Thor Navigation v. Ingosstrakh
Where a marine policy refers only to a "sum insured", can it ever be a valued policy? The insured in this case argued that the circumstances of the placement, the nature of the vessel and custom and usage in the English marine market all dictated that the policy was for an agreed value, but the court disagreed
DMC Category Rating: Confirmed
This case note is based on an Article in the February 2005 Edition of the ‘Bulletin’, published by the Marine and Insurance teams at the international firm of lawyers, DLA Piper Rudnick Gray Cary. DLA Piper is an International Contributor to this website.
The cover was negotiated on both sides through agents. In January 2001, the owners' brokers began seeking quotations for hull cover from various insurers on the basis of stated vessel values. All the other insurers approached appeared to have understood this as a request for valued cover. Ingosstrakh's agents, however, provided a quote (and later a revised quote) which expressly stated "SUM INSURED" in respect of each vessel and did not make any reference to insured value or agreed value. The owners' brokers raised no objection to the quote (nor, subsequently, to the insurance) being on the basis of a sum insured.
Two policies were issued in materially identical terms, giving cover for 12 months from 29 June 2002 and incorporating Institute Time Clauses - Hulls 1/11/95. The policies set out, in respect of each vessel, brief details of the vessel, its owners and particular terms of cover applicable and a "SUM INSURED". The "Thor II" was given a sum insured of US$1.5m.
On 15 September 2002, the vessel broke its intermediate shaft, causing damage to the main engine. Quotations from three repair yards indicated that the costs of repair would exceed US$2m. The owners claimed for a constructive total loss and gave Notice of Abandonment, which was not accepted by insurers. On 12 November 2002, insurers gave notice that they believed the vessel could be repaired for less than the sum insured, but gave no details. On 14 November 2002, the vessel was sold for scrap.
The owners claimed that the policies were valued polices but that, even if they were unvalued, insurers were estopped from arguing they were unvalued; alternatively that the policies should be rectified. The parties agreed that these issues should be decided by way of a preliminary hearing, after which the dispute would go to mediation. If the policies were held to be unvalued and the loss proved to be a constructive total loss, the court was also asked to determine in principle the measure of insurable value payable to the owners.
The construction issue
The principles of deciding whether a policy is valued or unvalued were set out by Thomas J in Kyzuna Investments Ltd v Ocean Marine Mutual Insurance Assoc (Europe)  1 Lloyd's Rep 505. The words "agreed value" or "valued at" need not be used to create a valued policy "provided the intention of the parties is clear that there is a specified agreed value, proposed by the assured and accepted by the underwriter". By contrast, "the use of the term "sum insured" will normally indicate the amount for which the subject matter is insured and not as specifying the agreed value". "Far from meaning the value has been agreed, this ordinarily means the sum is the ceiling of recovery". In Quorum AS v Schramm  1 Lloyd's Rep 249, Thomas J. made it clear that his decision in Kyzuna applied generally to all cases of marine insurance.
The owners, however, argued that Kyzuna should be distinguished because the policy in that case concerned a pleasure yacht, not a commercial trading vessel. They maintained that, under English marine insurance practice, commercial trading vessels are invariably insured on an agreed value basis. These policies were stated to be subject to "English law and practice" by virtue of the Institute Time Clauses - Hulls, 1/11/95. Alternatively, based on the custom and usage of the market, a term should be implied into the contract to the effect that the policies were valued policies.
Expert evidence called by both parties confirmed that it was the invariable practice of the English marine insurance market for hull and machinery to be insured on a valued basis, as long as the policy wording included words such as "so valued" or "valued at". Both experts agreed, however, that the term "sum insured" was universally recognised as denoting the maximum amount of insurers' liability. The true meaning of a policy depended on the words actually used.
Although the Kyzuna case concerned a yacht, that decision laid down principles applicable in all cases of marine insurance, whatever the nature of the vessel involved. The issue depended on the construction of the actual words used in the policy. The ordinary meaning of the words used in these policies was clear.
As for the custom and usage argument, these policies were subject to English law, which dictates that evidence of custom or usage is inadmissible where it seeks to vary or contradict express terms of the contract. Even if that was not the case, there was no evidence of any custom or practice to the effect that the words "sum insured" meant the policy could be treated as a valued policy, even in the absence of any words specifying an agreed value. It might be the practice of English marine underwriters to provide hull cover on a valued basis, but they do this by using clear words to that effect.
Estoppel and rectification
Although the evidence showed that the owners, through their brokers, subjectively intended to contract on a valued basis, there was no evidence that insurers intended to enter into anything other than an unvalued policy. Every quote sent on behalf of insurers and every policy and endorsement issued by them expressly used the words "SUM INSURED". At no time was any reference made to any value being recognised or agreed by insurers. Although the request for a quote may have been on a valued basis, this was not what insurers were prepared to offer, and they made that plain.
Nor was there any evidence to suggest that insurers knew of or suspected the owners' mistake. The evidence from the underwriter was that he regularly issued policies on an unvalued basis without giving much thought to whether the insured might have preferred to transact on a different basis. The insurer was entitled to assume that he was dealing with an experienced broker who understood the legal effect of the cover being provided. In the context of an arm's length relationship, the judge did not accept that insurers should have checked whether the broker properly understood the nature of the cover.
The claim in estoppel was rejected for similar reasons. At no stage did insurers conduct themselves in a way that suggested they were treating the policies as valued policies. The fact that they did not spell out to owners the difference between the two terms did not amount to the type of clear and unequivocal representation of fact required to support an estoppel.
Section 68 of the Marine Insurance Act specifies that, subject
to any express provision of the policy, where there is a total loss of the
subject matter insured,
Section 16(1), headed "Measure of insurable value" provides that, subject to any provision or valuation in the policy, in insurance "on ship", the insurable value is the value of the ship at the commencement of the risk, including its outfit, provisions and stores, money advanced for wages and other disbursements. Mustill J in The Captain Panagos, however, held that section 16(1) was archaic and unsuited to modern conditions and that both 16(1) and section 68 were, in any event, subject to the provisions of the policy.
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