Insurers Bound By The Small Print? I Should Cocoa!

Published date26 May 2021
Subject MatterInsurance, Litigation, Mediation & Arbitration, Transport, Marine/ Shipping, Insurance Laws and Products, Trials & Appeals & Compensation
Law FirmFenchurch Law
AuthorMs Joanna Grant

ABN Amro Bank N.V. -v- Royal & Sun Alliance Insurance plc and others [2021] EWHC 442 (Comm)

In the latest in a line of policyholder-friendly judgments, this recent ruling from the Commercial Court confirms that underwriters will be bound by the terms of policies they enter into whether they have read them or not.

The court found no grounds for departing from the important principle of English law that a person who signs a document knowing that it is intended to have legal effect is generally bound by its terms. Any erosion of that principle, which unpins the whole of commercial life, it was noted, would have serious repercussions far beyond the business community.

A foregone conclusion perhaps? Indeed the judge commented that prior to this case he would have regarded as unsurprising the proposition that underwriters should read the terms of the contract to which they put their names. What was it then that spurred the 14 defendant underwriters to seek to argue the contrary, apparently oblivious to the irony of their taking a point which routinely falls on deaf ears when more commonly made by policyholders unaware of implications of the small print for their claims?

In brief, the claimant bank, ABN Amro, was seeking an indemnity of '33.5 million under a policy placed in the marine market that unusually, and perhaps unprecedentedly, contained a clause the effect of which was to provide the equivalent of trade credit insurance, and not simply an indemnity for physical loss and damage to the cargo. As such, when the cargo, which in this instance comprised various cocoa products, was sold at a loss following the collapse of two of the leading players in the cocoa market and the default by them on their credit facility, the bank incurred losses that it contended were covered by the policy.

The underwriters submitted that the non-standard nature of this clause was such that clear words would have been required to widen the scope of cover beyond physical loss and damage, given the presumption that marine cargo insurance is limited to such loss. The court however found that, applying the well-established principles of legal construction, the wording of the clause was clear, and therefore its natural meaning should not be rejected simply because it was an imprudent term for the underwriters to have agreed, given the adverse commercial consequences for them.

The underwriters further submitted that they had not read the policy, and that the particular wording and its...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT