Waiver of Further Disclosure- The First Case Under the Insurance Act 2015

The Insurance Act (IA) 2015, which came into force on 12 August 2016, applies in England and Wales, Scotland and Northern Ireland (s. 23 of the IA 2015). It fell to the Court of Session (Outer House) in Scotland to deliver the first judgment under the Act in Young v. Royal and Sun Alliance plc [2019] CSOH 32.

The co-assureds (Mr Young and Kaim Park Investments Ltd, a company of which Mr Young was a director) brought a claim of £ 7.2 million for extensive fire damage to commercial premises insured. The insurer, Royal and Sun Alliance plc, rejected the claim on the basis that the assured failed to disclose material information (a commercial assured is under a duty of fair presentation under the IA 2015).

The policy had been entered through an insurance broker. The assured was requested by the insurance broker to fill in a proposal form which was prepared using the broker’s software. One part of the proposal form required the proposer to select from various options in a drop-down menu. The instruction read: “Select any of the following that apply to any proposer, director or partner of the Trade or Business or its Subsidiary Companies if they have ever, either personally or in any business capacity: …” The drop-down menu that followed this instruction included an option that any of the persons identified had been declared bankrupt or insolvent. Neither Mr Young nor Kaim Park Investments had been declared bankrupt or insolvent, however, Mr Young had previously been a director of four other companies which had entered into insolvency. The option which was selected on the proposal form was “None”. Accordingly, the proposal forwarded to the insurer showed the option selected, i.e. “None”, and the list of persons to which the declaration related. Once receiving the presentation, the insurer sent an e-mail to the brokers providing a quote for cover and a list of conditions. The conditions, inter alia, included: “Insured has never been declared bankrupt or insolvent.

In the present case, the assured’s argument was that the insurer’s e-mail response amounted to a waiver by the insurer of its right to receive the undisclosed information regarding the four insolvent companies.

The 2015 Act introduces no fundamental change on the law on waiver (a point which both parties agreed). By virtue of s. 3(5) (e) of the Act, the assured is not required to disclose a circumstance “if it is something as to which the insurer waives information.”

The judge, Lady Wolffe, reviewing the case law under the Marine Insurance Act (MIA) 1906 reiterated that waiver in this context can typically arise in one of two ways:

  • Where the insured had submitted information that would prompt a reasonably careful insurer to make further enquiries but the insurer had failed to do so (WISE (Underwriting Agency) Ltd v Grupo Nacional Provincial SA [2004] 2 All ER (Comm) 613); and
  • Where the insurer had asked a “limiting question” such that the insured could reasonably infer that the insurer had no interest in knowing information falling outwith the scope of the question (Doheny v New India Assurance Co [2005] 1 All ER (Comm) 382). The classic example is where the proposal form asks about convictions within the last 5 years and which can instruct waiver of information about convictions more than 5 years ago.

It was decided by Lady Wolffe that only the second of these forms of waiver could be relevant in the present case. Therefore, the key issue was whether it could be inferred from the e-mail of the insurer to the broker stating that the “assured has never been declared bankrupt or insolvent” that the insurer waived information regarding the involvement of Mr Young in other companies which had entered insolvency.

Reviewing the case law on the point, Lady Wolffe stressed that in determining whether the insurer’s email response amounted to waiver, the key consideration was whether a reasonable person in the position of the assured would be justified in thinking that the insurer had restricted its right to receive all material information. It needs to be borne in mind that when presenting the risk to the insurer, the broker utilized its own form rather than the insurer’s proposal form. The relevant part of the proposal form required the proposer to select from various options in a drop-down menu. The instruction read: “Select any of the following that apply to any proposer, director or partner of the Trade or Business or its Subsidiary Companies if they have ever, either personally or in any business capacity: …” The choices that followed this instruction included an option that any of the persons identified had been declared bankrupt or insolvent, but when assessing the risk, the insurer had only seen the selected option of “None” in the presentation. They had not seen the full list of options which the assured had selected from (which the judge referred to as matters concerning “Moral Hazards”). Therefore, the insurer’s email response intended to clarify that unknown matter. The insurer had done this by listing in the email the various hazards that required to be included. As a result, it was held that the reference in the email response to “the Insured” was not intended to limit the scope of the information being provided but had simply been used as shorthand for the group of persons identified in the presentation. Accordingly, there was no waiver on the part of the insurer with regard to the information not fully disclosed (i.e. the involvement of Mr Young in four insolvent companies).

