Limit No 2 Ltd v Axa Versicherung AG

In reinsurance, a representation that an insured intends to follow a stated underwriting policy is a representation of existing fact, not merely opinion or expectation. It may be made through brokers acting as agents and may support avoidance if it is false, material and inducing. An endorsement extending an existing treaty is ordinarily an amendment or variation, not a new contract, although a fresh good-faith duty may arise in relation to matters relevant to the extension. A representation of intention is time-specific. It does not ordinarily remain operative on a later renewal after a substantial interval, and a changed intention does not create a separate disclosure duty where the case is pleaded only as continuing misrepresentation or non-disclosure. Avoidance was therefore upheld for the original treaty and its extension, but not for the later renewal.

The appellant Lloyd’s syndicates appealed from a decision of Jonathan Hirst QC, sitting as a deputy High Court judge in the Commercial Court, in proceedings numbered 2005FOLIO614. The judge held that reinsurers could avoid a 1996 reinsurance treaty, its 1997 extension, and a 1998 renewal because brokers had represented that the syndicates intended normally to write construction risks with substantial deductibles.

The appeal concerned whether the representation related to existing practice or future intention, whether a broker’s statement was attributable to the syndicates, whether the 1997 extension was a new contract or an amendment, and whether the 1996 representation continued to operate at the 1998 renewal or generated a duty to disclose a changed intention.

Lord Justice Longmore delivered the judgment. Lord Justice Jackson and Lord Justice Ward agreed. The appeal was allowed in part.

1. 1996 treaty. The words used by the brokers represented that the syndicates intended normally to write construction business with deductibles of at least the stated amounts. A statement of present intention is a statement of existing fact, not a statement of opinion, belief or expectation. The fact that the statement was made by brokers did not alter its legal character. The brokers were agents presenting the risk, so the representation was attributable to the syndicates. The evidence justified the finding that the previous practice had ceased to reflect the syndicates’ intention by July 1996. There was no appeal on materiality or inducement, so the 1996 treaty was avoidable.
2. 1997 endorsement. The endorsement operated as an amendment or variation of the existing treaty, rather than a new contract. A fresh good-faith duty arose in relation to matters relevant to the extension, but the amended contract was avoidable for the original misrepresentation.
3. 1998 renewal. The renewal was a new contract. A representation of intention is time-specific and does not continue indefinitely. The court distinguished Traill v Baring (1864) 4 De G J & S 318, The Moonacre [1992] 2 Lloyds Rep 501 and Hill v Citadel [1997] Lloyds Rep. IR 167. The latter involved materially repeated placing information on renewal. The reasoning in Tudor Grange Holdings v Citibank [1992] Ch. 53 and the dictum in WPP Group Plc v Reichmann were consistent with treating the 1996 intention as spent well before the 1998 renewal. The court declined to imply that everything said at inception was repeated on renewal.
4. Non-disclosure. The suggested duty to disclose a changed intention was simply the converse of the alleged continuing misrepresentation. No general duty to disclose the intended level of deductibles had been pleaded. The 1998 avoidance order was therefore set aside. The alternative argument concerning reliance on past practice as a guide to future practice was left undecided.

1. Court of Appeal (Civil Division): In [2008] EWCA Civ 1231, the court upheld avoidance of the 1996 treaty and 1997 endorsement, but set aside the order concerning the 1998 renewal.
2. High Court of Justice, Queen’s Bench Division, Commercial Court: Jonathan Hirst QC, sitting as a deputy High Court judge, held that reinsurers could avoid the 1996 treaty, the 1997 extension and the 1998 treaty.