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Axa
General Insurance Ltd v Clara Gottlieb and Joseph Meyer Gottlieb
English Court of Appeal: Pill, Mance and Keene, LJJ: 11 February 2005
KEY WORDS: INSURANCE: CLAIMS: FRAUDULENT BEHAVIOUR BY INSURED: COMMON LAW RULE:
EFFECT ON OTHER GENUINE CLAIMS PREVIOUSLY PAID UNDER SAME POLICY: EFFECT ON
PREVIOUS PAYMENTS OF GENUINE ELEMENTS OF SAME CLAIMS
HIH
Casualty & General Insurance Limited & Others -v- Chase Manhattan Bank
& Others
English House of Lords: Lords Bingham, Hobhouse, Hoffmann, Scott and Steyn:
20 February 2003
INSURANCE: FILM FINANCE: PRELIMINARY ISSUES: CONSTRUCTION OF TRUTH OF STATEMENT
CLAUSE: WAIVER OF DUTY OF UTMOST GOOD FAITH: WAIVER OF BROKER'S DUTIES:
FRAUDULENT MISREPRESENTATION: PUBLIC POLICY
Drake
Insurance Plc (in provisional liquidation) v Provident Insurance Plc
English Court of Appeal; Pill, Clarke and Rix LJJ. ; 17 December 2003
INSURANCE: NON-DISCLOSURE: AVOIDANCE: INFORMATION KNOWN AT TIME OF CONTRACT:
TRUE FACTS AS LATER APPEAR: INSURER’S DUTY O F GOOD FAITH: WAIVER: DOUBLE
INSURANCE: RATEABLE CONTRIBUTION CLAUSES: VOLUNTARY PAYMENTS: PAYMENTS UNDER
PROTEST: PAYMENTS WITHOUT PREJUDICE
Drake
Insurance Plc -v- Provident Insurance Plc
English High Court: Moore-Bick J.:3 February 2003
MOTOR INSURANCE: CONTRIBUTION FROM ANOTHER INSURER:
ACCIDENT DECLARED AT INCEPTION INCORRECTLY AS "FAULT" ACCIDENT:
SPEEDING CONVICTION NOT DECLARED ON RENEWAL: INSURERS AVOID POLICY FOR
NON-DISCLOSURE: COMBINATION OF FAULT ACCIDENT AND SPEEDING CONVICTION WOULD HAVE
LED TO INCREASED PREMIUM: HAD FAULT ACCIDENT BEEN CORRECTLY DECLARED AS "NO
FAULT", SPEEDING CONVICTION ALONE WOULD NOT HAVE LED TO INCREASED PREMIUM:
DUTY OF UTMOST GOOD FAITH: WHETHER INSURERS OBLIGED TO REINSTATE POLICY ONCE
TRUTH KNOWN
Strive Shipping Corporation and Royal Bank of Scotland plc v
Hellenic Mutual War Risks Association (The Grecia Express)
English Commercial Court: Colman J.: 25 March 2002
Summary
This unusual case involved allegations by war risks insurers
that the person controlling the shipowner company, Mr Ventouris, not only caused
the vessel to be fraudulently cast away but failed to disclose (amongst other
things) that he had fraudulently cast away his own luxury power boat, the Coha
II, two months beforehand.
The court had no hesitation in clearing Mr Ventouris of any
involvement in either the loss of the Grecia Express or the other losses relied
on by insurers and held that there had been no non-disclosures entitling
insurers to avoid the policy. Nor had there been any breach of the duty to act
reasonably to avert the loss under section 78(4) of the Marine Insurance Act.
The judgment, however, raises some interesting points on the nature of moral
hazard and the duty of disclosure.