Even though the case is the first one considered under the Insurance Act 2015, it does not shed any light on any of the novel concepts introduced by the Act. The decision was concerned with the preliminary question of waivers and was decided in light of authorities on the subject which have already existed for some time. Essentially, the fact that the broker’s own proposal form was used meant that the scope of information provided had been controlled by the assured and that it was impossible to be found as a waiver.

The Saga Continues- What Really Happened to the Brillante Virtuoso?

The Brillante Virtuoso was sailing from Ukraine to China with a cargo of fuel oil when she was boarded by pirates off Gulf of Aden on 5 July 2011. The pirates directed the vessel to Somalia but when the engine stopped and could not be re-started, they allegedly placed a detonator in the engine room causing a huge damage to the vessel. The vessel was insured for $US 55 million with an additional $US 22 million increased cover with ten Lloyd’s underwriters. The underwriters refused to indemnify the assured (Suez Fortune Investments Ltd). The assured and its bank (Pireus Bank AE) brought a claim against the insurers. In the first stage of the trial, the claimants were successful and Flaux, J, (as he then was) held that the vessel was a constructive total loss under s. 60(2)(i) of the Marine Insurance Act 1906 as she was damaged by an insured peril and the cost of repairs would exceed the insured value of the ship when repaired [2015] EWHC 42 (Comm). The insurers argued unsuccessfully that in taking into account the repair value of the damage, the cost of repairs at China should be taken into account. The claimants, on the other hand, argued that the repairs were completed in Dubai and the cost incurred at Dubai should be taken into account even though the cost of repairs in Dubai was 17.5 % more than the cost of repairs in China. Flaux, J, held that that the appropriate location for repairs will depend on the individual circumstances of the case. In this case, he was of the view that Dubai was the most appropriate place for repairs taking into account i) risks that will be associated with further towage to China; ii) cost of insurance for the tow; iii) loss of income for additional period of time; and iv) reputation of yards (not only with regard to the quality of workmanship but also accuracy of cost estimates and the risk of delay).                        

The Brillante Virtuoso after the incident!

The second stage of the trial which will determine the issues of liability of the insurers commenced on 18 February 2019. Parties have different views of what happened to the Brillante Virtuoso in July 2011. The owners argue that the attack was carried out by the pirates who were or used to be members of the Yemeni navy or coast guard. The insurers, on the other hand, put forward the view that the attack was staged by the owners of the ship so this is a case of “wilful misconduct” of the assured. The insurers also rely on other defences, such as breach of various warranties in the policy. It is expected that this will be a lengthy trial but hopefully we shall finally find out what really happened to The Brillante Virtuoso.

Insurable Interest in Insurance- Adopting A Commercial Solution

Broadgrain Commodities Inc v. Continental Casualty Company [2017] ONSC 4721

Does a CIF seller still have an insurable interest in a cargo policy after the goods are delivered to the carrier (i.e. risk of loss or damage to the goods is transferred to the buyer under the CIF contract)? This was the main debate in the case before the Ontario Superior Court of Justice (Canadian Marine Insurance Act 1993 is similar to the unamended version of the UK Marine Insurance Act 1906).

Here,a cargo of 26 containers of sesame seeds were sold by the claimant (Broadgrain) on CIF basis and insured by the insurers under an open policy which intended to insure the claimant and its property as well as the property of others in respect of which the claimant had an obligation to insure under various contracts entered into during the insurance period. The cargo was loaded on board the carrying vessel in Nigeria in October. It was common ground that the risk had passed to the buyer at that stage. The full contract amount was paid by 12 December by the buyers. Under the sale contract, the title in the good was to pass upon payment and the buyer granted the seller a security interest in the cargo until all amounts had been paid. When the vessel arrived at its destination, Xingang, on 17 December, it was discovered the goods had been damaged during transit and the claimant sought indemnity under the insurance policy from the underwriters.                    

