UK COURT GRANTS AVOIDANCE OF REINSURANCE AGREEMENTS DUE TO MISREPRESENTATIONS IN THE PLACEMENT PROCESS

The UK Commercial Court, Queen’s Bench Division, has granted a request to avoid several reinsurance agreements based upon misrepresentations in the placement of the treaties. The treaties were first loss facultative reinsurance agreements, and the court found that there had been material misrepresentations of the cedent’s underwriting policies. Specifically, the court found that although the placement materials had represented that the cedent insured risks subject to deductibles of from £500,000 to 1 million, the reinsured risks in actuality had deductibles of from £100,000 – 200,000. The court found that the misrepresentations were of a present fact, rather than of future intention, and were highly material to the acceptance of the risk given the conditions of the particular market. The court found that if the actual underwriting practices of the cedent had been disclosed, the reinsurer would not have agreed to the reinsurance agreements. The fact that the reinsurance was a first loss cover made the amount of the deductibles particularly important. Limit No. 2 Limited v. Axa Versicherung AG [2007] EWHC 2321 (Comm. Queen’s Bench October 17, 2007).