HIH Casualty and General Insurance Limited and others (Respondents) v. Chase Manhattan Bank (Appellants) and others HIH Casualty and General Insurance Limited and others (Appellants) v. Chase Manhattan Bank (Respondents) and others (First Appeal) HIH Casualty and General Insurance Limited and others (Appellants) v. Chase Manhattan Bank (Respondents) and others (Second Appeal) (Conjoined appeals)

A contractual waiver of an insured’s disclosure obligations does not ordinarily waive the placing agent’s separate duty of disclosure. Exclusion clauses are construed from their language, context and commercial purpose. The Canada Steamship principles are interpretative guidelines, not a rigid code.

Comprehensive language relieving an insured from liability for information supplied or withheld by others may protect it against innocent and negligent misrepresentation or non-disclosure. General words do not, however, exclude the consequences of an agent’s fraudulent misrepresentation or dishonest non-disclosure. Clear and unmistakable language referring to dishonesty is required. Dishonest non-disclosure may justify avoidance, but damages are available only where it amounts to fraudulent misrepresentation. Whether public policy permits exclusion of responsibility for a contracting agent’s fraud remains unresolved.

Chase Manhattan Bank advanced funds for a slate of films. Repayment was secured by assigned film revenues and specialised time-variable-contingency insurance underwritten by HIH and other insurers. The policies contained a Truth of Statement clause which waived Chase’s own duties of representation and disclosure and restricted its responsibility for information supplied or withheld by other parties, including the placing broker, Heaths.

After revenue shortfalls, the insurers alleged that Heaths had made fraudulent or negligent misrepresentations and had withheld material information. No misconduct was alleged against Chase. The proceedings concerned preliminary issues determined on the assumption that the insurers’ pleaded allegations were true.

Aikens J answered the preliminary issues in a decision reported at [2001] 1 Lloyd's Rep 30. The Court of Appeal gave different answers in Rix LJ’s judgment, reported at [2001] 2 Lloyd's Rep 483; the House’s heading identifies the appeal as being from [2002] EWCA Civ 1250. The central questions were whether the Truth of Statement clause excluded avoidance or damages for negligent or fraudulent conduct by Heaths and whether dishonest non-disclosure, without an actionable misrepresentation, remained a ground for avoiding the policies.

1. Disposition. By a majority of four to one, the insurers’ appeal was allowed only in relation to dishonest non-disclosure which did not amount to fraudulent misrepresentation. Their challenges concerning negligent misrepresentation and negligent non-disclosure were dismissed. Chase’s cross-appeal concerning fraudulent misrepresentation was dismissed. Lord Bingham gave the formal answers; Lord Steyn agreed with his reasons, and Lord Hoffmann and Lord Hobhouse reached the same disposition. Lord Scott dissented.

2. Ordinary insurance law. Per Lord Bingham and Lord Hoffmann, sections 17–20 of the Marine Insurance Act 1906 state principles generally applicable to insurance. Material misrepresentation or non-disclosure by an insured or its placing agent ordinarily permits avoidance. Negligent misrepresentation may also produce liability under section 2(1) of the Misrepresentation Act 1967, while fraudulent misrepresentation supports damages in deceit.

3. The insured’s waiver and the agent’s duty. Phrase 6 of the Truth of Statement clause relieved Chase personally from duties of representation and disclosure. It did not waive Heaths’ independent duty under section 19 of the Marine Insurance Act 1906. The waiver concerned the person obliged to disclose, rather than identified material circumstances. Phrases 7 and 8 did not restrict Heaths’ authority to act for Chase.

4. Innocence and negligence. Per Lord Bingham and Lord Hoffmann, the words “no liability of any nature”, read with the prohibition on avoidance, protected Chase against innocent and negligent misrepresentation and non-disclosure by Heaths. They excluded avoidance and liability under section 2(1) of the Misrepresentation Act 1967. The principles in Canada Steamship Lines Ltd v The King [1952] AC 192 were guidelines. The ultimate inquiry remained the meaning of the language in its commercial context. All five Law Lords agreed on the treatment of negligence.

5. Fraud. The majority held that commercial parties ordinarily contract on the common assumption of honest dealing. General language, however comprehensive, therefore did not exclude avoidance or damages for an agent’s fraudulent misrepresentation. An intention to produce that extraordinary result required clear and unmistakable words alerting the other party to the proposed allocation of fraud risk.

6. Dishonest non-disclosure. The majority held that phrases 7 and 8 did not prevent avoidance for a deliberate, dishonest or reckless breach of Heaths’ disclosure duty. Pure non-disclosure did not itself support damages. Damages against Chase were available only where the dishonest silence amounted to fraudulent misrepresentation.

7. Public policy and dissent. Lord Bingham and Lord Hoffmann treated it as unnecessary to decide whether public policy invariably prevents exclusion of the consequences of a contracting agent’s fraud. Lord Hobhouse considered that a principal could not rely on a term in a contract procured by its agent’s material fraud. Lord Scott would have held that, absent the principal’s knowledge, complicity or alter-ego relationship, public policy did not prevent contractual allocation of that risk. He would have left the clause’s application to fraud dependent on its commercial purpose as established at trial.

• House of Lords: By a majority of four to one, allowed the insurers’ appeal to the limited extent that dishonest non-disclosure could justify avoidance even where it did not amount to fraudulent misrepresentation. Dismissed the remainder of the insurers’ appeal and dismissed Chase’s cross-appeal: [2003] UKHL 6.
• Court of Appeal: The source heading identifies the appeal as being from [2002] EWCA Civ 1250. The reasons also record Rix LJ’s answers to the preliminary issues in the decision reported at [2001] 2 Lloyd's Rep 483. The Court of Appeal permitted avoidance and damages only on a case amounting to fraudulent misrepresentation or deceit, and excluded avoidance for pure dishonest non-disclosure.
• Commercial Court: Aikens J determined the preliminary issues in a decision reported at [2001] 1 Lloyd's Rep 30. He held, among other things, that the clause did not exclude avoidance for deliberate concealment of material facts.