The insurers moved for a summary judgment to dismiss the action on two grounds: i)the claimant did not have “insurable interest” in the goods at the time of the loss; and ii) the claimant did not sustain any loss as, despite the damage to the goods, it was paid in  full by the buyer for the shipment in question.

On the first point, the insurers sought to rely on two Federal Court decisions(Green Forest Lumber Ltd v. General Security Insurance Co of Canada [1977] 2F.C. 351 (F.C.T.); aff’d [1978] 2 F.C. 773 (F.C.A), aff’d [1980] 1 S.C.R. 176 and Union Carbide Corp v. Fednav Ltd [1997] F.C.J.No. 665 (F.C.T)) which contained statements made in obiter to the effect that, where goods are shipped on CIF terms and the goods are loaded on board the ship, the seller no longer has an insurable interest and cannot claim under a policy of insurance. 

The court, rightly so, indicated that the Supreme Court of Canada in Kosmopoulosv. Constitution Insurance [1987] 1 SCR 2 has adopted a non-technical definition of “insurable interest” pointing out that any real interest of any kind in a marine adventure should qualify as an insurable interest. It was stressed that a contrary solution would act to the detriment of international trade. On that basis, it was held that in the present case even though the risk passed upon loading in October, and the title passed upon payment, the seller’s retention of security interest would qualify as an equitable relation to the adventure such as to give the seller an insurable interest that subsisted throughout the voyage.

However, judge’s finding on the insurable interest point was not adequate to secure victory for the claimant.  The summary judgment for insurers was granted on the second ground. Accordingly, it was held that the claimant had suffered no loss as payment had been made by the buyer in full and the assertion that the buyer had reduced payments on subsequent cargoes was dismissed for lack of evidence.

The case is a yet another illustration of the fact that when defining insurable interest, courts are taking a more liberal stance as advocated in various English judgments (e.g. The Moonacre [1992] 2 Lloyd’s rep 501; National Oilwell (UK) Ltd v. Davy Offshore Ltd [1993] 2 Lloyd’s Rep 380 and The Martin P [2003] EWHC 3470 (Comm)) and not likely to follow the lead of Macaura v. Northern Assurance Co Ltd (1925) 21 LIL Rep 333 to insist that a legal or equitable relation must exist between the policy and the subject matter insured. It is safe, therefore, to say that courts are likely to find insurable interest in cases where they are convinced that the assured has not entered into the policy as an act of wager or is not attempting to make an illegitimate gain from the insurance transaction and as long as some kind of connection (even merely economic) between the insured property and the assured exists.             

Marine Cargo Policies Do Not Normally Provide Cover for Economical Losses

Engelhart CTP (US) LLC v. Lloyd’s Syndicate 1221 for the 2014 year of account [2018] EWHC 900 (Comm)

Having purchased 1,967.898 metric tonnes of cooper ingots, said to be shipped in 102 containers from New York, the buyer (assured) obtained “Marine Cargo and Storage Insurance Policy” from various insurers at Lloyd’s. The insurance policy, inter alia, stated:

“… noted and agreed that unless otherwise declared the contrary, the broadest coverage shall apply.”

“Container Clause

It is agreed that this Insurance contract is also to pay for shortage of contents (meaning thereby the difference between the number of packages as per shippers and/or suppliers invoice and/or packing list loaded or alleged to have been laden in the container and/or trailer and/or vehicle load and the count of packages removed therefrom by the Assured and / or their agent at time of container emptying) notwithstanding that seals may appear intact, and/or any other loss and/or damage including but not limited to cargo and/or container sweat howsoever arising.”

