New Hampshire Insurance Company & Ors v MGN Ltd & Ors

Factual and Procedural Background

The dispute arises from a series of insurance contracts covering periods beginning August 1, 1988, through 1991. These contracts were arranged in layers, with New Hampshire Insurance Company underwriting the initial layer and Chubb Insurance Company of Europe SA underwriting the top layers in 1990/1991 and 1991/1992. Other insurers and Lloyd's syndicates also participated in the contracts. The insured parties were various companies within a corporate group, some publicly owned and others privately held, along with pension fund trustees. The central issue concerns the interpretation and incorporation of Chubb’s policy forms into the contracts, the nature of the insured entities, and the scope and limits of coverage. Preliminary issues were ordered for trial by Waller J. in two Commercial Court actions, with the present appeal arising from Potter J.'s judgment on those issues.

Legal Issues Presented

1. Whether the Chubb policies for Years 3 and 4 were incorporated into the contracts by reference to slips and policy wordings.
2. Whether the insurance coverage was single, joint, or composite in nature regarding the insured parties.
3. Whether non-disclosure, misrepresentation, or breach of utmost good faith by one assured affects all other assureds under the contracts.
4. Whether losses resulting from transfers of assets between assured companies fall within the policy coverage.
5. Whether acts causing or intended to cause transfers of assets between assureds constitute dishonest or fraudulent acts under the policies.
6. At what points in time the assureds owe a duty to disclose material matters to insurers.
7. The application and interpretation of policy limits, including whether limits apply separately per company, per policy year, and per loss or employee.

Arguments of the Parties

Insurers' Arguments

• Chubb argued that their policy forms were incorporated into the contracts by implication when slips were initialled, based on customary practice and knowledge of brokers.
• They contended that once a policy is issued, its terms are conclusive evidence of the contract unless rectified.
• They also submitted that silence or inaction by the insured could amount to acceptance of the policy terms, including by conduct after the contract commenced.
• Regarding the nature of the insured, the insurers suggested the insured was the corporate group as a whole, not the individual companies.
• They relied on the right to cancel the policy to argue for a continuing duty of disclosure during the policy period.
• Regarding policy limits, the insurers contended that limits might apply cumulatively or as a single limit across companies or years.

Claimants' Arguments

• The Claimants maintained that the Chubb policy forms did not form part of the contracts because the slips expressly referred to different forms, and incorporation by implication was inconsistent with express terms.
• They argued that the insurance coverage was composite, insuring each company separately rather than the group as a single entity.
• They contended that non-disclosure or breaches by one assured do not affect the rights of other assureds.
• The Claimants asserted that losses resulting from asset transfers between companies within the group were covered losses.
• They denied a continuing duty of disclosure during the policy period by reason of the right to cancel.
• They argued that policy limits apply separately to each company and each policy year, and that the limit applies to all loss caused by one employee within a policy year.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by considering whether the Chubb policy forms were incorporated into the contracts for Years 3 and 4. It rejected the argument that incorporation could be implied from the slips initialled by Chubb because the slips expressly referred to different forms than the Chubb policies. The court emphasized that implication cannot contradict express contract terms. It also rejected the submission that issued policies are conclusive evidence of contract terms absent rectification, since here the issue was whether the policies were ever agreed to. The possibility of acceptance by silence was considered, but the court found the evidence of silence insufficient to imply acceptance, especially because the Chubb policies contradicted the slips. The court thus held the Chubb forms were not part of the contracts.

Regarding the nature of the insured, the court analyzed the wording of the policies and surrounding circumstances. It concluded that the insurance coverage was composite: there were multiple insured companies each insured separately, rather than a single insured entity called the group. This conclusion was supported by authorities distinguishing joint from several insurance and by the practicalities of the companies’ separate interests.

On issues of non-disclosure or breaches of good faith by one assured, the court held that such conduct does not affect the rights of other assureds, applying the principle that separate insureds with separate interests have separate contracts. It noted a caveat that officers with duties across multiple companies might present exceptions, but this was not argued before the court.

The court held that losses resulting from transfers of assets between assured companies were covered losses, consistent with the composite nature of the insurance.

On the question of dishonest or fraudulent acts constituting such transfers, the court held that because each company was insured separately, such acts could be dishonest or fraudulent as to each insured.

Regarding the duty of disclosure, the court analyzed statutory provisions and case law, particularly the Marine Insurance Act 1906 and relevant precedents. It rejected the existence of a continuing duty of disclosure during the policy period based solely on the insurer’s right to cancel the policy. The court emphasized the risk of oppression if such a duty were extended and distinguished fidelity bonds and suretyship cases as inapplicable. It declined to extend the duty beyond established points: before contract conclusion, renewal, and claim.

On policy limits, the court concluded that limits apply separately to each insured company and separately for each policy year. It rejected arguments that limits were cumulative across years or that a single limit applied to multiple losses caused by the same employee across years. The court interpreted the policy wording as establishing non-cumulative annual limits and limits applying to all loss caused by an employee within a policy year.

Finally, the court dismissed the appeal and cross-appeal, upheld the preliminary issues decided by the trial judge, and ordered costs against the insurers for the preliminary issues phase, emphasizing that the parties should proceed to trial on the substantive matters.

Holding and Implications

DISMISSED

The court dismissed the appeal and cross-appeal (except as to costs). It held that the Chubb policy forms were not incorporated into the contracts, that the insurance coverage was composite with each company insured separately, that non-disclosure or breaches by one assured do not affect others, and that losses from asset transfers between companies were covered. It rejected a continuing duty of disclosure during the policy period based solely on cancellation rights and clarified the application of policy limits as separate per company and per year.

The direct effect is that the insurers cannot rely on the Chubb policy forms as part of the contracts, and coverage and duties must be assessed on a company-by-company basis. The decision does not establish new precedent on continuing disclosure but reaffirms caution against expanding it. The parties are directed to proceed to trial on the substantive issues, and costs for the preliminary issues are to be paid by the insurers.