HIH Casualty & General Insurance Ltd v JLT Risk Solutions Ltd

An insurance broker who has placed original insurance and back-to-back reinsurance may owe each client a post-placement duty to identify and draw attention to information that may materially and adversely affect cover, and to obtain instructions. The duty is not reduced to passing documents on as a post-box. Dual agency and back-to-back wording do not remove it. Breach does not itself establish loss. The claimant must prove what would have happened if the warning had been given and that the counterfactual would have secured the claimed indemnity. Where the loss instead results from voluntarily paying claims without legal liability, causation is not established.

The appeal arose from film-finance insurance schemes arranged through JLT Risk Solutions Ltd. HIH provided the original insurance and JLT placed substantially back-to-back reinsurance with several reinsurers. Risk-management reports later disclosed that fewer films were being produced than the placement documents specified.

HIH paid claims by the insured, but the reinsurers later denied indemnity on the basis that the reductions breached warranties. HIH claimed that JLT had negligently failed to alert it to the possible coverage consequences. Langley J found a post-placement duty and breach, but held that the breach had not caused loss; he made a contingent finding of 70% contributory negligence. HIH appealed on causation and JLT challenged duty, breach and related findings. The central issues were the scope of the broker’s post-placement duty and whether the alleged breach caused HIH’s unrecovered payments.

Auld LJ gave the leading judgment. May LJ agreed with his reasons and orders. Longmore LJ agreed on duty, breach and causation, but expressed no view on contributory negligence.

1. Duty. An insurance broker who has placed both original insurance and reinsurance may owe a post-placement duty to the insurer as reinsured to draw attention to information that may materially and adversely affect cover and to obtain instructions. The duty is not confined to acting as a post-box. The broker’s role, the significance of the information and the possibility of different positions between insurer and reinsurers supported the duty. The reasoning was consistent with Superhulls [1990] 2 Lloyd’s Rep 431, North and South Trust Co v Berkeley [1971] 1 WLR 470, The Zephyr [1984] 1 Lloyd’s LR 58 and Kelly v Cooper [1993] AC 205.
2. Breach. The reports disclosed reductions in the number of films. JLT’s responsible employee appreciated that the reductions might affect coverage and discussed them with a former HIH underwriter, but did not alert the personnel then responsible at HIH. Forwarding the reports without more was insufficient. The finding was finely balanced but tenable on the evidence.
3. Causation. HIH established that, if alerted, it probably would have sought the reinsurers’ views. It did not establish that the reinsurers would have agreed to the reductions or otherwise become legally bound to indemnify HIH. The related decision that the reductions breached warranties and that the waiver clause did not answer the breach was treated as the operative legal background: HIH v New Hampshire Insurance Co & Ors [2001] 2 Lloyd’s Reports 161. The true cause of HIH’s loss was its decision to pay claims when it had no legal liability to do so, without ascertaining the reinsurers’ position for H1 and despite knowing their position for H2 and H3.
4. Adverse inference. Wisniewski v Central Manchester Health Authority [1998] LLR Med 223 did not require an adverse inference from HIH’s failure to call the relevant employees. The judge was entitled to decline one and gave tenable reasons.
5. Contributory negligence. The issue was contingent and overlapped substantially with causation. The judge should not have made the contingent 70% assessment. If a view had been required, Auld LJ and May LJ inclined towards 100%; Longmore LJ expressed no view. HIH’s appeal and JLT’s respondent’s notice were dismissed.

• Court of Appeal (Civil Division) [2007] EWCA Civ 710: HIH’s appeal on causation was dismissed. JLT’s respondent’s notice challenging duty, breach and the first two causation findings was also dismissed.
• High Court, Queen’s Bench Division, Commercial Court: Langley J found that JLT owed a post-placement duty and had breached it, but that the breach had not caused HIH’s loss. He made a contingent finding of 70% contributory negligence.