19/10/2009

Limit No.2 Limited v Axa Versicherung AG – Court of Appeal.

The Court of Appeal gave judgment in this matter on 12th November 2008.  The Appellant (Limit) appealed against the order of Jonathan Hirst QC sitting as a deputy Judge.

The deputy judge had ruled that Axa were entitled to avoid two treaties of reinsurance on the grounds of misrepresentation. The treaties were referred to as the 1996 treaty and the 1998 treaty. The 1996 treaty, which was intially for 12 months, had been extended by endorsement for a further 7 months. This became known as the 1997 endorsement.  Prior to the agreement of the 1996 treaty, Limit’s brokers had stated in a fax that “as a matter of principle they maintain high standards and would not normally write construction unless the original deductible were at least £500,000 and preferably £1,000,000”. The deputy judge found that Limit had represented that it did not intend to write energy construction business unless the deductible was generally above £500,000. He found that the representation was false and that Axa were entitled to avoid the 1996 treaty, 1997 endorsement and the 1998 treaty (on the grounds that the representation was continuing in 1997 and 1998). He also found that the 1997 endorsement could not survive the avoidance of the 1996 treaty in any event, given that it amounted to an amendment of the 1996 treaty.  Limit appealed on 5 grounds, and succeeded on one of those grounds. The Court of Appeal found that the representation as to Limit’s intention was not continuing in 1998, and so the 1998 treaty could not be avoided on the basis found by the deputy judge. Longmore LJ (giving the principal judgment) warned that as avoidance was such a stark remedy, he did not consider that “a court should struggle to hold that everything said at inception is to be impliedly repeated on renewal”. This was a significant finding, particularly given that the representation made by brokers was that Limit would not normally write such risks “as a matter of principle”. The case demonstrates the difficulty an insurer may have in showing that a representation remained active upon renewal.  The Court of Appeal upheld the deputy judge’s decision that the 1997 endorsement could not survive the avoidance of the 1996 treaty. Longmore LJ explained that it was a simple matter of construction whether the 1997 endorsement amounted to a variation of the 1996 treaty, or a new treaty. He found that it was a variation of the 1996 treaty, and hence it fell with the 1996 treaty. Accordingly, the Court of Appeal upheld the deputy judge’s decision that the 1996 treaty and 1997 endorsement had been validly avoided by Axa.  It so happens that the deputy judge had also held that the 1998 treaty could potentially be avoided by Axa for non-disclosure of a deteriorating claims position, subject to Axa showing that Limit had become aware of the relevant claims (an issue which was held over for later determination). Accordingly the case continues in relation to the 1998 treaty.  Axa Versicherung AG (“Axa”) were represented by Nicholas Hamblen QC and Charles Kimmins.