Misrepresentation Of Intention: Two Treaties And An Endorsement

In Limit No. 2 Limited v AXA ([2008] EWCA Civ 1231) the

Court of Appeal provided guidance on a number of important issues

relevant to the placement of insurance and reinsurance,

specifically: the effect of comments made by a broker at placement

with regard to the reinsured's underwriting principles and

whether those comments could be viewed as representations of fact

or mere matters of expectation or belief; the effect of an

endorsement extending the period of a contract of reinsurance; and

the willingness to view two representations which were made at

placement as 'continuing' for the purposes of a subsequent

renewal.

The Treaties

This case involved two treaties. One was written on 1 July 1996,

originally lasting 12 months, but later extended by endorsement

dated 20 June 1997 for a further 7 months to 31 January 1998. The

other was a 12 month treaty written in February 1998. AXA, who had

taken over the original reinsurers on both treaties, sought to

avoid the treaties as a result of a misrepresentation by the

brokers for the reinsured, Limit No.2 Limited, a syndicate at

Lloyd's.

The Representation

The representation at the heart of the dispute was contained

within a fax sent by the reinsured's brokers, Newman Martin and

Buchan Ltd (NMB). Prior to agreeing the 1996 treaty NMB attached a

front cover to the draft slip and information sheet provided by the

syndicates for the purpose of placing the reinsurances. On 4 July

1996 NMB faxed a bundle including the front cover to the reinsurers

stating that "as a matter of principle [the reassureds]

maintain high standards and would not normally write construction

unless the original deductible were at least £500,000

($745,000), preferably £1m". This statement was not

however repeated when the 1997 endorsement was made, nor when the

1998 treaty was agreed. NMB had represented that the reinsureds

intended only to underwrite energy risks with the defined high

deductibles, but this was arguably inaccurate because in the

prevailing market conditions high deductible energy business was no

longer available. Whilst the reinsured had written reinsurance with

the stated deductibles before July 1996, the intention to continue

to write such reinsurance had evaporated by July 1996 when the

treaty was written. Moreover, it became apparent that most of the

risks that were underwritten by Limit No. 2 had deductibles of

£100,000 to £200,000.

First Instance Decision

In the High Court, Jonathan Hirst QC held that the...