Banque Keyser Ullman (UK) Insurance Co v Skandia [1991] 2 AC 249.



The plaintiff bank had made loans against property which the borrower had informed them valuable, and had also taken out insurance policies from the defendant to protect themselves against the risk of any shortfall on the realisation of the property. The borrower defaulted on the loan repayments, and it transpired that he had fraudulently misrepresented the value of the property. The defendants sought to avoid paying out on the insurance, relying on a ‘fraud exception’ clause in the policy. In the course of this disagreement, the plaintiff discovered evidence of a separate fraud by the brokers involved in the loan, which the defendant had been aware of before the loan had been made but had not disclosed. The plaintiff argued that the defendant owed a duty to disclose the information, and that had they done so they would not have trusted the broker, would not have entered the loan agreement, and would not have suffered any loss.


The issue was whether the defendant owed a duty to disclose the loss, and additionally whether a causal link could be established between the failure to disclose it and the loss suffered by the plaintiffs.


The House of Lords held that no causal link could be established; even if the defendants had disclosed the information, the policies would still have been repudiated under the fraud exception clause. The mere fact that the defendant knew the plaintiff would not have entered the loan agreement but for his breach of duty (in failing to disclose the information) was insufficient to establish causation.

In reaching this conclusion, the House was willing to assume, without deciding, that a duty to disclose the information did exist.