Court of Appeal upholds HIH v AXA decision
The Court of Appeal recently upheld Mr Jules Sher QC's judgment in HIH Casualty and General Insurance Ltd -v- AXA Corporate Solutions & Anor. As Law-Now reported back in February (/law-now/press.cfm?id=4145) the High Court summarily dismissed HIH's claim for breach of warranty. As there had been no waiver or estoppel on its part AXA was automatically discharged from liability. The Court of Appeal reconsidered the issue of waiver and estoppel.
AXA was HIH’s 80 percent quota share reinsurer in respect of underlying pecuniary loss indemnity policies taken out by the financiers of two ‘slates’ of films. The High Court decided that the number of films to be produced on each slate was a condition precedent to liability. As fewer films were made, HIH was found to be in breach of condition precedent and therefore not entitled to an indemnity, despite the fact that it had already paid out substantial sums to the insured on the underlying claim.
HIH tried to persuade the Court of Appeal that AXA had waived its right to reject the claims. However, AXA could not have waived its rights by election, as liability was automatically discharged following HIH’s breach of warranty and there was no choice to be made. HIH next claimed waiver by estoppel. To succeed HIH would have to show that (a) AXA had made a clear and unequivocal representation that it would not treat the reinsurance cover as discharged due to the reduced number of films on each slate, and (b) that it had relied on the representation to the extent that it would have been inequitable for AXA to go back on it.
HIH’s evidence indicated that AXA had been given regular adjuster’s reports that suggested that the films made would not meet the warranted numbers, and that it had continued to act as if it remained on risk. Neither HIH nor AXA was aware at the time that such a failure constituted a breach of warranty entitling AXA to discharge itself from liability, and HIH contended that knowledge of either party of the breach was not required. It said that AXA’s conduct constituted a clear and unequivocal representation, sufficient to prove waiver by estoppel, as it was inconsistent with any right it may have had to reject the HIH’s claims.
It was established that, in order for waiver by estoppel to be shown, the alleged representor must have knowledge of the right that will not be enforced. Tuckey LJ stated that: “Unless the representation carries with it some apparent awareness of rights it goes nowhere: the representee (HIH) will not understand the representation to mean that the representor (AXA) is not going to insist upon his rights because he has said or done nothing to suggest that he has any.”
In the absence of any knowledge of the right to discharge the reinsurance covers by either party, it would not be possible to infer waiver by estoppel from the course of conduct pursued by AXA. AXA’s conduct could only be described as silence or inactivity, and this could not amount to a clear and unequivocal representation. In any event, HIH failed to establish any positive act of reliance upon AXA’s supposed representation and the Court of Appeal therefore upheld the summary judgment in AXA’s favour.
If you have any queries or require further information on this case, please contact John Hall on +44 (0)20 7367 3014 or at john.hall@cms-cmck.com.
