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GLENCORE INTERNATIONAL AG AND ANR
PORTMAN AND ORS.
IN THE SUPREME COURT OF JUDICATURE QBCMF
IN THE COURT OF APPEAL (CIVIL DIVISION)
 EWCA CIV 1206 (13TH DECEMBER, 1996)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(MR JUSTICE LONGMORE)
ROYAL COURTS OF JUSTICE, STRAND
FRIDAY, 13 DECEMBER 1996
LORD JUSTICE LEGGATT
LORD JUSTICE HUTCHISON
LORD JUSTICE WALLER
GLENCORE INTERNATIONAL AG and ANR – PLAINTIFFS/APPELLANTS
PORTMAN and ORS – DEFENDANTS/RESPONDENTS
MR G KEALEY QC with MR D EDWARDS (Instructed by Messrs Clyde and Co, London EC3M 1JP) appeared on behalf of the Appellant
MR T SALOMAN QC with MR C PRIDAY (Instructed by Messrs Davies Arnold Cooper, London EC4Y 8DD) appeared on behalf of the Respondent
ADMIRALTY AND MARITIME:- Charter-party insurance – When insurers are entitled to avoid the contract – Breach of duty of utmost good faith on part of insured party – Meaning of – Components
INSURANCE AND REINSURANCE:- Charterparty insurance – Demurrage liabilities – Meaning of – Underwriter’s entitlement to refrain from asking any question – Assured’s duty of good faith – Meaning and components – Failure thereto – When will be ground for voiding of contract of insurance
INSURANCE AND REINSURANCE:- Maritime insurance – Fair presentation of risks – Meaning of – Proof of satisfaction of duty of utmost good faith on part of insured – Duty to disclose relevant facts – Exceptions – How proved
INTERNATIONAL TRADE:- International oil and gas trade and transportation – Insurance schemes connected therewith – Nature of maritime contracts
OIL AND GAS:- Transportation of crude oil through international waters and pipelines – Shipping and insurance contracts connected therewith – Duties of insured dealers – Failure thereto – Effect
JUDGMENT (As approved by the Court) Friday, 13 December 1996
LORD JUSTICE LEGGATT:
Glencore International A.G. used to be called Marc Rich and Co A.G. On 12th April l995 Longmore J. entered judgment against them for Syndicate 209 (‘the insurers’), of which Mr Portman was the active underwriter. Judgment was also entered for the insurers on the counterclaim for damages to be determined. The judgment is now reported at  1 Lloyd’s Rep. 430. The judge made a declaration that the insurers are entitled to and did avoid the contracts of insurance contained in or evidenced by the Kharg Island endorsement dated 20th November l989 and the endorsement dated 19th December 1989 relating to Constanza to USA or South American voyages. Against the judgment Marc Rich now appeal. They challenge three findings –
(a) “What was most material, on my view, [for a prudent underwriter to be informed about] was the loss experience”(page 440);
(b) “There was no waiver of the requirement to disclose fairly Marc Rich’s experience of demurrage losses” (page 441); and
(c) “Insurers have shown that they were induced to write the risk on the terms as they did by reason of the Plaintiff assured’s non-disclosure of the loss experience” (page 444).
There is no appeal against the judge’s conclusion that certain charterparty amendments made by Marc Rich were outside the scope of the insurance of “ASBA 2 or similar”.
The case is aptly summarised by Mr Saloman Q.C. for underwriters in the opening paragraph of his written submissions –
“This is a case where an insured who had a bad history of losses (known only to himself), losses running into millions of dollars in the last six months, deliberately withheld that loss experience both from his own broker and from underwriters. Not only was this information held back but the insured proposed moderate rating terms (including a premium of US $2,500 per voyage) as being appropriate, although the insured’s loss experience dwarfed the premium and was of such a size and frequency as to make loss inevitable. Both the broker and the underwriter thought the risk to be a modest one. The underwriter accepted the proposed terms. In due course, the insured suffered heavy losses and claimed these from underwriters.”
