Utmost good faith

The decision of Mr Justice Walker in Crane v Hannover Ruckversicherungs-Aktiengesellschaft [2008] EWHC 3165 (Comm) is one that turns largely on its own special facts, all questions of law having been agreed by the parties. The judgment is nevertheless an interesting one, because it involves questions of post-contractual disclosure, the materiality to the placement of a retrocession of the reinsurers’ own concerns as to the underlying insurance program, and the role of materiality and inducement.

Crane: the facts

Legion, a US insurer and a subsidiary of MRM, wrote workmen’s compensation liability (WCA) insurance. Policies typically consisted of liability for the provision of statutory benefits to injured employees and also of liability cover for fault-based accidents. Hancock, another subsidiary of MRM, acted as Legion’s UK producing broker, and another firm, SCB, acted as the placing broker. Legion reinsured certain of its policies under two excess of loss ‘Mainframe’ treaties, and others under ‘Cessions’ treaties, placed by Hancock with effect from 1 October 1998. The Mainframe XL treaties were subscribed to by Hannover, a German reinsurer, and thee treaties reinsured Legion’s net excess liability resulting from loss occurrences in the year covered by the treaties. The first policy covered Legion’s ultimate net loss up to US$1m in excess of a retention of US$100,000. It also covered aggregate losses for up to US$1.25m in excess of an annual aggregate attachment point (AAAP). The second Mainframe XL treaty was in excess of the first treaty, and provided cover of up to US$1m for specific losses and US$1.25m for aggregate losses.