New Hampshire v. ORL

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DMC/INS/06/02 
New Hampshire Insurance Co v Oil Refineries Limited 
English Commercial Court: Judge Chambers QC: April 2002 Michael Harvey QC and Colin Wynter, instructed by Elborne Mitchell, for NHIC
John Lockey, instructed by Barlow Lyde Gilbert, for ORL.
INSURANCE: MATERIAL NON-DISCLOSURE: CLAIMS HISTORY: WAIVER: SILENCE
Summary 
An insurer’s silence in the face of silence by the proposed insured cannot operate as a waiver of the insurer’s right to full disclosure, because the insured’s silence suggests there is nothing to disclose, not that the insurer should make further enquiries.

This case note is based on an Article in the May 2002 Edition of the ‘Bulletin’, published by the Marine and Insurance teams at the international firm of lawyers, DLA. DLA is an International Contributor to this website

DMC Rating Category: Confirmed

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Facts 
New Hampshire sought a declaration that it had validly avoided a contract of insurance for public and products liability made on its behalf in July 1994 by AIG (UK). Insurers alleged AIG had not been informed of claims brought against the insured, Oil Refineries Limited ("ORL") by some 380 greenhouse flower growers who suffered losses in the winter of 1988/89 due to defective heating oil supplied by ORL. The action was still proceeding when the contract of insurance was signed, and was later settled for US$6 million.

The claims history presented to AIG by the placing broker covered the period 1 August 1989 to 7 July 1994 and so did not mention the flower growers’ claims. There appeared to have been a misunderstanding within the firm of brokers that meant that the placing broker was only given details of claims arising after 1 August 1989, when she actually wanted a full claims history going back beyond that date. Consequently, the information supplied led her to believe that there were no relevant earlier claims.

ORL’s Arguments
1. ORL argued that the documents provided to AIG included one that referred to the flower growers' claims and that, as a result, the underwriter was put on notice of the claims. In failing to take the matter further, however, he had waived insurers’ right to disclosure. The document in question was part of a batch of 62 pages sent to the placing broker during July 1994. 38 pages of that batch found their way on to the underwriter’s file, but not the crucial document in question. There was therefore a dispute whether the document had, in fact, been shown to (or made available to) the underwriter at all.

2. ORL also tried to argue that the underwriter had been aware that disclosure had been limited to a claims history covering the five years from 1 August 1989, and that, consequently, there had been no non-disclosure.

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Judgment
As regards the first issue, the judge held that, if the batch of documents had been presented to the underwriter, it was for a particular purpose - to give further details about the claims history already provided, i.e. from 1 August 1989 onwards. Consequently, if the waiver argument was to succeed, ORL had to show that the underwriter actually read the crucial page in question; otherwise any potential waiver could only operate in respect of the claims history from 1 August 1989. On the evidence, the judge was satisfied that the document had not been provided to or read by the underwriter.

The judge also disagreed with ORL’s second argument. Although the court had been referred to all the major authorities on non-disclosure (Pan Atlantic Insurance Limited v Pine Top Limited [1995] 1 AC 501, amongst others) the point was a simple one. The duty to disclose is an active duty and silence by an insurer in the face of silence by the insured is not a waiver of insurers’ right to disclosure. "The signal sent by silence by the person seeking cover is that there is nothing to report; not that the insurer proceeds at his peril".

Applying the Pine Top test, the judge took little time in finding that the non-disclosure was material, i.e. that it influenced the underwriter concerned and that it would have had an effect on the mind of a prudent insurer in assessing the risk. It was clear from the evidence that the claims history had been central to the negotiations for the cover. The placing broker's own evidence was that, had she been aware of the flower growers' claims, she would have disclosed them and would have expected a higher premium as a result. Insurers were therefore entitled to avoid the contract.

  

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