Marc Rich are well known as oil, gas and commodity traders. They buy large quantities of crude oil from organisations such as National Iranian Oil Corporation and Petrolexport of Romania, and sell to buyers in Western Europe and in North and South America. For this purpose they charter vessels to collect oil from loading ports such as Kharg Island in Iran and Constanza in Romania, and deliver it to discharge ports throughout the world. They insured against charterers’ liabilities through a line of brokers culminating in a firm of Lloyd’s brokers called Norex Ltd.
The head of Marc Rich’s insurance department in 1989 was Mr Andrew Gibson. In April 1989 they wanted to charter vessels for the carriage of oil from Constanza to Nigeria. Although they had not sold oil regularly to Nigeria before this, they knew that discharge there might be subject to delay. The ASBA 2 form, which they normally used provided that, if unloading was delayed by more than thirty-six hours after the vessel had tendered notice of readiness, charterers were to pay $10,000 per day and pro rata. The 1988 charterers’ liability cover was led by Syndicate 209. They did not usually write demurrage cover, which was not a standard feature of the Lloyd’s marine insurance market.
When Norex asked Mr Portman for a more extensive demurrage cover for about ten ships transporting oil to Nigeria he declined. But Norex did not have much difficulty in obtaining the cover elsewhere. As the judge held at page 433-
“Mr Gibson was pleased and even a little surprised to have got this cover for carriage to Nigeria. Because he had been told that the route from Kharg Island in Iran to Ain Sukhna in Egypt was liable to give rise to problems of demurrage, he instructed his brokers, after renewal of the charterers’ liability cover, to obtain demurrage insurance for the route.
Once a cargo of oil has been off loaded at Ain Sukhna it is carried by the Sumed pipeline to Sidi Kerir near Alexandria, where it is reloaded for onward carriage to Europe. The popularity of the route often caused congestion at Kharg Island and at Ain Sukhna. The operators at both terminals had stringent terms preventing traders from passing on demurrage liabilities in the event of delay. Crude oil could only be bought from Iran under the terms of the National Iranian Oil Company and could only be transported by the Sumed pipeline on Sumed terms, which included an express provision that laytime would not run while the port was closed for bad weather.
Mr Gibson gave instructions to Dutch brokers on 16th November l989 to obtain demurrage cover for voyages from Kharg Island to Ain Sukhna. He proposed a three-day excess together with a limit of $250,000 per vessel for a period of ten days in excess of three. Although the Kharg Island business was not new, Mr Gibson was not asked about the incidence of demurrage liability for vessels previously chartered for the route from Kharg Island to Ain Sukhna, and he said nothing about it. Mr Gibson’s instructions were passed down the line to Norex, where the placing employee, Mr Hunter Blair, was told to obtain an extension to Marc Rich’s existing charterers’ liability cover. Not realising that a previous demurrage liability cover had been declined by Syndicate 209 he went to their box on 21st November l989. There he obtained a pencil quotation from the Deputy Marine Underwriter, Mr Kevin Overton, of $2,500 per vessel per voyage. That was quoted to Mr Gibson as a premium of $3040. He agreed it and declared the first vessel under it. About Mr Gibson’s reaction the judge found as follows at page 434-
“Mr Gibson told me that he was surprised that underwriters had agreed terms so readily. He had expected that he would have had to answer a host of questions about Marc Rich’s experience at Kharg Island and Ain Sukhna. He did not regard it as a matter for him to volunteer information on claims’ experience or other matters until he knew what sort of questions he was going to be asked. He elaborated this by saying that he did not, in fact, expect to get the insurance at all because it was unusual for insurers to write a ‘commercial risk’ such as demurrage. He had previously regarded demurrage as totally uninsurable.”
In view of this Mr Gibson thought that he had better show the terms of the contract between Marc Rich and Sumed to underwriters, because they showed the difficulty of obtaining recovery from Sumed for any demurrage for which they might be liable to shipowners. When the Sumed terms reached Mr Hunter Blair he showed them to Mr Overton or his assistants, drawing attention to the Article which barred recovery.
