Utmost Good Faith - Waiver of breach of duty

(Callaghan and Hedges v Thompson [2000] Lloyd’s Rep IR 125)

The decision of Mr Justice David Steel in Callaghan and Hedges v Thompson [2000] Lloyd’s Rep IR 125 is important in a number of respects. First, it provides some guidance to insurers as to how their rights in relation to suspected misrepresentation or non-disclosure are to be preserved once a claim has been submitted, particularly where interim payments have been made. The principle which emerges is that the formula ‘Without Prejudice’ will protect the insurers, and that in any event they will not lose their rights until they become aware of the availability of a defence. Secondly, there is an important discussion of the role of brokers and other intermediaries in the settlement process, which raises the often-discussed and still not fully resolved question of the status of a broker who acts for both parties to an insurance transaction.