AXA Versicherung Ag v Arab Insurance Group

In an unfair presentation case, the information needed to make the presentation fair is judged objectively from the standpoint of the reasonable and prudent underwriter. The presentation may require positive qualification of adverse information. Inducement asks what would have happened if that presentation had been made, and the insurer bears that burden. The court must distinguish the information required for fairness, additional matters the insured or broker would probably have urged, and the actual underwriter’s subjective considerations. A trial judge may draw reasonable inferences about the hypothetical broking exercise and may remain in real doubt. In that event the insurer fails to prove inducement. Appellate intervention is unwarranted where the finding is evidentially open and procedural fairness has not been compromised.

AXA, as successor to Albingia, had subscribed to two first-loss reinsurance treaties written by Arab Insurance Group (Arig) for energy construction risks. AXA later sought to avoid them for non-disclosure and alleged misrepresentation concerning Arig’s historic loss statistics. The High Court found that a fair presentation required disclosure of loss records dating from 1989, with explanatory material about changes in underwriting, but held that AXA had not proved that Albingia would have declined the 1996 treaty or accepted it only on different terms.

AXA appealed, alleging that the judge applied the wrong could/would test, relied on an unsupported hypothetical presentation, and acted procedurally unfairly. The central issues were the correct approach to fair presentation and inducement and whether the judge’s conclusion was open to him.

1. Appeal dismissed. Lord Justice Christopher Clarke gave the leading judgment, with Lady Justice Arden and Lord Justice Lewison agreeing. The court upheld the finding that AXA had not proved inducement.
2. Where the presentation of an insurance risk is unfair, the court must identify objectively what should have been said to make it fair, viewed from the standpoint of the reasonable and prudent underwriter. This may require positive qualification of adverse information. Inducement is a separate hypothetical inquiry: the insurer must prove what would have happened if a fair presentation had been made. The court must distinguish the content required for fairness, additional matters which the insured or broker would probably have urged, and the actual considerations operating in the mind of the underwriter.
3. The judge was entitled to find that historic loss records from 1989 onwards required disclosure with a fair explanation of the change in underwriter and underwriting approach. He was also entitled to infer that such explanations, together with points concerning market conditions, the existing commercial relationship, cash flow and the underwriter’s previous willingness to write first-loss business, would have formed part of the hypothetical presentation. In light of the age of the transaction, the underwriter’s lack of recollection, and the unreliability of categorical hindsight assertions, the judge was entitled to remain in real doubt and conclude that the insurer had not discharged its burden.
4. The judge’s clarification that he had applied the test of what would have happened was permissible. The court relied on the principles discussed in Space Airconditioning plc v Gray [2012] EWCA Civ 1664 and In re L [2013] UKSC 8: before an order is drawn up, a judgment may be corrected so that it accurately records the judge’s intended decision. No alteration to the sealed order was required here.
5. The procedure had not caused such injustice as to require the judgment to be set aside. The judge was entitled to restrict re-examination and was not bound to accept unchallenged written evidence about a hypothetical transaction two decades earlier at face value. In a postscript, the court advised that alternative hypothetical cases about the content of a fair presentation and additional broking points should ordinarily be pleaded or disclosed in evidence before trial. That guidance was said to be consistent with Drake Insurance v Provident Insurance [2002] EWCA Civ 1834.

• Court of Appeal (Civil Division): AXA’s appeal was dismissed. The court upheld the High Court’s conclusion that inducement had not been proved.
• High Court, QBD, Commercial Court: Mr Justice Males held that a fair presentation required disclosure of historic loss statistics and explanatory material, but rejected AXA’s claim for avoidance because it was not more likely than not that Albingia would have declined the treaty or agreed it only on different terms.