After these arrangements had been made Mr Gibson sought similar cover for shipments from Constanza to the United States or South America. Norex’s placing employee, Mr Dennis Thomas, succeeded in obtaining on 20th December l989 a quotation of $2,500 per voyage. Having failed to get a better premium rate for a reduced limit per vessel, a limit of $250,000 or 15 days per vessel was agreed with a maximum of 60 days in aggregate.
Both endorsements were in similar terms. The Kharg Island endorsement read as follows –
“It is noted and agreed to include herein the following if required.
Vessel trading Kharg Island to Ain Sukhna
Average CRT 250,000
C/P: ASBA 2 or similar
Limit: US$250,000 per vessel or ten days per vessel
Excess: three days each vessel/voyage
This insurance extended in respect of the above vessels/trading area only to include all which the assured shall be liable to pay as Charterers including costs and expenses due to loading/unloading beyond the agreed period or in the absence of an agreed period that which is held reasonable”
Substantial claims arose under these endorsements, some of which were paid before the insurers sought to avoid the insurance. But Marc Rich claimed that at the time of trial $990,000 was due from the insurers for demurrage on voyages out of Kharg Island and $450,000 was due from them for demurrage on voyages out of Constanza.
It was the insurers’ case that the non-disclosure by Marc Rich of their loss experience on the relevant routes on account of demurrage was material and constituted a breach of the duty of utmost good faith. They accordingly claimed to avoid both endorsements. Marc Rich’s demurrage liabilities were not disputed. On the Kharg Island route they amounted to $2.9 million on 26 vessels in 1989 and from Constanza they amounted to $1 million on 35 vessels. The judge recorded the experts’ agreement that the matters relating to loss experience were material. In their defence Marc Rich relied mainly on waiver. Before judgment was given the speeches of their Lordships were published in Pan Atlantic Insurance Ltd v Pinetop Insurance Co Ltd [l994] 3 W.L.R. 677. They established that it was not enough for insurers to prove material non-disclosure: they had to show that the non-disclosure had induced them to enter into the contracts of insurance. So the judge permitted the case to be re-opened, and the insurers called Mr Overton.
Mr Overton had initialled the renewal of the charterers’ liability cover on 17th October 1989, the terms of which had previously been agreed by Mr Portman. Attached to the slip was a list of claims against Marc Rich, which included a paid claim in l983-4 and two in l984-5. There were also some outstanding claims. At pages 436-7 the judge said of Mr Overton –
“He had no real idea of the extent of the cover nor of the terms of the Form CL 345 NE (1/74) which were incorporated into the cover. He had no idea of the extent to which there was any cover for demurrage liabilities; he knew no more of demurrage than that it meant delay.”
In relation to the broking of the Kharg Island endorsement the judge said that Mr Hunter Blair probably showed Mr Overton the renewal slip for the charterers’ liability cover, which he had already initialled, together with the claims history he had seen at the time he renewed that cover. The judge mentioned that Mr Overton’s evidence had vacillated in his written statement and at different stages of his oral evidence in his account of the sources of delay that he thought he was covering. At page 437 the judge said-
“Having seen Mr Overton in the witness-box, I do not believe he gave any detailed consideration to the meaning of the endorsement at the time. In my view, he underwrote the risk without giving any serious attention to the width of the cover sought and his evidence about what he now says he thought it meant is a post facto rationalisation.”
When Mr Thomas broked the Constanza endorsement he went to see Mr Overton since it was Mr Overton who had dealt with the Kharg endorsement. After an unsuccessful attempt to obtain a higher premium Mr Overton agreed the same price as had been charged for the Kharg Island endorsement, namely, $2,500 per voyage with an overall limit of 60 days. Mr Thomas also went to see Mr Overton about a so-called Vietnam endorsement. It was significant only in that it bore in Mr Overton’s handwriting an exclusion for delay which showed that he could not have believed the wording of the endorsement to be restricted to delay caused by mechanical breakdown of ship or shore facilities during loading or unloading, as he asserted in his witness statement and in course of his oral evidence.
