Involnert Management Inc. v Aprilgrange Ltd & Others Ais Insurance Services Ltd (First Third Party) Oamps Special Risks Ltd (Second Third Party)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Leggatt |
| Judgment Date | 10 August 2015 |
| Neutral Citation | [2015] EWHC 2225 (Comm) |
| Docket Number | Case No: 2012 FOLIO 1569 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 10 August 2015 |
[2015] EWHC 2225 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Leggatt
Case No: 2012 FOLIO 1569
and
and
Akhil Shah QC and Paul Sinclair (instructed by Jones Day) for the Claimant
Alistair Schaff QC and David Walsh (instructed by Ince & Co) for the Defendants
Daniel Shapiro (instructed by CMS Cameron McKenna) for the First Third Party
James Brocklebank and Sushma Ananda (instructed by Clyde & Co) for the Second Third Party
Hearing dates: 4–5, 8–11, 15–17, 23–24 June 2015
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
| Section | Para No. |
| A. INTRODUCTION | 1 |
| B. FACTUAL BACKGROUND | 5 |
| The lineslip | 5 |
| The policy | 11 |
| The Yacht | 14 |
| The claimant | 15 |
| The manager | 16 |
| The MTC valuation | 19 |
| Purchase of the "Sapphire" | 21 |
| The March 2011 email | 23 |
| Marketing the Yacht | 27 |
| The claimant's marketing instructions | 29 |
| Previous years' insurance | 34 |
| The January 2009 quotations | 35 |
| The January 2011 quotations | 39 |
| The instruction of AIS | 41 |
| Obtaining the April 2011 quotations | 47 |
| The declarations | 50 |
| Completing the proposal form | 53 |
| Presenting the proposal form | 61 |
| Expert evidence of market value | 69 |
| Why did the claimant insure the Yacht for €13m? | 75 |
| The loss | 80 |
| The dispute | 84 |
| C. THE CLAIM AGAINST INSURERS | 90 |
| (1) Non-disclosure | 92 |
| Materiality | 96 |
| The evidence regarding materiality | 99 |
| Market value as the basic measure of indemnity | 109 |
| The indeterminacy of market value | 111 |
| Determining the insured value | 114 |
| Relevance of the purchase price | 116 |
| Relevance of valuations | 121 |
| Relevance of the yacht being for sale | 125 |
| The claimant's knowledge argument | 129 |
| The claimant's purchase price argument | 134 |
| Case law | 140 |
| Inducement | 147 |
| Waiver | 157 |
| The legal test | 159 |
| The claimant's argument | 162 |
| The Insurers' knowledge | 165 |
| The Insurers' conduct | 170 |
| Exercising a contractual right of inspection | 171 |
| Service of the Defence | 179 |
| The "Misrepresentation or Fraud" clause | 181 |
| Conclusions on non-disclosure | 184 |
| (2) Misrepresentation | 187 |
| What representation was made? | 187 |
| Falsity | 197 |
| Section 20 of the Act | 199 |
| The effect of the subjectivity | 201 |
| Materiality | 209 |
| Inducement: the legal test | 210 |
| Inducement: factual findings | 218 |
| Waiver | 224 |
| (3) Non-compliance with policy requirements | 225 |
| The "Filing of Proof" clause | 226 |
| The "Examination under Oath" clause | 227 |
| The "Time for Suit" clause | 228 |
| The claimant's response | 229 |
| The effect of the "Time for Suit" clause | 230 |
| The effect of litigation | 232 |
| Alleged non-compliance with the "Filing of Proof" clause | 236 |
| Alleged non-compliance with the "Examination under Oath" clause | 238 |
| Conclusion | 243 |
| Relationship of the R12 and IV Clauses | 244 |
| The claim settlement provisions | 249 |
| (4) Notice of Abandonment | 257 |
| The relevant law | 258 |
| The threshold for a constructive total loss | 260 |
| Was notice given in time? | 261 |
| Was notice necessary? | 265 |
| Alternative outcomes | 273 |
| D. THE CLAIMS AGAINST THE BROKERS | 275 |
| Relationship between the claimant and AIS | 276 |
| The use of a sub-broker | 279 |
| The relationship between AIS and OAMPS | 282 |
| The relationship between the claimant and OAMPS | 283 |
| Henderson v Merrett | 285 |
| The position of a sub-broker | 288 |
| Expert broking evidence | 293 |
| Alleged negligence of AIS | 298 |
| (1) Alleged failure to establish the basis of insurance | 299 |
| (2) Alleged failure with regard to market value | 302 |
| (3) Alleged failures with regard to the proposal form | 306 |
| (4) Alleged failure to advise on duty of disclosure | 317 |
| (5) Alleged failures post-loss | 323 |
| Quantum of loss | 329 |
| The claim against OAMPS | 333 |
| (1) Alleged failure to warn of duty of disclosure | 334 |
| (2) Alleged failure with regard to the proposal form | 337 |
| Conclusion | 340 |
| E. CONCLUSIONS | 341 |
A. INTRODUCTION
In the early morning of 3 December 2011 the claimant's yacht "Galatea" ("the Yacht") caught fire at her mooring in the Athens Marina. As a result of the fire, the Yacht was damaged beyond economic repair. The defendants ("Insurers") had agreed to insure the Yacht against all risks for an agreed value of €13 million. In this action the claimant is seeking to recover that sum from Insurers. Insurers accept that the loss was an accident of a kind which the policy was intended to cover. They deny liability to pay the claim, however, on a number of grounds.
