LIMIT NO 2 LTD V AXA VERSICHERUNG AG

[2007] EWHC 2321 (Comm), Queen’s Bench Division, Commercial Court, Jonathan Hirst QC (sitting as Deputy High Court Judge), 17 October 2007

Reinsurance – Treaty – Misrepresentation and non-disclosure – Reinsurance of construction risks – Reinsurers told that reinsured’s policy was normally to write risks with a deductible of at least £500,000 – Whether material misstatement – Whether material to risk – Whether Treaty and Endorsement could be avoided

In 1996 Albinga, Axa’s predecessor in title, subscribed to a reinsurance treaty covering construction risks accepted by the reinsured syndicates. The proposal for the treaty stated that “as a matter of principle ... [the syndicates maintained high standards]” and “would not normally write construction risks unless the original deductible was at least £500,000 and preferably £1,000,000”. The Treaty was extended by endorsement for a further seven months, and a second treaty was entered into on the expiry of the endorsement in 1997. It transpired that most of the risks written by the syndicates had deductibles smaller than the stated normal deductible figure. Albinga purported to avoid the contracts. It was held that they were entitled to do so. (1) As regards the 1996 Treaty, the statement took effect as one which indicated the syndicates’ present and future practice in relation to deductibles. The statement was sufficiently specific to be a representation, untrue, material and had induced the contract. The 1996 Treaty could be set aside. (2) As regards the extension, this took effect as a part of the 1996 Treaty, so when the Treaty was avoided the extension was also avoided. It was also the case that the extension itself attracted a duty of utmost good faith because it was necessary to exercise underwriting judgment in respect of it, so if the Treaty itself did not avoid the extension then it was independently voidable. (3) The 1997 Treaty could be set aside on the ground that there was either a continuing misrepresentation from 1996 or that the fact that the 1996 representation was untrue was a material fact which ought to have been disclosed: the two approaches were different sides of the same coin. This was material and had an inducing effect. There were also separate material misrepresentations as regards loss figures under the 1996 Treaty. (4) Had the Treaties not been voidable, the fact that monthly bordereaux were not submitted in time would not have entitled Albinga to deny liability for risks declared late: they automatically attached when accepted, and declaration was simply an innominate term whose breach did not have the effect of negativing the earlier attachment.