The judge found Mr Overton “a most unsatisfactory witness”. The judge could not accept his account of what he said he thought the terms of the endorsement meant and the judge did not feel it safe to rely on his first statement at all. The judge found that in his oral evidence he was “often evasive”, and he “revealed a surprising ignorance of or indifference to prudent underwriting practice.” That had made it very difficult to reach any firm conclusions as to his state of mind when he initialled the endorsements and “in particular on the all-important question whether he was induced to write the risk by virtue of the non-disclosure of the insured.”
The last of the judge’s nine findings (at page 438) about Mr Overton’s actual knowledge were these –
“(7) That is was likely that Marc Rich had previously experienced delays as a result of trading vessels from and to the ports mentioned in the endorsements;
(8) That such delays would have occurred for all sorts of reasons naturally endemic to all sorts of ports;
(9) That when writing a new risk or an extension of an old risk, it was important to be aware of any existing relevant loss experience for the purpose of deciding whether to write the risk and what premium to charge.”
Finally I set out verbatim the judge’s conclusions about the witness at page 438:
“Mr Overton did not know anything about Ain Sukhna or about Constanza. He knew nothing about the true extent of the charterers’ liability cover initialled by him on 17th October because he regarded that as having been agreed by Mr Portman; he also had no clear idea of the scope of cover being sought by Norex in the endorsements. He knew virtually nothing about the sort of liabilities likely to be incurred by charterers of ships; he had never seen a charterparty, could not define demurrage and had no concept of laytime or notices of readiness. He had no idea what the ASBA 2 Form was and did not know how to find a copy. He had no idea whether liabilities incurred by charterers were capable of being passed on to any third party; he had no idea of any loss experience of Marc Rich relevant to the endorsements.”
After the hearing Mr Saloman Q.C. for the underwriters indicated that, if he had been called on, he would have done what he could in protection of Mr Overton’s reputation.
Sections 17 and 18 of the Marine Insurance Act l906 provide (so far as material) that –
“17. A contract of marine insurance is a contract based upon the utmost good faith….
(2) Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk.
(3) In the absence of inquiry the following circumstances need not be disclosed, namely:-
(b) Any circumstance which is known or presumed to be known to the insurer. The insurer is presumed to know matters of common notoriety or knowledge, and matters which an insurer in the ordinary course of his business, as such, ought to know;
(c) Any circumstance as to which information is waived by the insurer;
(4) Whether any particular circumstance, which is not disclosed, be material or not is, in each case, a question of fact.
(5) The term ‘circumstance’ means any communication made to, or information received by, the assured.”
The judge held that Marc Rich’s loss experience was material. So before the contract was concluded Marc Rich had to disclose the information about it, unless it was waived by the insurers, or they were presumed to know it.
The Act follows closely the pattern indicated by Lord Mansfield in Carter v Boehm (l766) 3 Burr. 1905. That was an action on a policy of insurance for one year for the benefit of the Governor of Fort Marlborough, George Carter, against the loss of the fort, which was in Sumatra, by its being taken by a foreign enemy. Giving the judgment of the Court Lord Mansfield referred at page 1909 to concealments which avoid a policy, saying –
“The special Facts, upon which the Contingent Chance is to be computed, lie most commonly in the Knowledge of the Insured only: The Under-Writer trusts to his Representation, and proceeds upon Confidence that He does not keep back any Circumstance in his Knowledge, to mislead the Under-Writer into a Belief that the Circumstance does not exist, and to induce Him to estimate the Risque, as if it did not exist.”
He added at page 1910 –
“The Insured need not mention what the Under-Writer ought to know; what He takes upon Himself the Knowledge of; or what He waves being informed of.”
At page 1911 the Court explained that –
“The Reason of the Rule which obliges Parties to disclose, is to prevent Fraud and to encourage good Faith. It is adapted to such Facts as vary the Nature of the Contract; which One privately knows, and the Other is ignorant of, and has no reason to suspect.
The Question therefore must always be “Whether there was, under all the Circumstances at the Time the Policy was underwritten, a fair Representation; or a Concealment; fraudulent, if designed; Or, though not designed, varying materially the Object of the Policy, and changing the Risque understood to be run.””