Konstantinos Agapitos
v. Agnew & Others
English Court of Appeal: Brook, Mance and Park LJJ: March 2002
INSURANCE POLICY: AVOIDANCE: BREACH OF WARRANTY: MISREPRESENTATION DURING
LITIGATION: USE OF FRAUDULENT MEANS OR DEVICES TO PROMOTE A CLAIM: CLAIM
OTHERWISE VALID: SCOPE OF COMMON LAW RULE REGARDING FRAUDULENT CLAIMS: DURATION:
SUPERSEDED OR EXHAUSTED BY RULES OF LITIGATION: S.17 UK MARINE INSURANCE ACT
1906 (‘MIA’)
K/S Merc-Scandia V. Lloyd's Underwriters (The ‘Mercandian Continent)
English Court of Appeal: Walker and Longmore LJJ; Carnwarth J: [2001] 2 Lloyd’s
Rep. 563:
INDEMNITY UNDER A LIABILITY INSURANCE POLICY: SHIP-REPAIRERS INSURED FOR
NEGLIGENT REPAIRS TO VESSELS:CLAIM BY THE OWNER OF THE NEGLIGENTLY REPAIRED SHIP: ASSURED PRODUCED FORGED
DOCUMENT DURING THE LIABILITY LITIGATION: ASSURED IN LIQUIDATION: OWNER SUED
LIABILITY UNDERWRITERS: UNDERWRITERS DENIED LIABILITY UPON DISCOVERY OF FORGERY
BY ASSURED: WHETHER BREACH OF S. 17 MARINE INSURANCE ACT (1906) (‘MIA’) OR
BREACH OF A TERM IN POLICY
Manifest Shipping Ltd. v. Uni-Polaris Insurance Co. Ltd –
(The ‘Star Sea’)
English House of Lords: Lords Steyn, Hoffmann, Clyde, Hobhouse and Scott: [2001] 1 Lloyd’s Rep. 1:
MARINE INSURANCE: TIME POLICY: VESSEL CONSTRUCTIVE TOTAL LOSS BY FIRE:
1.UNSEAWORTHINESS (SECTION 39(5) OF THE MARINE INSURANCE ACT (‘MIA’)
1906): WAS THE VESSEL SENT TO SEA IN AN UNSEAWORTHY CONDITION WITH THE PRIVITY
OF THE ASSURED?
2.UTMOST GOOD FAITH: IS THE DUTY CONTINUING AFTER THE CONTRACT HAS BEEN MADE?
IF IT IS, COULD THE DUTY APPLY AFTER LITIGATION HAS COMMENCED? WAS THE ASSURED IN BREACH OF THE DUTY UNDER SECTION 17 OF THE MIA 1906?
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Summaries
of three recent decisions in Marine Insurance
concerning the duty of utmost good faith
Contributed
by Dr.
Aleka Mandaraka Sheppard
"The
law of “utmost good faith” has been significantly advanced by a trilogy of
important recent decisions, namely the
Star Sea, the Mercandian
Continent and Agapitos v. Agnew.
As each decision has resolved issues in this area of the law, which had been
left open previously, they are summarised here in turn.
1. Manifest Shipping Ltd. v. Uni-Polaris Insurance Co. Ltd – the ‘Star Sea’
English House of Lords: Lords Steyn, Hoffmann, Clyde, Hobhouse and Scott: [2001] 1 Lloyd’s Rep. 1:
MARINE INSURANCE: TIME POLICY: VESSEL CONSTRUCTIVE TOTAL LOSS BY FIRE:
1.UNSEAWORTHINESS (SECTION 39(5) OF THE MARINE INSURANCE ACT (‘MIA’)
1906): WAS THE VESSEL SENT TO SEA IN AN UNSEAWORTHY CONDITION WITH THE PRIVITY
OF THE ASSURED?
2.UTMOST GOOD FAITH: IS THE DUTY CONTINUING AFTER THE CONTRACT HAS BEEN MADE?
IF IT IS, COULD THE DUTY APPLY AFTER LITIGATION HAS COMMENCED?
3.WAS THE ASSURED IN BREACH OF THE DUTY UNDER SECTION 17 OF THE MIA 1906?
Summary:
Manifest Shipping Ltd., as Owners of the Star Sea, claimed against the
underwriters, Uni-Polaris Insurance Co., under an insurance contract for hull
and machinery risks governed by English law, for the constructive total loss (‘CTL’)
of the Star Sea caused by fire. The underwriters put forward defences
under section 39(5) and section 17 of the Marine Insurance Act of 1906.
Section 39(5) provides: "In a Time policy there is no implied warranty
that the ship shall be seaworthy at any stage of the adventure, but where, with
the privity of the assured, the ship is sent to sea in an unseaworthy state, the
insurer is not liable for any loss attributable to unseaworthiness".
Section 17 provides: "A contract of marine insurance is a contract based
upon the utmost good faith and, if the utmost good faith be not observed by
either party, the contract may be avoided by the other party."
The
House of Lords decided, approving the decision of the Court of Appeal, that the
defence under section 39(5) failed, as there was no proof of
“privity” of the assured shipowners. As for the section 17 defence,
the underwriters had to show – which they could not - that the claim was made
fraudulently. Whilst the court accepted that the section 17 duty of utmost good
faith continued to apply after the contract was originally concluded, it held
that it ceased to apply once the parties were in litigation.