 

“Fraudulent Documents

This insurance contract covers physical loss of or damage to goods and/or merchandise insured hereunder through the acceptance by the Assured and/or Shippers of fraudulent documents of title, including but not limited to Bill(s) of Lading and/or Shipping Receipt(s) and/or Messenger Receipt(s) and/or shipping documents and/or Warehouse Receipts and/or other document(s) of title.

This insurance contract is also to cover physical loss of or damage to goods insured caused by utilisation of legitimate Bill(s) of lading and/or other documents of title without the authorisation and/or consent of the Assured or their Agents and/or Shippers.”

On arrival at Hong Kong for transhipment, it was discovered that no cooper ingots were, in fact, shipped in the containers. Indeed, no such cargo existed and the containers only contained slag of nominal commercial value.

The assured’s claim for indemnity was turned down on various grounds but it was specifically stipulated by Sir Ross Cranston, sitting as a judge of the High Court, that all risk marine cargo insurance was generally construed as covering only losses following from physical loss or damage to goods and this policy as a whole did not displace the presumption against cover for pure economic loss.

The trial judge  dismissed the assured’s contention that the alleged loss fell under the container clause stressing that the term “shortage” in the clause should be given its ordinary meaning and could not cover a situation where there was no goods in the first place. He also emphasised that the “fraudulent documents” clause expressly and exclusively responded to “physical loss of or damage to” goods through the acceptance of dishonest documents so this clause rather than displacing the presumption against cover for pure economic loss in cargo policies endorsed it in the sense that it did expressly indicate that no cover was available for physical losses.

2 points emerge from the judgment:

  1. Considered from the perspective of the construction of contracts, the decision is not at all surprising. It is in line with the spirit of several high profile judgments of the Supreme Court, such as Rainy Sky SA Kookmin Bank [2011] UKSC 50; Arnold v. Britton [2015] UKSC 36 and Impact Funding Solutions Ltd v. Barrington Support Services Ltd [2016] UKSC 57, which emphasise that construing a written document is “first and foremost” a textual exercise. On that premise, a clear and express wording is required to extend the cover of a marine cargo policy to losses which are economic in nature. General statements in the policy purporting to describe the nature of coverage provided in broad terms are not on their own capable of extending the nature of cover beyond physical loss or damage to goods.
  2. It is somehow surprising that the insurers did not develop an alternative defence to the claim by arguing that the policy in this case was void (or did not attach) as the subject matter of insurance has never existed in the first place (see AF Watkinson & Co. Ltd. v. Hullett (1938) 61 L1L Rep 145) In fact, it was argued forcefully in Marine Insurance Fraud, (2014, Informa Law) at 2-117-2-118) that where insurance is obtained for an imaginary cargo, the non-disclosure and misrepresentation is of such magnitude that there is no cover at all.             

13TH ANNUAL COLLOQUIUM OF THE IISTL — MARITIME LIABILITIES IN A GLOBAL AND REGIONAL CONTEXT

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13th ANNUAL COLLOQUIUM OF THE IISTL

MARITIME LIABILITIES IN A GLOBAL AND REGIONAL CONTEXT

  4-5 SEPTEMBER 2017

The annual gathering, organised by the Institute of International Shipping and Trade Law (IISTL), has now established itself as a regular fixture in the calendar of maritime lawyers. This year’s event will be devoted to Maritime Liabilities in A Regional and Global Context: The EU and Beyond.

 Topics covered will include:

  • Liabilities for ship recycling
  • Wreck removal – Nairobi and beyond
  • National and international oil pollution regimes – an uneasy coexistence
  • Pollution from oil rigs and offshore installations: legal issues arising
  • The boundaries of shipping liability law: what is a ship and why does it matter?
  • Ship arrest – yesterday’s conventions and today’s problems
  • Cyber risks and liabilities for marine sector
  • Smart containers
  • Passenger Liabilities- Life after BREXIT
  • Limitation of liability – new problems
  • Cross-border insolvency and maritime arbitration
  • Direct action against insurers and P & I Clubs
  • Jurisdiction and Choice of law after BREXIT

