(Re)Insurance Weekly Update 30 - 2015

This Week's Caselaw

Involnert v Aprilgrange

Judge considers various avoidance and affirmation arguments/brokers' duties

http://www.bailii.org/ew/cases/EWHC/Comm/2015/2225.html

Clyde & Co (Andrew Blair and Richard Edwards) for sub-broker

After fire destroyed the claimant's yacht, it sought to recover under its all risks policy placed with the defendant insurer. The insurer denied liability on the basis that there had been a material non-disclosure and/or misrepresentation regarding the value of the yacht. The yacht had been insured for EURO 13 million, whereas a professional valuation obtained 2 years earlier had valued the yacht at EURO 7 million and 2 months before the policy was placed, the yacht had been put up for sale at EURO 8 million. There was no evidence that the over-valuation had been deliberate - Leggatt J found that it had happened by accident. The judge considered various arguments and held as follows:

1. Non-Disclosure: The judge said that the issue of materiality depends on the facts of the case and past caselaw and expert evidence as to what a prudent insurer would do are helpful only as a "sanity test" and do not replace a judge's view of whether it is rational or not to take a certain matter into account. He held that the market value of a vessel is of particular importance for yacht insurance (where the insured will not generally have additional financial loss such as lost income). Determining the market value of a luxury yacht is, however, an imprecise exercise. Ordinarily, it may be acceptable to use the purchase price for the sum to be insured (especially since, in this case, the yacht was only four years old). However, the situation was different here because the valuation obtained by the insured was significantly lower than the value put forward for the insurance. Similarly, although the fact that the yacht is being sold will not normally be material, the fact that the asking price was EURO 5 million less than the amount it was being insured for was material.

   Nor could it be said that the insurer should be presumed to know that the claimant was seeking to insure for significantly more than the market value: "There is, however, a fundamental difference between, on the one hand, knowing in general terms that the market value of a yacht is likely to be less than the value proposed for insurance and, on the other hand, knowing that the insured has had the yacht professionally valued ....[and] again in knowing that the insured has actually decided to put the yacht on the market for sale and has done so at a particular asking price which is significantly lower than the proposed insured value".

   Inducement was also established, the judge finding that the insurer would have wanted to know about the valuation/sale, and there was no reason to think that the underwriter "would have abandoned his underwriting principles out of thirst for premium".

2. Waiver: Having found that there had been a material non-disclosure which induced the insurer, the judge went on to consider whether the insurer had waived its right to avoid. He acknowledged that the relevant test is whether the insurer has actual knowledge of the relevant facts and also of its right to avoid. However, he queried the justification for the need for knowledge of the legal right since ignorance of the law is no defence and also it might be hard in practice for the insured to disprove such knowledge (because legal...