PCW SYNDICATES v PCW REINSURERS (1996)

CA (Staughton LJ, Rose LJ and Saville LJ) 31/7/95

INSURANCE

LLOYD'S NAMES LITIGATION

Non-disclosure by an agent of an assured that the premiums due to the insurer are being misappropriated by his staff does not provide the insurer with any ground for avoiding the contract of insurance.

Appeal by PCW Reinsurers comprising 24 insurance companies and 62 Lloyd's syndicates with whom the "names" or underwriting members of 56 syndicates managed by PCW Underwriting Agencies Ltd had contract of reinsurance against a ruling by Waller J upon a preliminary issue. The issue arose from the misappropriation of premiums by PCW Ltd staff received for the names on the 56 PCW syndicates. The appellant reinsurers sought to avoid the contracts to which the misappropriated premiums related on the ground of non-disclosure and relied on s.18(1) Marine Insurance Act 1906 which required an assured to disclose "every material circumstance known to the assured". The misappropriations had only come to light in consequence of a Department of Trade and Industry inquiry. Buckley J had held that the non-disclosure did not entitle the reinsurers to avoid the reinsurance contracts.

HELD: The contracts of reinsurance with the appellants had been arranged through brokers. Section 19 of the 1906 Act provided that where an insurance was effected through an agent the agent must disclose every material circumstance. It was not disputed that the reinsurers had no knowledge of the fraud, but even if such knowledge could be imputed to them by rule of law, the principle formulated in Re Hampshire Land (1896) 2 Ch.743 provided an exception. As was said in Belmont Finance Corp v Williams Furniture Ltd (1979) Ch.250, "if the agent is acting in fraud of his principal and the matter of which he has notice is relevant to the fraud that knowledge is not to be imputed to the principal". The Hampshire Land principle was not confined to cases where the agent's knowledge was by law to be imputed to the principal but should extend to a case where the principal's rights were affected if the agent did not make disclosure to a third party. Alternatively there would be no obligation on an agent to disclose a fraud on his principal since he would not hold that knowledge as agent.

Appeal dismissed.

Kenneth Rokison QC and John Lockey instructed by D.J.Freeman for the PCW syndicates. Michael Beloff QC and Richard Jacobs instructed by Ince & Co for the reinsurers.

ILR 8/9/95 : TLR 10/10/95 : (1996) 1 All ER 774 : (1996) 1 WLR 1136 : (1995) CLC 1517

Judgment Official

Document No. AC0003019