Speakers and Chairpersons

  • Professor Lia Athanassiou, School of Law, Athens University, Greece
  • Professor Simon Baughen, IISTL, Swansea University, UK
  • Professor Olivier Cachard, University of Lorraine, France
  • Andrew Chamberlain, Partner and Mariner, Holman Fenwick Willan LLP, London, UK
  • Simon Cooper, Partner, Ince & Co LLP, London, UK
  • Professor Marc Huybrechts, University of Antwerp, Belgium
  • Dr Henning Jessen, World Maritime University, Sweden
  • Mr Måns Jacobsson, Former Director of International Oil Pollution Compensation Funds, Sweden
  • Dr Tabetha Kurtz-Shefford, IISTL, Swansea University, UK
  • Associate Professor George Leloudas, IISTL, Swansea University,UK
  • Mr Justice Males, Presiding Judge of the North East Circuit, High Court of England and Wales
  • Peter Macdonald-Eggers QC, 7 King’s Bench Walk, London, UK
  • Associate Professor Theodora Nikaki, IISTL, Swansea University, UK
  • Dr Frank Stevens, Erasmus University, The Netherlands
  • Professor Barış Soyer, Director, IISTL, Swansea University,UK
  • Dr. Jur. Bülent Sözer, Yeditepe University, Turkey
  • Professor Andrew Tettenborn, IISTL, Swansea University, UK
  • Emeritus Professor Rhidian D. Thomas, IISTL, Swansea University, UK

 

Registration, Fees & Accommodation

To register (and book university accommodation) please click the link here: Eventbrite  

  • Fee, inc. materials, dinner & accommodation for 2 nights (3-4 Sept): £440
  • Fee, inc. materials and dinner: £350
  • Fee (for Research Students) inc. materials, dinner & accommodation for 2 nights (3-4 Sept): £265
  • Fee (for Research Students) inc. materials & dinner: £175

 Should you not like to take advantage of our on-campus accommodation, please feel free to make your own arrangements. There are several good hotels in town, notably the Dragon Hotel, tel: 01792 657100, and the Marriott Hotel, tel: 01792 642020. Please note, however, that the organisers cannot take responsibility for booking accommodation off campus.

The closing date for registration is 28 August 2017

Questions & Further Information

Should you have any further queries, please direct your email to: Ms Stella Kounakou 806114@swansea.ac.uk

We looking forward to seeing you at Swansea. 

Professor B. Soyer

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Insurance Fraud Pays – Professor Barış Soyer Wins BILA Book Prize

It has just been announced that Professor Soyer’s recent book “Marine Insurance Fraud” has won the 2015 BILA Book Prize. This prize, for the best book on insurance law, is awarded annually by the British Insurance Law Association Charitable Trust, a body existing to promote research on the interrelationship between law and insurance.

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BILA 2015 Prize for Professor Barış Soyer’s book “Marine Insurance Fraud”

The announcement was made at BILA’s Annual General Meeting on 16 October 2015. Alison Green, Chair of the BILA Charitable Trustees, congratulated Professor Soyer, not only for having written a highly relevant, interesting and accessible book, but also for being the only author to win the Prize twice (having first won the Prize in 2002 for his first monograph on warranties in marine insurance).

soyerHis most recent prizewinning monograph, published last year, gives a comprehensive and coherent legal analysis of the impact of fraud on the position of various parties to a marine insurance contract. At the time of publication it was seen as a winner. In the foreword, Sir Bernard Rix (formerly a Lord Justice of Appeal) stated: “Professor Soyer has written a book on an important and fascinating theme which not only states the law in a clear and concise way, but also analyses it critically, insightfully and helpfully. I am confident that it will be used profitably by a wide range of readers.”

Professor Barış Soyer is the Director of the Institute of International Shipping and Trade Law, a research institute based in the College of Law at Swansea University. He has taught marine insurance and other aspects of commercial law at Swansea for some 15 years.