Category: Insurance case law · Reviewed by Matt Bartlett, Director · Founder · Last reviewed June 2026
A reinsurer is entitled to rescind a reinsurance contract for innocent misrepresentation by the reinsured of material facts, even where the misrepresentation was honestly believed to be true.
The proceedings arose from a facultative reinsurance contract placed at Lloyd’s covering a primary policy of personal accident insurance. The reinsured, Eagle Star, had written underlying personal accident business and sought reinsurance protection in the London market. Mr Toomey was one of the reinsuring Names whose syndicate had subscribed to the risk.
When the reinsurance was placed, the broker presented the risk to underwriters with a slip and accompanying market presentation. The presentation included descriptions of the nature of the underlying portfolio, the expected loss experience and the basis upon which the primary cover had been written. The reinsured (through its broker) represented certain facts about the underlying book, including the rating basis and loss expectations, which the reinsurers said had induced them to subscribe at the rates and on the terms offered.
In the event, the underlying account performed materially worse than the picture presented at placement. Losses on the personal accident business escalated substantially and reinsurers were called upon to indemnify. The reinsuring Names, including Mr Toomey, sought to avoid the reinsurance contract on the grounds that representations made at placement had been material misrepresentations and that there had been non-disclosure of facts which a prudent reinsurer would have wished to know.
The matter came before Colman J in the Commercial Court. The earlier proceedings (No 1) had dealt with separate issues; this second judgment addressed the substantive question whether the reinsurance had been validly avoided for misrepresentation and non-disclosure. The judge was required to examine what had been said in the market presentation, what the true position had been, and whether any inaccuracies were material to a prudent reinsurer and induced the actual reinsurer to enter into the contract on the terms agreed.
The principal issues for Colman J were: (i) whether statements made by or on behalf of the reinsured in the placement presentation amounted to representations of fact (as distinct from mere expressions of opinion or expectation); (ii) whether any such representations were material in the sense required by section 20 of the Marine Insurance Act 1906 (as applied by analogy to non-marine business) — namely, whether they would influence the judgment of a prudent reinsurer in fixing the premium or in determining whether to take the risk; (iii) whether the representations induced the actual reinsurers to subscribe; (iv) whether there had been non-disclosure of material facts known to the reinsured; and (v) the appropriate remedy where misrepresentation was established but had been made innocently rather than fraudulently. The case also raised the broader question of how the duty of utmost good faith applies in the reinsurance context, where information typically passes through intermediaries and where the reinsured may itself be relying upon information supplied by the original insured.
Colman J held that the reinsurance contract had been validly avoided. The judge found that material misrepresentations had been made in the placement presentation about the nature and rating of the underlying personal accident book, and that those misrepresentations would have influenced the judgment of a prudent reinsurer in deciding whether to take the risk and on what terms. He further held that the actual reinsurers had been induced by those representations to subscribe on the terms agreed.
The judgment confirmed that the remedy of avoidance is available in respect of innocent as well as fraudulent misrepresentation, reflecting the position then established at common law and under the Marine Insurance Act 1906. The judge rejected arguments that representations were mere statements of opinion, holding that on a proper analysis of the presentation they conveyed assertions of fact about the composition and rating of the book. The judge also addressed the proper test of materiality, applying the prudent insurer test then prevailing.
The decision is particularly noted for its careful distinction between statements of fact, statements of opinion, and statements of expectation or belief, and for its analysis of how each is to be treated under the law of misrepresentation in an insurance context. Colman J’s reasoning has been widely cited in subsequent reinsurance disputes for its approach to characterising what brokers and reinsureds say at the placement stage.
A reinsurer may rescind a reinsurance contract where the reinsured (or the broker placing on its behalf) makes a material misrepresentation of fact at the time of placement that induces the reinsurer to subscribe, regardless of whether the misrepresentation was made fraudulently, negligently or innocently. Materiality is judged by reference to the prudent reinsurer, and inducement is a separate requirement that must be established on the facts. Statements made at placement must be characterised carefully: those which on proper analysis convey assertions of fact attract the law of misrepresentation, while pure expressions of opinion or expectation honestly held do not, although they may still engage the duty of disclosure if they imply underlying factual premises.
Toomey v Eagle Star (No 2) is a leading authority on the application of the duties of disclosure and accurate representation in the reinsurance context. It is routinely cited in disputes about placement presentations made to the London reinsurance market and is significant for several reasons in modern practice.
First, the case reinforces that reinsurers, like direct insurers, may rescind for innocent misrepresentation — a position now substantially modified for consumer and many non-consumer policies by the Consumer Insurance (Disclosure and Representations) Act 2012 and the Insurance Act 2015, but which continues to bear on reinsurance placed before 12 August 2016 and to inform the construction of the proportionate remedies regime that replaced strict avoidance.
Second, Colman J’s analysis of the distinction between fact, opinion and expectation provides reinsurance brokers and underwriters with practical guidance on how presentations will be judicially construed. The decision is frequently cited in the context of broker negligence claims and disputes over what was, and was not, “shown” to the leader.
Third, the case sits alongside Pan Atlantic v Pine Top (decided shortly before) as part of the body of authority defining the modern test for materiality and inducement in insurance and reinsurance, and it remains relevant to legacy claims and run-off portfolios where pre-2015 law applies.
By Matt Bartlett, Director, on 2026-06-06. Next review: 2026-12-06.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-06. Apex Insurance Brokers Limited, FCA FRN 724952, Companies House 07014570. Not regulated advice — consult your broker on your specific position.
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