HIH CASUALTY & GENERAL INSURANCE LTD V JLT RISK SOLUTIONS LTD

[2007] EWCA Civ 710, Court of Appeal, Lord Justice Auld, Lord Justice May and Lord Justice Longmore, 12 July 2007

Insurance and reinsurance brokers – Brokers placing both direct risk and reinsurance – Brokers becoming aware of breaches of warranty in insurance and reinsurance – Brokers not specifically drawing information to reinsured’s attention – Whether brokers owed duty of care to keep reinsured informed – Whether duty broken – Causation and contributory negligence

JLT designed insurance and reinsurance arrangements under which banks and financial institutions could invest in film production. The loans would be repaid from the profits generated by the films, although in the event that the films did not generate adequate profits the lenders would be indemnified by insurance. The present case arose out of three slates of films: the 7.23 slate of 6 films, the Rojak slate of 10 films and the Award slate of 5 films. HIH acted as insurers and was in turn reinsured on a back to back basis by reinsurers. Not all of the films for which funding had been provided were made, and those that were made did not generate significant revenue. The reduced number of films had been adverted to in risk management reports issued by a company, Flashpoint, which had been sent to JLT and then forwarded to HIH and the reinsurers. As a result of the reduction in film numbers the investors suffered massive losses, leading to payments by HIH in 1999 and 2000 of US$15,611,008, US$14,679,473 and US$25,092,303 to LDT in respect of the three slates of films. In earlier cases it was held that the statements as to the numbers of films were warranties, that HIH had not been under any legal liability to pay and that HIH could not recover from its reinsurers. The Court of Appeal, upholding Langley J, held as follows. (1) JLT owed a duty of care to HIH to highlight the information which it had received from Flashpoint. Longmore LJ commented that: “an insurance broker who, after placing the risk, becomes aware of information which has a material and potentially deleterious effect on the insurance cover which he has placed is under an obligation to act in his client's best interest by drawing it to the attention of his client and obtain his instructions in relation to it   … Indeed, as between a lay client unversed in insurance matters and his insurance broker, I would think that the existence of such a duty should be comparatively uncontroversial.” The fact this might give rise to a conflict of interest was irrelevant. (2) The duty had been broken. (3) However, the cause of HIH’s loss was its own decision to make payment when it had no legal liability to do so: HIH had not taken the advice of lawyers in respect of slate 7.23; and although HIH had taken legal advice in respect of the other slates HIH had not sought the view of its reinsurers.