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Publications
Bermuda Law on Rescission
London and Bermuda Newsletter
Despite being one of the world’s most important centers for insurance and reinsurance, the Bermuda courts have issued surprisingly few rulings concerning insurers’ and reinsurers’ right to rescind policies for misrepresentation and non-disclosure by the insured or cedant. In large part, this is due to the fact that many disputes on contracts written in Bermuda are determined overseas by virtue of jurisdiction clauses requiring arbitration in London or elsewhere and applying the substantive law of another jurisdiction, typically New York. On occasions when insurance-related disputes are heard in Bermuda and apply Bermuda substantive law, they are generally decided by private arbitration and thus the decisions are not made public.
Therefore, two recent decisions of the Bermuda Supreme Court provide a rare insight into how the Bermuda Courts will approach issues of misrepresentation and non-disclosure and confirm the commonly held view that Bermuda courts defer to English common law rules in relation to insurance coverage. The cases in question (Colonial Insurance Co. Ltd. v Majors & Anr [2008] Bda L.R. 13; Argus Insurance Co. Ltd. v Duclos [2008] Bda L.R. 26) both concerned private motor insurance policies but the principles applied are the same as might be found in a complex reinsurance dispute.
Both cases concerned non-disclosures and misrepresentations of the insureds’ traffic convictions and the insurers’ attempts to rescind the policies following the notification of claims by the insureds and subsequent discovery of inaccuracies in the proposal forms. In both cases, the judge (Bell J.) declared that the insurer was entitled to rescind the policy.
The following can be gleaned from these two decisions:
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Bermuda courts will follow the principles espoused in the seminal English House of Lords decision in Pan Atlantic Ins. Co. v Pine Top Ins. Co. [1994] 2 Lloyd’s Rep 427.
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Even “innocent” misrepresentations or non-disclosures can give an insurer a basis for rescission (a lower threshold than under New York law).
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If an insured employs an agent to effect cover on his behalf, any misrepresentation or non-disclosure by the agent will give the insurer a right to avoid the policy.
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The scope of the insured’s duty of disclosure can be narrowed/waived through the insurer asking specific questions in the proposal form.
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Bermuda courts will require evidence from the insurer to prove that the actual underwriter was induced to write the policy by the insured’s misrepresentation or non-disclosure.
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Although it is the general practice in England for the insurer to adduce evidence of materiality from an expert “prudent” underwriter, in these two cases expert evidence was not called (though, it must be said, materiality was obvious).
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Bermuda courts will require an “unequivocal” communication from the insurer before finding that an insurer has waived compliance with a condition precedent and will following the recent English Court of Appeal case, Kosmar Holidays plc v Trustees of Syndicate 1243 [2008] EWCA Civ 147.
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