W.I.S.E. Underwriting Agency v. GNP

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Note: this judgment has been overruled by a decision of the Court of Appeal delivered on 20 July 2004. For a note on the Court of Appeal judgment, click here

DMC/INS/04/10
W.I.S.E Underwriting Agency Ltd & Dornoch Ltd v. Grupo Nacional Provincial S.A
English Commercial Court: Simon, J.: [2003] EWHC 3038 (Comm): 1 October 2003
Nigel Cooper, instructed by Waltons & Morse, for the claimants, W.I.S.E
Huw Davies, instructed by Beaumont and Son, for the defendants, GNP
INSURANCE: REINSURANCE: NON-DISCLOSURE: KNOWLEDGE: MEANING OF "CLOCKS": MATERIALITY: WAIVER: INDUCEMENT/RELIANCE: AFFIRMATION
Summary
Section 18(1) of the UK Marine Insurance Act 1906 imposes a duty on an assured to disclose to the insurer, before the contract is concluded, every material circumstance known to the assured. It further provides that the insurer may avoid the contract if the assured breaches that duty. This case provides a good illustration of the many obstacles which may confront an insurer when seeking to avoid a policy of insurance or reinsurance on this ground.

DMC Category Rating: Confirmed

This case note is based on a Bulletin from the law firm Waltons & Morse, prepared by Christopher Dunn, It was first published in October 2003

Facts
Perfumeria Ultra S.A. de C.V. carried on business as a retailer of luxury goods at the popular tourist resort of Cancun in the province of Quintana Roo in Mexico. Many of the items which it sold were are imported from the United States. On 22 March 2001 the vessel Hyber Trader arrived at Puerto Morelos where it discharged a 40 foot container, shipped at Miami, which contained goods destined for Perfumeria. After completing a customs inspection, the container was transported by road to Cancun where it was left overnight outside Perfumeria’s warehouse. It was later discovered, however, that a number of items with a total value of US$817,797 had been stolen from the container.

Perfumeria had insured the consignment with Grupo Nacional Provincial S.A. (GNP) which was reinsured in respect of the Perfumeria risk in the London market through the reinsurance brokers, Collard & Partners. In December 2000 they had effected a cover with W.I.S.E. Underwriting Agency, which enabled the brokers to cede business from a number of Mexican insurers, including GNP.

So far as the Perfumeria risk was concerned, the presentation by Collards to the W.I.S.E. cargo underwriter had centred upon a cession that Collards had received from GNP’s Mexican brokers, Grupo Internacional de Reaseguro (GIR). This was in English and had been prepared by GIR. Reinsurers were also provided with an English translation of the contract of insurance between Perfumeria and GNP. It transpired, however, that the English version was not an exact translation of the Spanish original, and that the two versions differed in an important respect. Whilst the Spanish version of the insurance contract included a section describing the method of packaging used for the carriage of imported watches (and made specific reference in this context to Rolex watches), this was missing from the English version disclosed to reinsurers. Although the cession contained a list of the merchandise Perfumeria might insure with GNP, including jewellery, perfumes, cosmetics and clocks, it made no express reference to watches. This omission of any reference to watches in the cession assumed considerable importance once W.I.S.E. learned that GNP’s claim of US$817,797 included a sum of US$700,390 representing the value of eight boxes of Rolex watches.

In those circumstances W.I.S.E. and its principals sought to avoid the reinsurance, claiming that GNP had failed to disclose that: (1) the goods being shipped included Rolexes and other high-value brands of watches; (2) Perfumeria was the only authorised dealer for Rolex watches in the Mexican province of Quintana Roo; and (3) the transport of high-value brand name watches such as Rolexes was or might be on a regular basis. They issued proceedings in England against GNP, seeking a declaration of non-liability.

Judgment
Non-disclosure
The first question that the trial judge, Mr Justice Simon, had to resolve was whether GNP knew of these three circumstances when the reinsurance facility was agreed. It was common ground that GNP knew that Perfumeria’s insurance requirements included Rolex and other high-value watches, but on the evidence the judge was not satisfied that GNP knew or ought to have known of circumstances (2) and (3).

