Clarity required for contractual terms

Groupama v OPRe and Another

This Commercial Court decision concerned the interpretation of a fax sent to a reinsurer prior to an agreement to increase an order on a Quota Share (QS) treaty reinsurance. Reinsurers had asked about the loss history on an insurance program but subsequently claimed that the reinsured had sent a misleading reply.

Groupama, the Claimant, insured several Lloyd's syndicates in respect of the personal accident element of marine employers' liability insurances of various US companies involved in the maritime industry. The typical risks insured were oil rig divers. Groupama sought quota share reinsurance from Overseas Partners Re and this was placed in early 1998. Groupama then sought to increase the QS from 50% to 75% a few months later. OPRe confirmed their increased participation "subject to satisfactory warranties as to no losses incurred on the program to date". In response, Groupama's brokers, Aon, sent a fax on their behalf which said "…there have been no losses that would effect [fic] any of the declarations ceded hereunder". At the time that fax was sent, unknown to Groupama or Aon, four small losses had, in fact, been reported to the Lloyd's syndicates.

OPRe contended that the words "losses incurred on the program to date" in their enquiry meant they were asking about losses reported to Groupama/Aon and also about losses reported to the Lloyd's syndicates. In light of the four losses, OPRe contended that the fax in response misrepresented the true position and they were therefore entitled to avoid the reinsurance. Also, they contended that because they had requested a warranty, the fax in reply contained a warranty as to the loss position with the effect, if it were untrue, that OPRe were not liable to indemnify Groupama.

Groupama and Aon (joined as a second defendant in the action) argued that, as a matter of ordinary language and market practice, the request and their reply meant simply that no losses had been advised to Groupama or Aon. It did not extend to a representation that no losses had been advised to Lloyd's. They also denied that there was a warranty because there was no possibility that Groupama or Aon could provide a warranty as to matters outside their own knowledge.

The Judge agreed with Groupama and Aon and gave judgment against OPRe on grounds that Aon's reply was a true statement (to the knowledge of Groupama and Aon) and that was all that could reasonably have been expected following OPRe's request. The Judge also agreed with Groupama and Aon that the broker's reply could not be a regarded as a warranty because they could not be expected to give a warranty about facts of which they were not fully aware.

This case demonstrates the ever-present need for clear words to be used when asking for contractual terms. In relation to warranties, it also reminds us that where an underwriter wishes to impose a warranty he must make it express. In this case, accepting the response and trying to argue after the event that the reinsured gave a warranty just because one had been requested, is not sufficient.

For further information please contact Susan Hopcraft by e-mail at [email protected] or on +44 (0)20 7367 3056.