The Insurers' principal complaint is that the Yacht was over-valued. They contend that, although insured for €13m, the market value of the Yacht was and was believed by the claimant to be no greater than €7–8m. In particular, the claimant had obtained a professional valuation in November 2009 which had valued the Yacht at about €7m (net of VAT); on 2 March 2011 the claimant had been advised by the Yacht's manager that, if put on the market for sale, the Yacht should be listed for a maximum asking price of €8.5m and that the claimant should be happy to get €7m; and by the time the contract of insurance was concluded on 17 May 2011 the Yacht was actually being advertised for sale at an asking price of €8m. These facts were not disclosed to Insurers. It is the Insurers' case that these facts were material and should have been disclosed to them, and that this non-disclosure induced them to insure the Yacht on the terms agreed. They say that in these circumstances they were entitled to avoid, and have validly avoided, the policy. In addition and as an alternative to this defence, Insurers contend that they were discharged from liability as result of a misrepresentation in the proposal form that the market value of the Yacht was believed by its manager to be €13m. Further defences on which Insurers, if necessary, rely are that the claimant is not entitled to maintain this action because of failure to comply with requirements of the policy regarding the provision of a sworn proof of loss and the production of documents reasonably requested by Insurers after the fire, and that the claimant cannot in any event recover for a total loss because it did not give a valid notice of abandonment.
The claimant maintains that all these defences are without merit. Without prejudice to that position, the claimant has joined as additional parties to the proceedings the two firms of insurance brokers which were responsible for arranging the insurance. The first third party, AIS Insurance Services Limited ("AIS"), is a Greek company which acted as a producing broker. The second third party, OAMPS Special Risks Limited ("OAMPS"), is an English broker which placed the insurance in the London market. In the event that the claimant fails to recover the amount claimed from Insurers under the policy, it claims damages from AIS and/or OAMPS on the ground that their negligence has led to this result. The brokers each deny that they were negligent or that, even if they were, this has caused the claimant's loss. OAMPS further denies that it owed any duty directly to the claimant in circumstances where it was acting as the agent of AIS and had no direct dealings with the claimant or its manager.
I will address in turn the claims made by the claimant against Insurers and against its brokers. Before doing so, however, I will first describe the factual background in more detail and make findings on certain disputed questions of fact.
B. FACTUAL BACKGROUND
The lineslip
The contract of insurance under which the claim is made was effected by way of a declaration to a lineslip operated by the placing broker, OAMPS. A lineslip is a facility whereby a number of insurers authorise one or more leading underwriters to accept on their behalf risks presented by a particular broker, provided the risks fall within a pre-defined scope. As described in MacGillivray on Insurance Law (12 th Edn, 2012) at para 2–034, a facility of this kind is not a contract of insurance but "is in the nature of a standing offer by subscribers to be bound to particular risks by their designated underwriter." Such a facility assists the broker in placing insurance as it avoids the demands of having to broke each risk individually to each insurer. It is also convenient for insurers as it provides them with simple access to business.
At the relevant time OAMPS had two lineslips which were led by Travelers Syndicate 5000 ("Travelers"), which is represented in this action by the first defendant. One was for yachts with a value below US$/€10m; the other lineslip, under which the insurance of the Galatea was placed, was for "mega yachts" with a value in excess of US$/€10m up to US$/€50m.
Under the terms of the relevant lineslip, Travelers was designated as the "slip leader". To bind or alter an insurance contract written under the lineslip required the agreement of both the slip leader and the second defendant, Royal & Sun Alliance Insurance PLC ("RSA").
The way in which the lineslip operated in practice was as follows. To obtain a quote for insurance, OAMPS would draw up a quotation slip and take it to Travelers to review and rate....
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