Reinsurance lost in translation

The Court of Appeal's decision in Wise Underwriting Agency versus Grupo Nacional Provincial SA (2004) is an important case for brokers.

Following the dissenting judgment of Rix LJ, brokers can expect to be asked more searching questions by the underwriter on presentation of the risk. The decision also provides a stark warning to underwriters and claims handlers that sending a contractual notice of cancellation after avoidance rights have arisen may have the effect of affirming the contract.

GNP provided cargo insurance to Perfumeria, a Mexican retailer of luxury goods. The slip, written in Spanish, included a reference to Rolex watches.

GNP subsequently instructed placing brokers and was reinsured with London reinsurer, Wise. Unfortunately, when the slip was presented to Wise, it had been translated into English, omitting any reference to 'Rolex' or 'watches' and referring merely to 'clocks'. The Rolex watches were later stolen from a container outside the insured's warehouse. When GNP attempted to claim from Wise, the underwriter sought a declaration in the High Court on their right to avoid reinsurance cover. Wise argued that there had been no mention of watches on the slip and, had there been, they would not have accepted to reinsure. Wise were successful and GNP appealed.

GNP advanced two main arguments before the Court of Appeal. First, it argued that Wise should have made further enquiries, which would have revealed the omission. The Court of Appeal rejected this argument on the basis that an underwriter in London, dealing with a London broker, should be entitled to accept the slip at face value. However, Rix LJ dissented, commenting that, if a reasonably careful underwriter was put on enquiry during a broker's presentation, he would have a duty to make further enquiries.

Second, GNP argued that Wise had waived its right to avoid the contract by giving 60 days' notice of cancellation of the policy. By giving notice after being made aware of the right, Wise had affirmed the contract. The Court of Appeal accepted this argument. GNP was successful.

Despite the fact that Rix LJ was in the minority, it would be good practice if underwriters - if unclear on any points during a broker's presentation - question the broker further before proceeding.