AXA Versicherung AG v Arab Insurance Group (B.S.C.)

Past loss statistics of a proposed reinsured will generally be material and must be disclosed as part of a fair presentation. This remains so where the reinsured has changed its underwriter or underwriting strategy. The reinsured may explain why historical losses are not representative, but cannot withhold them unilaterally. Materiality is objective, while inducement depends on what the particular underwriter would have done. Avoidance requires proof that the non-disclosure or misrepresentation was an effective cause of entering the contract on the terms agreed. Hypothetical underwriting evidence given many years later requires careful scrutiny. On renewal, claims experience must be assessed substantively: an incident without a reserve may nevertheless be material, depending on the circumstances.

Axa sought to avoid two first loss reinsurance treaties entered into with Arig in 1996 and 1997. It alleged non-disclosure and misrepresentation concerning Arig’s historic energy construction loss statistics and, on renewal, the non-disclosure of three incidents and an inaccurate statement that there had been only one claim.

Axa also sought recovery of a payment made on a risk said to breach a 20 per cent restriction on layered contracts. Arig counterclaimed for sums allegedly due under the treaties. The court had to determine materiality, waiver, inducement, construction of the layered-contract provision and limitation issues.

1. Historic loss statistics. Under sections 18 and 20 of the Marine Insurance Act 1906, the existence and extent of a proposed reinsured’s past loss experience will generally influence the judgment of a prudent reinsurer. The duty remains where the reinsured has changed its underwriter or underwriting strategy. Those matters may be explained to the reinsurer, which must then assess their significance. They do not justify withholding the underlying statistics.
2. In this case Arig’s loss statistics, including the exceptionally poor 1989 and 1990 results, were material. A fair presentation required their disclosure, together with a fair explanation of the changed underwriting circumstances. Albingia had not waived disclosure and was not required to act as a detective.
3. Inducement. Axa had to prove that the non-disclosure was an effective cause of Mr Holzapfel’s decision to enter into the treaty or to do so on different terms. The court treated the evidence of what he would have done, given almost 20 years after the event and without a specific recollection, with healthy scepticism. Considering the existing quota-share relationship, Arig’s standing, the possible explanations for the historic losses and the commercial context, Axa had not proved inducement on the balance of probabilities.
4. The 1996 treaty therefore could not be avoided. The same historic statistics could not found avoidance of the 1997 renewal, since the relevant consideration on renewal was the claims experience under the treaty itself.
5. Renewal claims. The Clyde Petroleum incident was material and the statement that there was only one claim was inaccurate because a reserve had been recommended for a second incident. Nevertheless, Axa failed to prove inducement. The NPCC and Ras Laffan incidents, considered individually or together, did not make the presentation unfair or affect the renewal decision.
6. Layered-contract restriction. The wording appeared under “Information (N.L.O.W.)”. It was therefore a statement of intended underwriting practice, not a contractual restriction on cessions. Axa’s estoppel argument failed. Its claim to recover the Norsk Hydro payment was dismissed.
7. Axa’s claim to recover approximately US$5.15 million paid under the treaties was dismissed. Arig’s counterclaim succeeded, subject to agreement or determination of the amount.