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A
recent Court of Appeal decision had three judges reaching
quite different decisions on issues of waiver, affirmation
and inducement and having to clarify significant areas of law
to do so. In Wise (Underwriting Agency) Ltd v. Grupo
Nacional Provincial SA [2004] EWCA Civ 962, Lord Justices
Rix, Longmore and Peter Gibson had to deal with a difficult
appeal, which unusually was based on issues of fact, but
which involved considerable discussion of the law and, once
again, the development of an overriding concept of fairness
governing the operation of the duty of utmost good faith.
This article concentrates on the decisions on waiver, as it
is in resolving that issue that the most interesting
divisions between the judges arose.
How
the insurance and reinsurance differed
The
case related to the reinsurance of a cargo cover for the
import of luxury goods from Miami to Cancun. The reinsurers
were a group of Lloyd’s syndicates represented by WISE
(Underwriting Agency) Ltd and their underwriter Roger
Bennett. A loss occurred in April 2001 when goods valued at
about US$800,000, (of which US$700,000 related to Rolex
watches), were stolen outside a warehouse in Cancun. The
essence of the reinsurers’ complaint was that they were not
told that the retailer, Perfumeria Ultra SA De CV, were
importing Rolex watches and other high value branded watches.
In
the underlying insurance slip, presented by Mexican brokers
in Spanish, there had been a clause setting out special
requirements for the packaging of watches, which mentioned
Rolexes. In the reinsurance slip, presented by Collard &
Partners in English, there was no mention of that Rolex
clause and indeed no mention of watches, as the Spanish word
‘relojes’ (which could mean either clocks or watches) had
simply been translated as ‘clocks’. The clocks had been
described as having a value between US$40 and US$18,000 and
an average value of US$1,500.
The
reinsurers avoided the contract, but there was an issue of
fact as to whether Bennett had issued a notice of
cancellation pursuant to the contract, thereby affirming it.
Bennett himself maintained that he would never have
underwritten the contract if he had known it was to cover
watches, although he had not informed the insurers of this.
The court had to grapple with whether there had been a fair
presentation of the risk, whether Bennett had been put on
enquiry about the nature of the goods being imported, and
whether he had waived any non-disclosure pursuant to section
18(3)(c) of The Marine Insurance Act 1906. The additional
issue of inducement was not given much prominence.
Important
agreed facts
Before
looking at the differing approaches of the three judges, it
is necessary to note a few points which were agreed. It was
agreed that the reinsurers’ case was restricted to the
non-disclosure that the shipments included Rolexes and other
high value watches. It was further agreed that the word
‘clocks’ as a matter of language did not include watches.
Finally, the original judge had found that as watches were
portable and easily disposable, the fact that the shipments
involved high value watches made them attractive to thieves
and, subject to the issue of waiver, would have been a fact
material to be disclosed. There was no appeal from this
finding. This ‘fact’ would prove important.
The
doctrine of waiver
Lord
Justice Rix thought that where the doctrine of waiver in
section 18(3)(c) of The MIA applied, there could be no
further issue on non-disclosure or materiality as the
obligation to disclose in 18(1) did not arise. However,
section 18 was restricted to setting out elements of the
insured’s duty of utmost good faith and it was clear that
the general duty in section 17 was a mutual one. He thought
it impossible to determine the fairness of a presentation
without taking into account the insurer’s conduct and the
doctrine of waiver was essentially based on the concept of
fairness.
Following
the recent trend of cases in this area (for example Drake
Insurance plc v. Provident Insurance plc [2004] 2 WLR 530
and Manifest Shipping Co LTd v. Uni-Polaris Insurance Co Ltd [2003] 1 AC
469), he said it was unfair to impose the draconian remedy of
avoidance in circumstances of waiver by the insurer. He
thought this followed the approach of Lord Mansfield in Carter
v. Boehm (1766) 3 Burr 1905, when he had warned of the
danger of the insurer’s silence unbalancing the fairness of
the contract.
Lord
Justice Rix went on to explore the authorities on waiver
ending with consideration of Iron Trades Mutual Insurance Co Ltd v. Companhia de Seguros Imperio [1991]
1 Re LR 213, in which Hobhouse J. had said;
‘It is
possible for an insurer to waive information … However it
will only be rarely that such a situation arises. If a
proposer has made a fair presentation of the risk, he has
discharged his duty; if he has not, than a failure by an
insurer to inquire will not relieve the proposer of his duty
to make proper disclosure’
Lord
Justice Longmore also relied on that statement. Given the
agreed position described above, this made it very difficult
to avoid the conclusion that there had been an actionable
non-disclosure. However, Rix L.J. thought that that statement
of the law could not;
‘…
have been intended as anything other than a way of
emphasising that where there is real unfairness on the part
of the proposer, he should not and perhaps cannot look to the
doctrine of waiver to save him. If anything more was intended
… such an analysis is at odds with section 18 of the Act…
Ultimately … it is impossible to state whether a
presentation is unfair or not without taking the 18(3)
factors into account. Hobhouse J’s analysis, if viewed too
strictly, would simply foreclose any question of waiver,
which cannot be right’
He
therefore put the question he had to consider broadly as
whether the presentation was unfair or alternatively it would
be unfair of the insurer to seek to avoid on a ground on
which he was put on inquiry and should have satisfied
himself. He concluded that overriding all was a notion of
fairness which applied mutually to both parties even if the
presentation itself started with the would-be assured.
