Gan Insurance Company Ltd v Tai Ping Insurance Company Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Longmore J. |
| Judgment Date | 21 June 2000 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 21 June 2000 |
Queen's Bench Division (Commercial Court).
Longmore J.
Colin Wynter and Akash Nawbatt (instructed by Elborne Mitchell) for Gan.
David Railton QC and John Lockey (instructed by Stephenson Harwood) for Tai Ping.
Tom Weitzman and Catherine Gibaud (instructed by Cameron McKenna) for JFSL.
The following cases were referred to in the judgment:
Clerical and General Life Assurance Society v Fanfare Properties LtdUNK(unreported, 2 June 1981, Megarry V-C).
Cryer v Scott Bros (Sunbury) Ltd(1986) 55 P & CR 183.
Forsikringsaktieselskapet Vesta v ButcherUNK[1986] 2 Ll Rep 179.
Insurance Co of Africa v Scor (UK) Reinsurance Co LtdUNK[1985] 1 Ll Rep 312.
Moorcock, TheELR(1880) 14 PD 64.
Price v Bouch(1986) 53 P & CR 257.
Insurance Reinsurance Whether reinsurers could avoid erection all risks (EAR) reinsurance for misrepresentation or non-disclosure in relation to fire-fighting facilities Prudent EAR insurer would expect fire-fighting facilities to be temporary Compliance with claims co-operation clause condition precedent to liability Settlement and/or compromise and admission of liability required reinsurers' approval Implied term that approval not to be unreasonably withheld.
These were preliminary issues of avoidance for misrepresentation and non-disclosure and the construction of a claims co-operation clause in a reinsurance contract.
A Taiwanese insurer, Tai Ping, was the leader on an erection all risks (EAR) policy relating to machinery for the production of computer wafer chips which was being installed in a building in course of construction in Taiwan. The owner of the machinery and the building was Winbond. Another insurer, Central, took a 15 per cent line on the original insurance following Tai Ping. Central used a London placing broker to reinsure its line and part of the risk was taken by Gan. Tai Ping also reinsured part of its line with Gan in London via London brokers, JFSL. The machinery was damaged by a fire in the building. Before the fire Tai Ping sought agreement to a not insubstantial increase in the total sum insured and Gan agreed an appropriate endorsement. Tai Ping settled Winbond's claim but Gan claimed that it was entitled to avoid the reinsurance for misrepresentation and non-disclosure.
Gan's case was that its underwriter, Q, had been shown by JFSL's employee, W, information (the Angel drawings) which indicated that the building had six separate fire protection systems designed by Angel, a specialist firm, and that those systems were in working order at that time. Those were material representations which were false because at that time only temporary fire-fighting systems were in place. Alternatively there was material non-disclosure of the fact that Winbond had informed Tai Ping that the fire precautions at the building were only temporary. Tai Ping said that W never showed the Angel drawings to Q as alleged and that the Angel drawings did not constitute a representation that the fire precautions were in place and operative. In any event Q never relied on any representation because he relied on what he had been told in the course of the Central placement. Any representation as to the designer of the system was immaterial. The alleged non-disclosure was not material to the risk because any prudent EAR underwriter would know that machinery in the course of erection would only be protected by temporary fire-fighting facilities.
Gan also claimed that Tai Ping was in breach of the claims co-operation clause which provided that it was a condition precedent to liability under the policy that no settlement and/or compromise shall be made and liability admitted without the prior approval of reinsurers.
Heldruling accordingly:
1. The Angel drawings did not show an as built system. They did not constitute a representation that the six fire protection systems were installed and operational as at inception of the risk. The drawings represented an intention by Winbond to install in the building six permanent fire-fighting systems designed by Angel. If W showed the drawings to Q, which he did not, and if that was a representation that the six systems were installed and operative, which it was not, then that would have been a material representation and probably false. The identity of the installer would not be material. In any event Q did not rely on any representation contained in the drawings at all.
2. As at inception any prudent EAR insurer would expect fire-fighting facilities to be temporary only although they would have to be sufficient and effective and operated by appropriately trained personnel as required by the policy wording. In the circumstances it would not be material for an underwriter to be told that the insured had said that the fire-fighting precautions were temporary. That was what he would anyway expect. On the evidence Gan could not show that the actual reinsurer was influenced to write the risk by non-disclosure. Had it not wrongly assumed that permanent fire-fighting facilities were in place, it would have assumed that they were temporary. The conclusions on misrepresentation and non-disclosure were not affected by the subsequent endorsements of the policy. Gan was not therefore entitled to avoid for material misrepresentation or non-disclosure.