The second question, therefore, was whether GNP had disclosed to reinsurers their knowledge that Perfumeria’s insurance requirements extended to Rolex and other valuable brand name watches. There was no mention of watches in the cession, but GNP submitted that it was plain that the English version of the document was a translation by somebody whose first language was not English, and that the reference to "clocks" must have meant "watches" as clocks did not fit in with the other listed items of high-value luxury goods. Mr Justice Simon was unable, however, to accept that submission. In his view a mistake was made in the English translation of the cession, which was compounded by the failure to include the packaging section that appeared in the original contract of insurance (which revealed that watches, including Rolex watches, were being transported). This information had not been disclosed to W.I.S.E..

Materiality
The third question for the judge, therefore, was whether the information was "material" within the meaning of section 18(1). Would the prudent insurer rightly have taken it into account as a factor in coming to his decision, bearing in mind that he was being asked to underwrite a cargo reinsurance? Evidence was given to the court by underwriting experts. The expert called on behalf of GNP was of the opinion that the nature of the risk was apparent from the cession, which amongst other things mentioned high value jewellery, and that it would have made no difference to a prudent underwriter’s assessment of the risk to be told that Rolex or other high value brand name watches were being shipped. However, the judge felt unable to accept that evidence. He preferred the evidence of the rival expert that high-value watches are regarded as attractive targets for thieves since they are portable and relatively easy to sell, and that Rolex watches are particularly attractive targets in view of the cachet that brand name carries.

As the judge observed, the authorities on materiality were recently reviewed in the case of New Hampshire Insurance Co v Oil Refineries Ltd (2002) in which the judge asked himself the question: would the prudent underwriter have appreciated that it was a different risk if he had known of the circumstances in question? Mr Justice Simon was satisfied that the answer to that question in this case was, yes. The judge found, therefore, that the fact that the goods being carried included high value brand name watches such as Rolexes was a material fact which ought to have been disclosed.

Waiver
Nevertheless, GNP contended that W.I.S.E. had waived the obligation to disclose this fact. It was not suggested that there had been an express waiver. However, GNP submitted that a waiver should be implied from the fact that no specific enquiries were made by the W.I.S.E. cargo underwriter regarding the luxury goods in which Perfumeria dealt. It was argued that a prudent underwriter would have wanted to know more about the risks being reinsured than was apparent from the cession, and their failure to make any enquiries was evidence that W.I.S.E. had waived any requirement for further disclosure.

The judge was not wholly unsympathetic, since he was satisfied that a more focussed enquiry by the underwriter would have eventually elicited the fact that Rolex and other expensive brand name watches were being insured by GNP. However, in his view this was not sufficient to establish waiver. Earlier cases show that waiver should not be too lightly inferred. In the normal case an underwriter in the London market dealing with a London broker should be able to accept at face value a description of the goods to be insured.

Inducement
The next issue which the judge had to determine was whether this non-disclosure "induced" the reinsurance contract. GNP submitted that disclosure of the fact that Perfumeria transported Rolex and other expensive brand name watches would have had no effect on reinsurers’ decision to underwrite the cover. It was pointed out that the cession referred both to other thief-attractive goods such as jewellery and to the fact that there had been no reported losses of any kind for the previous twelve years. The judge was, however, satisfied with the evidence of the W.I.S.E. cargo underwriter, who testified that he never covered watches and would not knowingly have done so in this instance. The judge therefore concluded that the non-disclosure did induce the contract.

Affirmation
The final issue was based on an allegation that, after they became aware of the facts which had not been disclosed, reinsurers had affirmed the reinsurance contract by giving notice of its cancellation. However, there was no written notice and, having heard the witnesses, the judge was unable to accept that there had been any unequivocal communication by the underwriter that he had made an informed choice to affirm the contract.

In the end, therefore, the reinsurers were able to overcome all these obstacles, and succeeded in obtaining a declaration that they were entitled to avoid the reinsurance contract.

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