The two matters relied on as amounting to concealment were the fact that the Governor did not disclose the condition of the fort or the risk of attack by a European force. As to the first the Court held that the underwriter knew that the Governor could not disclose the state of the fort, consistently with his duty; that the condition of the fort was not knowledge just private to the Governor; and that because the insurance was against an attack, not against the fort being taken, its condition was not material. As to the second, the Court held it to be a matter of mere general speculation. The Court accordingly upheld the jury’s verdict, and discharged the rule for a new trial.
Mr Kealey Q.C. presented his submissions for Marc Rich under two heads: concealment and actual inducement. He relied on the information not disclosed by Marc Rich as being presumed to be known to the underwriter and as being waived by him. Since I am satisfied that the judge came to the right conclusions for the right reasons, I would have been content to uphold his judgment without more. But in deference to Mr Kealey’s well sustained arguments, I shall recapitulate them and briefly state why in my judgment they fail.
In relation to presumed knowledge Mr Kealey argued first, in reliance on Carter v Boehm (supra), that an underwriter who insures a risk within a particular industry ought to know or find out the practices of the industry or trade, and the matters which are in general well known by persons in that trade. He also submitted that if an underwriter is writing a class of business he should be conversant with the course of losses affecting the types of risk which fall within that class, although he cannot be presumed to know about particular losses which specially affect particular assureds. For this proposition he relied on North British Fishing Boat Insurance Co Ltd v Starr (l922) 13 Ll. L.R. 206. It concerned the insurance of fishing vessels against fire. Rowlatt J. held that there was nothing to show whether the increased losses of one of the companies insured was special to them or to those fishing in a particular locality, or whether any such information was known to the assured. At page 210 he said –
“I must look at the underwriter in this case as a person doing the business of insuring ships and as necessarily conversant with the course of losses affecting particular classes of ships. What he is not bound to know in the ordinary course of his business are particular circumstances specially affecting ships or lines of ships, and specially affecting some limited number of ships.”
In Greenhill v Federal Co Ltd [l927] 1 K.B. 65 the subject of the insurance claim was a cargo of celluloid, known as pyralin. Scrutton L.J. said at page 84 –
“I can quite conceive … that if you are told facts about the cargo, and do not know the natural consequences which follow from such facts, you ought to have asked; but if there are unusual circumstances connected with the cargo, which would not follow from the facts that you are told, then they ought to be disclosed.”
Mr Kealey submitted that the judge was wrong to conclude that a presentation which makes no reference to something of which the underwriter is on notice from the very nature of the contract is fair only if the losses or the ordinary attributes of the risk are modest. It is fair if the losses are ordinary losses or the attributes are ordinary attributes. If the judge is right, in every case where a risk is presented to an underwriter, and the underwriter does not know what the ordinary characteristics of the risk are, he can assume that the risk has no properties to cause concern. Mr Kealey submitted that Mr Overton must be presumed to know the likely causes of delay at the ports concerned because that was common knowledge.
Lord Mansfield spoke only of what the underwriter “ought to know”. Underwriters were not bound to know the extent of the liability for demurrage which Marc Rich had incurred. The liability was not ‘ordinarily inherent’ in the risk. There was nothing that could be said to constitute “the ordinary loss experience”: the information required was about Marc Rich’s “actual loss experience.” That was not a matter of common knowledge. Nor was it analogous with the carriage of an unusual cargo: cf. Greenhill v Federal Insurance Co Ltd (supra).
To submit, as Mr Kealey does, that there was no evidence that vessels chartered by Marc Rich experienced problems other than such as affected charterers generally misstates the principle. Of course all charterers are vulnerable to the weather and its vicissitudes. But that says nothing about the demurrage liabilities incurred by Marc Rich during the recent past. ‘Demurrage’ is the sum payable at a stipulated rate per day for every day that a ship is detained beyond the lay days. To suggest that all charterers who used the same ports had incurred losses comparable with those sustained by Marc Rich would be absurd. At the very least the underwriter was entitled to suppose that if the premium rate and the excess were both accepted, he would not be subjected to inevitable loss. Marc Rich’s loss experience was peculiar to Marc Rich, and was not something of which an underwriter could have been aware unless it was disclosed. It was not. As Scrutton L.J. reminded underwriters over 70 years ago in the Greenhill case (supra) at page 85 –
“I have always understood the proper line that an underwriter should take, except in matters that he is bound to know, is absolutely to abstain from asking any questions, and leave the assured to fulfil his duty of good faith, and to make full disclosure of all material facts, without being asked.”