3. There was only a breach of the claims co-operation clause if there was a settlement or compromise by Tai Ping and an admission of liability.
4. If Tai Ping was in breach of the clause it could not recover even if it could show that it was in fact liable to Winbond, because reinsurers' approval was a condition precedent to liability under the policy. (Insurance Co of Africa v Scor (UK) Reinsurance Co LtdUNK[1985] 1 Ll Rep 312andForsikringsaktieselskapet Vesta v ButcherUNK[1986] 2 Ll Rep 179distinguished.)
5. Since reinsurers' approval was a condition precedent to liability, a term would be implied that approval was not to be unreasonably withheld. A right arbitrarily to refuse approval of a settlement would defeat the purpose of the reinsurance contract and the implied term was therefore necessary to give business efficacy to the contract as a whole.
Longmore J: I have to resolve what I can only call an unfortunate dispute between Tai Ping Insurance Co Ltd (Tai Ping), a Taiwanese insurer, and their London reinsurers Gan Insurance Co Ltd (Gan). In the usual way, Tai Ping have felt it necessary to join their placing broker in case the reason why their claim against Gan fails is the negligence of that broker, Jenner Fenton Slade Ltd (JFSL).
The claim arises under an erection all risks (EAR) insurance relating to machinery, for the production of computer wafer chips, which was due to be installed, commissioned, and then handed over to its ultimate owners in a building, itself in the course of construction, called Fab 3 in a science park in Taiwan. The original insured was the manufacturer of the chips and the owner of both the machinery and the building, Winbond Electronics Corp (Winbond), and they sought cover against all risks of loss and damage to the relevant machinery while it was in the process of erection, installation, and commissioning, such insurance to cease on the handover. After handover, the machinery would be insured under an ordinary fire policy. Tai Ping, as leader, took a 35 per cent line on the original EAR insurance, and also took a lesser line on the fire insurance, which was to be operative after handover. It is relevant that Central Insurance Co Ltd (Central) also took a line, 15 per cent, on the original insurance following Tai Ping.
Both Tai Ping and Central sought reinsurance of their original lines. In the event, Tai Ping were able to place almost 96 per cent of their 35 per cent line without recourse to the London market, or, at any rate, without recourse to London placing brokers. They did need the assistance of brokers to place the remaining four per cent, and they used the services of a local producing broker, Heath Hudick Langeveldt (Taiwan) Limited (HHL), who instructed Jenner Fenton Slade (Singapore), who in turn instructed JFSL in London as placing broker. Ultimately two per cent was placed with Gan, and a further two per cent with Eagle Star.
Central reinsured their 15 per cent line with Royal Insurance as leader, and, it is relevant to say, with Gan as a following reinsurer, who took a reinsurance line of 2.5 per cent. For that purpose, Central used the services of the London placing broker, Alexander Howden (London) Ltd.
In broad terms, Gan maintain that JFSL represented to them that six separate fire protection systems were operative in Fab 3 to protect the machinery to be installed at the plant, but that, in truth, those separate systems were not operative, and only temporary fire protection facilities in the form of portable fire extinguishers were in place. They also maintain that JFSL represented that all six of these systems had been designed by a specialist firm of independent engineers, Angel Engineering Ltd, when at least part of the installed system had not been so designed.
If that case fails, Gan say that Tai Ping had been informed by Winbond that the fire-fighting facilities in the Fab 3 building were temporary, and that fact should have been disclosed to Gan at the time the reinsurance was placed. Both the representation and the non-disclosure are said to have been material, and Gan are thus entitled to avoid the policies.
In broad terms, Tai Ping say no representation as to fire protection systems was made by JFSL on placing, or at any relevant later time. If it was, it was not relied on by Gan, because they relied on information given to them at the time of the earlier Central placing. They say that the representation about the identity of the designer of the system was immaterial. They say, further, that any EAR underwriter would know that machinery in the course of erection would only be protected by temporary fire protections...
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