Utmost Good Faith - Remedies for breach of duty: the HIH case

(HIH Casualty and General Insurance Ltd v Chase Manhattan Bank and Heath North America Ltd 2000)

If an assured fails to disclose or misstates material facts, an insurer who wishes to rely upon the defence of breach of the duty of utmost good faith has the right to avoid the contract from the outset. There is no liability in damages for breach of this duty, although the position is slightly different in the case of a positive misrepresentation by the assured, as the insurer may then rely upon the tort of deceit or the Misrepresentation Act 1967 to found an action for damages. In recent years it has become increasingly common for insurers to agree to limit the scope of the duty or the consequences of its breach, particularly under professional indemnity policies, where insurers agree to indemnify the assured despite any breach of duty subject to a right of recourse against any person guilty of fraud within the organisation. In HIH Casualty and General Insurance Ltd v Chase Manhattan Bank and Heath North America Ltd 2000, unreported (forthcoming in [2001] Lloyd’s Rep IR), Mr Justice Aikens considered by way of preliminary issue the permissible ambit of exclusion clauses of this type and the correct approach to their construction.