Longmore
L.J. thought that Hobhouse J.’s statement meant one simply
had to inquire whether there had been a fair presentation and
if the answer to that was no, that was the end of the matter.
The assured could not go on to assert that if the underwriter
had simply asked an obvious question he would have discovered
the thing that should have been disclosed. He felt that there
could not have been a fair presentation as it was conceded
that the intention to ship high value brand name watches was
material and had not been disclosed. Therefore one had to
answer the question: would the facts disclosed raise in the
mind of a reasonable insurer “at least the suspicion”
that high value watches might be shipped?
Lord
Justice Peter Gibson also took a tough line on the question
of waiver. He felt the court should not subvert the duty of
the assured to make a fair presentation of the risk by
finding that the reinsurers were put on enquiry and failed to
discover for themselves the material information, save in a
clear case.
Decisions
and divisions on the facts
On
the facts of the case, Rix L.J. felt that it was a matter of
essential common-sense, let alone the act of a prudent
underwriter on enquiry, that a question should have been
asked about the clocks. In whatever form that question had
come, Rix L.J. thought it inconceivable that it would not
have led to the immediate disclosure that ‘clocks’ was
meant to include or simply meant watches. Overall, he felt
the presentation had been fair and it would be unfair to
allow reinsurers to take advantage of an error of translation
in a case where an exclusion of watches would seem to have
been the obvious solution. The judge had found that there was
no clear case for waiver and the reference to ‘clocks’
should not have raised a suspicion with the reinsurer.
Although he had to exercise caution on such an appeal, Rix
L.J. did not feel that the original judge’s solution had
done justice to ‘the
need for the duty of good faith to be mutual, which may raise
a real problem on issues of waiver’.
Longmore
L.J.’s analysis of the waiver point began with his
understanding that an uncontested fact was that ‘it
was material for reinsurers to be informed that high value
brand name watches were to be carried as part of the cargo to
be insured’. Peter Gibson L.J. also relied heavily on
this agreed fact. However, Rix L.J. thought the real
uncontested fact was that ‘the
carriage of such watches was material’, and that that
concession had been made subject to the appeal on the
question of waiver.
Rix
L.J. went on to disagree with Longmore L.J. further. Longmore
L.J. thought ‘[an
insurer] must be entitled to take at face value what is said
on the slip’, because he was entitled to assume he was
receiving a fair presentation. Rix L.J. thought that you
could not use the concept of ‘face value’ to undermine
the whole doctrine of waiver. The issue of fairness could not
be resolved without considering the matter in the round. He
stated:
‘Where a
proposer for insurance makes an error in the translation of
his presentation, but the error … begs a simple question
… and does so in circumstances where the insurer knows (but
the proposer does not) that he would never be prepared to
insure the goods in question (here, watches) but keeps that
information to himself, I think it is unfair of the insurer
to say that he has been dealt with unfairly and is entitled
to treat his contract as something he can avoid’
In
contrast, Longmore L.J. noted that the judge had found that
the word ‘clocks’ should not have raised a suspicion in
the mind of the reasonable insurer. For such suspicions to
arise, the insurer would have had to know, firstly that the
slip was a translation, secondly that the relevant Spanish
word could include both watches and clocks and thirdly that
Cancun was not the sort of place where it was likely that
someone would sell clocks. He thought a judge was entitled to
come to his own conclusion on what should have appeared on
the slip and he felt commercial judges were more in tune with
the commercial realities of underwriting than the Court of
Appeal could be. He was not convinced that the judge was
wrong.
Peter
Gibson L.J. felt, like the judge, that there was not a clear
case of waiver. His view was coloured by the fact that the
insurers’ brokers, GIR, knew all along that Rolex watches
were to be shipped and that the underlying insurance carried
the Rolex clause, but omitted the clause in the reinsurance
and mistranslated ‘relojes’ as ‘clocks’. Overall, he
did not think the reinsurers had to question what
‘clocks’ were likely to be put on sale for wealthy
American tourists in Cancun.
The
result
Although
the majority of the judges wanted to dismiss the appeal on
the question of waiver and thus the actionable non-disclosure
stood, Lord Justices Rix and Peter Gibson felt there had been
affirmation of the reinsurance contract by the reinsurers.
Accordingly, WISE were bound to pay the claim.
This
case is another example in which a very difficult factual
scenario has caused problems for judges in the strict
application of the duty of utmost good faith. Where the real
fault lay between the parties to this reinsurance was
arguable and the three experienced judges came up with three
quite different approaches to the problem. The illuminating
comments of Lord Justice Rix on the duty of utmost good faith
follow on from those he made in Drake
v. Provident (supra)
and are an interesting pointer to what the future might hold
for the mutual duty of good faith in insurance.
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