal from excluding purely vicarious liability for its agent’s fraud. The public-policy rule against excluding a party’s own fraud was different. A clause purporting to exclude an agent’s fraud nevertheless required the clearest wording, particularly where it concerned the negotiation of the contract.

4. The clause was not confined to the post-contractual period. Phrase 6 wholly waived the assured’s duty of disclosure. Read with sections 18 and 19 of the Marine Insurance Act 1906, that waiver also relieved Heaths, as agent to insure, of a duty to disclose matters which Chase itself was not required to disclose.

5. In phrases 7 and 8, “information” included misinformation and misrepresentation. The wide exclusion of liability and of avoidance covered negligent misrepresentation and non-disclosure. “Avoidance” also encompassed rescission, so the clause had the same effect for the line-slip contract for insurance as for the resulting contracts of insurance.

6. Fraud remained different. The clause did not refer to fraud and its general language was insufficient to exclude common-law remedies for fraud. The insurers could therefore avoid or rescind, and recover damages from Chase, only if they proved a good claim in deceit based on positive fraudulent misrepresentation. The order allowed Chase 65 per cent of its costs here and below.

• Court of Appeal (Civil Division): Allowed Chase’s appeal in part and dismissed the insurers’ cross-appeal. The court varied the preliminary rulings so that the clause excluded claims based on negligence and non-disclosure, but not common-law fraud.
• Commercial Court: Aikens J held that the clause protected Chase only against innocent misrepresentation or non-disclosure: [2001] 1 Lloyd's Rep 30.