Rendall v Combined Insurance Company of America

A representation of expectation or belief in insurance negotiations is true under section 20(5) of the Marine Insurance Act 1906 if made in good faith. It does not carry an implied representation that there were objectively reasonable grounds for the belief, although apparently predictive language may in some circumstances amount to an assertion of specific fact.

Disclosure is waived where the presentation is fair, the information would naturally prompt a prudent insurer to inquire further, and the inquiry is not made. Under Illinois law, an insurance policy is construed as a whole. Clear words receive their ordinary meaning, and ambiguity is not created by disagreement or fanciful interpretations.

The claimant London reinsurers sought declarations that they had avoided facultative reinsurance of business travel accident cover for misrepresentation or non-disclosure. Alternatively, they contended that the deaths of Aon employees killed while evacuating the South Tower of the World Trade Centre were outside the reinsured 24 Hour All Risk Hazard (Business Only) cover.

The avoidance issues were governed by English law. Coverage depended on the construction of the underlying policy under Illinois law, particularly the definition of an “Authorised Business Trip”. The principal questions were whether the estimated travel-day figure carried an implied representation as to its evidential basis, whether disclosure had been waived, and whether employees evacuating their regular workplace were on an authorised business trip.

1. Avoidance. The representation that Class 1 employees were estimated to undertake 160,000 travel days was a representation of expectation or belief. Under section 20(5) of the Marine Insurance Act 1906, it was true because it was made in good faith. The wording did not assert that the estimate was based on Aon’s historical travel data or on objectively reasonable grounds. The court nevertheless found, as an alternative, that the estimate had reasonable grounds.

2. The presentation was fair. It expressly identified the figure as an estimate and did not imply how it had been calculated. A prudent underwriter would naturally have asked how the estimate had been reached. Because that inquiry was not made, disclosure of the material basis of the estimate was waived. The claim to avoid the reinsurance therefore failed; inducement did not require determination.

3. Foreign law. The court had to determine the rules of Illinois law as they would be expounded by the Illinois Supreme Court, then construe the policy in accordance with those rules. Expert evidence established that clear policy language receives its plain and ordinary meaning, while the policy must be read as a whole and in light of the risk, subject matter and contractual purpose.

4. Under those principles, “trip” was not ambiguous and did not include the evacuation or attempted evacuation in the exceptional circumstances of 11 September 2001. The employees were also not on a trip for the purpose of furthering an Aon company’s business. The policy definitions were controlling, and there was no need to decide when the employees had left their regular place of employment.

5. The policy was unambiguous, so contra proferentem did not apply. The claimant was entitled to a declaration that the deaths of the 169 employees were outside the 24 Hour All Risk Hazard and therefore outside the reinsurance.

First-instance decision in the High Court (Commercial Court). No appellate history was stated in the judgment.