Insurance contracts – fraud – film finance insurance – exclusion clauses – principal’s ability to exclude liability for fraudulent or negligent misstatement
C, a bank, appealed against the determination ( 1 All E.R. (Comm) 719) of certain preliminary issues arising in relation to film finance insurance. C had obtained the benefit of a policy of film finance insurance with HIH, the terms of which were negotiated by brokers, H. C had very little knowledge of the film industry and relied upon H. The policy contained a “truth of statement” clause. HIH refused to accept liability to indemnify under the policy alleging that H had been guilty of non disclosure and fraudulent or negligent misrepresentation. C maintained that (1) the effect of the truth of statement clause was to exclude the duty to “speak” on the part of both C and H since an agent could have no duty to speak in circumstances where such an obligation was not imposed upon the principal, and (2) the effect of the clause was to offer total protection to C against any non disclosure or misrepresentation by H, even if committed fraudulently.
Held, allowing the appeal in part, that (1) if a circumstance was material then there was an obligation of disclosure upon both principal and agent. In circumstances where the duty of disclosure was effectively waived in the case of the principal then the waiver was effective to exclude the obligation to disclose upon the part of the agent also, Sail v Farex  L.R.L.R. 116 applied, and (2) there was no binding authority providing guidance as to whether a principal could exclude liability for the fraud of his agent. The same public policy considerations did not apply as in the case of a fraud by the principal. Any exclusion would have to be in the clearest possible terms and on the facts of the instant case the clause did not operate to exclude liability for fraud, S Pearson & Son Ltd v Dublin Corp  A.C. 351, Mair v Rio Grande Rubber Estates Ltd  A.C. 853 and Boyd & Forrest v Glasgow & South Western Railway Co 1915 SC 20 considered.
“Current Law” November 2001