It’s immaterial: marine insurance and policy avoidance
This decision is a reminder of the onerous burden on insurers seeking to avoid cover by asserting an insured’s material…
Sealion Shipping Ltd, Toisa Horizon Inc v Valiant Insurance Co  EWHC 50 (Comm) (Blair J.)
This Commercial Court decision, a policy coverage claim arising under a loss of hire policy, is a useful reminder of the sometimes onerous burden on insurers in seeking to avoid cover, by asserting an insured’s material non-disclosure/misrepresentation.
The Owners of the vessel “Toisa Pisces” claimed indemnity from underwriters under a loss of hire policy for the year commencing May 2008. The vessel broke down in February 2009, and was placed off hire by her charterers for a period of 30 days. This resulted in a loss of US$2.1 million which formed the basis of the claim for indemnity.
Prior to policy inception the insured (via their brokers) had been asked a series of routine questions, in response to which underwriters had been advised that previously:
- there had been only one hull claim, when in fact there had been two;
- apart from scheduled dry dockings and a few hours off hire, the vessel had not suffered any “significant off hire period”, when in fact (as a result of starboard motor breakdown) the vessel was off hire for over two days in September 2004, and for more than seven days when the corresponding repairs were carried out;
- the vessel had an excellent hull record and there had been no major business interruption issues (which statement, for the above reasons, was not correct).
Underwriters declined cover, and relied upon the familiar provisions of:
s.18(1) MIA 1906:
“… The assured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured…”
s.20(1) MIA 1906:
“Every material representation made by the assured…during the negotiations for the contract… must be true. If it be untrue the insurer may avoid the contract…”
In relation to the off-hire non-disclosure, Blair J concluded that in circumstances where under the 2008 policy the excess was 21 days, 10 days off hire was by comparison incidental, and could not be considered material. It did not result in an insurance claim, nor was it a “near miss” in being substantially close to the excess.
As regards the second, undisclosed hull claim, on the facts this did not cause any loss of hire. Further, just because the one hull claim (which resulted in off hire) was disclosed, it was not an acceptance of materiality; it was simply good broking practice. If the hull claims were immaterial they remained immaterial even if one was mentioned and not the other.
Meanwhile, the representation as to “excellent hull record” and “no major business interruption” was simply a statement of broker’s opinion made in good faith and accordingly was deemed to be true if so made: s.20 MIA 1906.
Finally, underwriters submitted that pursuant to clause 6.2 of Institute Time Clauses-Hulls, any loss caused by want of due diligence (i.e. negligence), or wear and tear, was excluded. However, on the evidence, following the earlier breakdowns, the owners had appointed competent specialist engineers and were entitled to rely on their conclusions and recommendations (even if incorrect) so as to guard against any recurrence of problems.
This decision illustrates that in assessing the materiality of any non-disclosure, underwriters will often face a heavy burden in establishing materiality, even where superficially, the non-disclosure seems to bear some relevance to the loss. There are always issues of degree, and it might be suggested that in this case, had the previous off hire been significantly more, that the court may have taken a different view.
Weightmans Marine & Transit