Nothing about Marc Rich’s loss experience was of common notoriety or knowledge, and there was nothing about it which an insurer in the ordinary course of his business, as such, ought to know. This means of visiting underwriters with a knowledge which they did not possess therefore fails.
According to Mr Kealey’s argument, Marc Rich’s experience at the named ports was not peculiar to them, but was shared by all other charterers using those ports. That experience was the natural consequence of the characteristics of the ports. An underwriter would have been put on notice by the very nature of the contract that the ports had ordinary attributes which would or might have impact on loading and discharge times at those ports. Marc Rich’s ships were subjected to those ordinary consequences. So Mr Kealey submitted that if it was very important for the
underwriter to know about them in writing or rating the risk, it was his duty to ask. After that it was a matter of applying the relevant features of the ASBA 2 Form to those attributes. A demurrage experience is the result of the application of a charterparty to delay. A relevant feature of the charterparty was the exclusion from the running of laytime and demurrage of all matters outside charterers’ control. It is not useful to consider demurrage experience without relating the delays which caused demurrage to the terms of the charterparty under which the demurrage occurred. In the present case it was said that bad weather at Ain Sukhna and Sidi Kerir causes swell, which obstructed vessels loading and discharging at single buoy moorings. This sometimes caused closure and also led to congestion. Similar considerations applied at Kharg Island and Constanza.
Mr Kealey reminded the Court that Mr Overton said that he knew that there was a fundamental requirement to ask for the loss record; that was known to him at the time when the insurance of the risk was proposed; he knew that he should ask; and he knew that if the loss record was not produced by the broker, he must ask for it. The underwriter was on notice that Marc Rich would be subjected to delay experience, and he was also on notice of the ASBA 2 Form. It is true that he was not on notice of the monetary consequences under previous charterparties that Marc Rich had suffered. If the losses had been special, there would have been an obligation to disclose them. But there was no evidence that Marc Rich’s delay experience at these ports was special.
Mr Kealey argued that information as to a circumstance is waived by the insurer if the insurer is on inquiry by the disclosure to him, or by his own knowledge, of facts which would raise in the mind of a reasonable insurer at least the suspicion that such information exists which would or might vitiate the presentation made to him, and does not ask. For this Mr Kealey relied on the a passage from C.T.I. v Oceanus [l984] 1 Lloyd’s Rep. 476, where Parker L.J. said at page 512 –
“In order to establish waiver by implication from non-enquiry the insured must be put on enquiry by the disclosure of facts which would raise in the mind of a reasonable insurer at least a suspicion that there were other circumstances which would or might vitiate the presentation made to him.’
Mr Kealey also argued that in the case of information as to a circumstance which is integral to the insured risk, if the information is at least one of the most important items of information for the insurer to know in deciding whether or not or on what terms to write the insurance, and the insurer is not entitled to assume what that information is, and the insurer does not ask, the information is waived. In SAIL v Farex [l995] Lloyd’s Reins.L.R. 116 Gatehouse J. regarded the absence of any significant retention as a material matter that was not disclosed. At page 138 he concluded that –
“This matter is of great concern to the hypothetical prudent reinsurer … The reinsurer must discover whether there is or is not a significant retention on each risk he is asked to accept … Unless he is told, or is entitled to assume what the position is from the previous course of dealing, it is up to the reinsurer to ask … If he makes no enquiry, he must be taken to have waived disclosure.”
