HIH Casualty & General Insurance Ltd v Chase Manhattan Bank
House of Lords
Citations:  UKHL 6;  1 All ER (Comm) 349;  2 Lloyd’s Rep 61;  1 CLC 358; (2003) 147 SJLB 264;  CLY 2461.
The parties entered into an insurance contract. HIH was the insurer, while Chase was the insured. Chase used an agent, Heath, to form the contract, because Heath was far more experienced in the relevant industry. The contract contained a ‘Truth Statement’ as one of its clauses. The Truth Statement provided that:
‘The Insured will not have any duty or obligation to make any representation, warranty or disclosure of any nature, express or implied (such duty and obligation being expressly waived by the insurers) and shall have no liability of any nature to the insurers for any information provided by any other parties and any such information provided by or nondisclosure by other parties…shall not be a ground or grounds for avoidance of the insurers’ obligations under the Policy or the cancellation thereof’
The parties accepted that this Statement relieved Chase of the usual obligations imposed on insured persons to make material disclosures. They also agreed that it excluded Chase’s liability for innocent misrepresentations made by Chase or Heath. However, HIH alleged that Heath had negligently or fraudulently failed to disclose material information and had made negligent or fraudulent misrepresentations. HIH argued that Chase was liable for these, and was not protected by the Truth Statement.
- Did a proper interpretation of the Truth Statement make Chase liable for the statements and non-disclosure of their agent?
- Did the Truth Statement exclude liability for negligent or fraudulent misrepresentations?
The House of Lords held that:
- The commercial context of the clause was distancing Chase from liability for Heath’s actions.
- However, the Truth Statement did not mean that Heath was non-liable for misrepresentation or non-disclosure. Nor did it mean that Heath was incapable of breaching the contract on Chase’s behalf. It did not deny Heath the authority to speak on Chase’s behalf.
- The Truth Statement excluded Chase’s liability for any negligent misstatement made by Heath. This included HIH’s right to avoid the policy on that ground. The clause’s purpose was to protect Chase, while HIH’s position was protected by the fact that they could still sue Heath.
- The Truth Statement could not, however, exclude liability for a fraudulent misrepresentation. This would be contrary to public policy.
This Case is Authority For…
The three-stage test in The Canada Steamship Lines Ltd v King  AC 192 is merely guidance for interpreting terms that may exclude liability for negligence. If the overall factual matrix indicates that the term excludes liability for negligence, then the three-stage test can be departed from. The ultimate test remains what the parties intended.
Attempting to exclude liability for a parties’ own fraud is against public policy and so ineffective. Th court declined to decide whether it was possible to exclude liability for the fraud of an agent. Lord Bingham thought that if such a thing were possible it would need to be done in the clearest possible language (which was not the case on these facts).
Silence can be a misrepresentation in contracts of ‘utmost good faith’ (such as insurance contracts). This allows the insurer to avoid the contract if the insured person fails to disclose every material circumstance known to them. The insured person is deemed ‘to know every circumstance which, in the ordinary course of business, ought to be known by him.’
Lord Scott dissented. He thought that the Truth Statement excluded liability for any fraud by Heath. The clause’s wording was very wide, and the only reason to limit it would be to give effect to contract’s purpose. Since the purpose was to protect Chase from Heath’s actions, there was no need to treat fraud specially. Lord Scott thought that the public policy reason behind barring parties from excluding liability for their own fraud did not apply to fraud by an agent.