HIH Casualty and General Insurance Ltd & Ors v Chase Manhattan Bank & Ors

Factual and Procedural Background

Company B, a lending bank, financed a portfolio of future films. As security, it required “time variable contingency” insurance policies that would repay any part of the loans not recouped from the films’ revenue. Company A, a group of insurers, issued those policies. A broker (Company C) placed the risks and acted in the negotiations.

The insurance contracts contained an unusually broad “Truth of Statement” clause designed to alter the ordinary duties of disclosure and representation under the Marine Insurance Act 1906. After the films under-performed, Company B claimed under the policies. Company A purported to avoid the contracts, alleging that Company C had procured the policies through material misrepresentations and non-disclosures—some allegedly fraudulent—while conceding that Company B itself had made none.

Preliminary issues on the construction and legal effect of the “Truth of Statement” clause were tried successively by Judge A in the Commercial Court, by the Court of Appeal, and, on appeal and cross-appeal, by the House of Lords. The judgment summarised here is the House’s final determination.

Legal Issues Presented

1. Does phrase [6] of the “Truth of Statement” clause waive only Company B’s personal duty of disclosure, or does it also waive Company C’s statutory duty under section 19 of the Marine Insurance Act 1906?
2. Do phrases [7] and [8] preclude Company A from avoiding the policies or claiming damages where the broker’s misrepresentation or non-disclosure was:
   • (a) innocent;
   • (b) negligent; or
   • (c) fraudulent?
3. Is there a rule of public policy that prevents a principal from contracting out of liability for the fraudulent misrepresentation of its agent in inducing a contract?

Arguments of the Parties

Company A (Insurers)

• Phrase [6] waives only Company B’s own disclosure obligations; it does not remove Company C’s independent duty under section 19.
• Phrases [7] – [8] cannot extend to negligent or fraudulent misconduct because the language does not expressly mention negligence or fraud—applying the construction principles in Canada Steamship.
• Even if the clause purported to cover fraud, public policy bars a party from excluding remedies for an agent’s fraudulent inducement.

Company B (Bank)

• Because phrase [6] constitutes a waiver of disclosure “of any nature,” section 18(3)(c) flows through section 19 and therefore extinguishes Company C’s duty—removing all grounds for avoidance.
• Phrases [7] – [8] use comprehensive wording (“no liability of any nature”) that necessarily covers negligent and fraudulent misrepresentations and non-disclosures by the broker.
• No rule of law prevents parties from excluding liability for an agent’s fraud; in any event the clause is sufficiently clear.

Table of Precedents Cited

Court's Reasoning and Analysis

Phrase [6]. The House held that the waiver of disclosure duties is personal to Company B. It does not extinguish Company C’s statutory duty under section 19; thus the broker could still breach its own duty even though the insured’s duty was waived.

Phrases [7] and [8] & Negligence. Applying the commercial purpose of the clause and the flexible approach to Canada Steamship, the Lords concluded that the broad wording (“no liability of any nature…any such information…”) necessarily covers negligent misrepresentations and negligent non-disclosures by the broker. Excluding negligence would defeat the evident aim of giving Company B “an extended immunity.”

Fraud. Fraud was treated as “a thing apart.” Long-standing principles (including Lazarus Estates) require clear and unmistakable language to exclude remedies for inducing fraud. The general words in phrases [7] – [8] fell “well short” of that standard. Consequently, the policies remain voidable and damages remain recoverable where fraudulent misrepresentation occurs.

Fraudulent Non-Disclosure. The House disagreed with the Court of Appeal’s conclusion that the clause barred avoidance for dishonest non-disclosure. Distinguishing between innocent/negligent and dishonest concealment, it held that deliberate withholding of material facts also falls outside the protection of the clause.

Public-Policy Argument. Because the clause, properly construed, did not purport to protect Company B against the broker’s fraud, the House found it unnecessary to decide whether a rule of law would have invalidated such protection. The point was left open.

Holding and Implications

Holding: The House held that Company A may avoid the policies and claim damages where they prove fraudulent misrepresentation or fraudulent non-disclosure by Company C, but may not avoid or claim damages for merely negligent or innocent misrepresentation or non-disclosure. Company B’s cross-appeal—seeking absolute protection even against fraud—was dismissed.

Implications: The decision re-affirms that “fraud unravels all” unless expressly and unambiguously contracted out, and that broad waiver or “no liability” language will not suffice to exclude remedies for an agent’s fraud. Drafting of insurance clauses that seek to alter duties of utmost good faith must employ clear, explicit wording if protection against fraudulent conduct is intended. The judgment also clarifies the interaction between sections 18 and 19 of the Marine Insurance Act 1906 in complex, broker-driven placements.