More on the Star Sea
Have
the subsequent recent decisions by the Court of Appeal clarified further or
developed the law on issues not decided by the House of Lords in The Star
Sea?
K/S Merc-Scandia V. Lloyd's Underwriters (The ‘Mercandian Continent)
English Court of Appeal: Walker and Longmore LJJ; Carnwarth J: [2001] 2 Lloyd’s
Rep. 563:
INDEMNITY UNDER A LIABILITY INSURANCE POLICY: SHIP-REPAIRERS INSURED FOR
NEGLIGENT REPAIRS TO VESSELS: CLAIM BY THE OWNER OF THE NEGLIGENTLY REPAIRED SHIP: ASSURED PRODUCED FORGED
DOCUMENT DURING THE LIABILITY LITIGATION: ASSURED IN LIQUIDATION: OWNER SUED
LIABILITY UNDERWRITERS: UNDERWRITERS DENIED LIABILITY UPON DISCOVERY OF FORGERY
BY ASSURED: WHETHER BREACH OF S. 17 MARINE INSURANCE ACT (1906) (‘MIA’) OR
BREACH OF A TERM IN POLICY
What did the case decide?
In the context of a direct claim against liability underwriters under the UK
Third Parties (Rights against Insurers) Act, 1930, where underwriters relied on
the defence of their assured’s breach of the duty of utmost good faith under
section 17 of the UK Marine Insurance Act of 1906 (MIA), the Court of Appeal
decided that:
1. it was only appropriate to invoke the remedy of avoidance under s.17 in a
post-contractual context (namely, after the contract had been concluded) in
situations analogous to those where the insurer had the right to terminate for
breach;
2. there was a continuing duty on the assured to refrain from a deliberate
misrepresentation or concealment of material facts intending to deceive the
insurer. The facts would be material if they had ultimate legal relevance to a
defence under the policy. However, the remedy of avoidance would not apply
unless the fraudulent conduct was such as to justify termination of the
contract.
3. the giving of information pursuant to an express term of the contract was
an occasion when good faith should be exercised. However, since it is a
contractual obligation, the remedy for fraudulent misinformation must be
commensurate to the insurer’s contractual remedies.
More on
Mercandian Continent
The
Star Sea contains powerful dicta about s.17 and its application to
fraudulent claims, but the issue was not definitively decided, as it was not
necessary on the facts of the case. Lord Scott also referred briefly
to the subsidiary issue, namely, whether the same rule should apply to
fraudulent devices used to promote a claim, which is otherwise honestly brought.
Again, no conclusion was reached, which is examined in the next case.....
Konstantinos Agapitos v. Agnew and Others
English Court of Appeal: Brook, Mance and Park LJJ: March 2002
INSURANCE POLICY: AVOIDANCE: BREACH OF WARRANTY: MISREPRESENTATION DURING
LITIGATION: USE OF FRAUDULENT MEANS OR DEVICES TO PROMOTE A CLAIM: CLAIM
OTHERWISE VALID: SCOPE OF COMMON LAW RULE REGARDING FRAUDULENT CLAIMS: DURATION:
SUPERSEDED OR EXHAUSTED BY RULES OF LITIGATION: S.17 UK MARINE INSURANCE ACT
1906 (‘MIA’)
What Did the Case Decide (or what was tentatively
suggested)?
1. The fraudulent claim common law rule should apply as much to the
fraudulent maintenance of an initially honest claim as to a claim that the
insured knew from the outset to be exaggerated.
2. The use of fraudulent devices or means to promote a claim should be
treated as a sub-species of making a fraudulent claim, at least for the
purpose of forfeiture of the relevant claim.
3. The common law rule governing the making of fraudulent claims should be
treated outside the scope of s. 17.
4. The duration of the common law rule should be (similarly to s.17 )
restricted to the pre-litigation period.
More
on Agapitos
Since the common law rule governing fraudulent claims (which will now include
fraudulent devices used to promote the claim) is restricted to the
pre-litigation period, then "any lie" or fraudulent device used during
litigation would be caught by the procedural rules. The sanction will presumably
be the striking out of the claim, with an additional penalty of making the
claimant liable to pay all legal costs. Applying the same logic, a defendant who
lies or uses fraudulent devices to prosecute his defence should be treated in
the same way. A warning to litigants to beware of lying may be appropriate at
this juncture!!
Dr.
Aleka Mandaraka Sheppard
April
2002
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