Marc Rich’s vessels were affected by the ordinary attributes of the ports in question, which affected all vessels trading to those ports in the same way. Marc Rich’s experience of those ports was the same as that of any other trader. It was the ordinary experience for those ports. It was not something within the private knowledge of Marc Rich and was not something which Marc Rich was required to disclose. Mr Kealey submitted that Gatehouse J.’s summary applies here, with the result that Mr Overton must be taken to have waived the non-disclosure of Marc Rich’s demurrage experience and claims record.
Mr Kealey also relied on that part of the decision in Pan Atlantic v Pine Top [l992] 1 Lloyd’s Rep. 102 whereby Waller J. held that the taking of the long form record including the years 1977-1979 to the underwriter in that case and having it available was a fair presentation or alternatively that there had been waiver. Mr Kealey relied on a passage in that judgment suggesting that a particular passage from the judgment of Parker L.J. in C.T.I. v Oceanus (supra) should be read in its context.
The circumstances in SAIL v Farex (supra) and in Pan Atlantic v Pine Top (supra) were correctly recognised by the judge in this case as very different from those with which he had to deal. As the judge pointed out in SAIL v Farex (supra) by virtue of the previous history the assumption of the underwriter in that case where no retention was mentioned would have been that there was no retention. In the instant case there is nothing on which it could be suggested that the underwriter would assume demurrage experience of the kind undisclosed.
In Pan Atlantic v Pine Top (supra) it was the renewal of a reinsurance which the underwriter had in fact renewed himself the year before. If he was going to totally re-rate for the purpose of quoting a premium, he needed the full history including the earlier years. If he were simply going to adopt the previous rate, albeit that would be negligent underwriting, he might not want to bother to look at the full history. So a fair presentation for re-rating purposes was available but the underwriter chose not to re-rate. Again that is quite different from the circumstances of this case where the underwriter is being shown a risk for the first time and has no idea that there is a history of losses due to demurrage liability.
Because by definition material facts are such as would influence the judgment of a prudent underwriter, it follows that they must be disclosed, unless disclosure is excused, or waiver has occurred. In C.T.I. v Oceanus (supra) Parker L.J. said at page 511 –
“In Harrower v Hutchinson (l870) L.R. 5 Q.B. 584 and in Greenhill v Federal Insurance Co Ltd …. [l927] 1 K.B. 65 it was made clear that there could be no waiver merely because the insurer was aware of the possibility of the existence of other material circumstances. If this were to be permitted the duty of disclosure would be emasculated to the point of extinction and waiver would become an instrument of fraud. In the present case, for example, it was submitted before the Judge and accepted by him that the insurer had waived disclosure of earlier experience merely because he was aware that there had been such experience and asked no questions about it. I cannot accept this. As the Judge stressed, regard must be had to commercial realities. Thus it is permissible for the assured to present a summary of previous experience. So long as this summary is fair, the insurer cannot complain that the full details of the experience were not disclosed. He must however be entitled to assume that the summary is fair. From this it follows that, if he then proceeds to negotiate on the basis of the summary without enquiry as to its accuracy, he waives nothing. He can assume both that it is accurate as far as it goes and that, if it covers only part of the past experience, there is nothing in the part omitted which would vitiate the summary.”
There followed the passage from Parker L.J.’s judgment that I have reproduced earlier. An insurer cannot waive a class of information that he does not know exists. That requires a fair presentation of the risk. It is obvious that a presentation cannot be fair if unusual facts are not disclosed. The insurer is entitled to assume the fairness of the presentation. Without it he cannot sensibly be said to refrain from asking questions. He must be on notice of the existence of information before he can be said to waive it.
The facts in this case speak for themselves. In both endorsements the terms written were (a) a premium of $2,500 per voyage, whereas over the past 6 months the average demurrage liability per voyage incurred by Marc Rich was a little over $100,000, and during that time the total demurrage paid or incurred by Marc Rich was $2.9 million, and (b) an excess of three days, whereas on Marc Rich’s most recent voyages out of Kharg Island an average demurrage of 8.91 days was incurred. None of this was disclosed to underwriters despite the fact that Mr Gibson knew the relevance of the loss record to the assessment of the terms and rates of insurance. He simply decided not to disclose anything about the loss experience or other material facts unless he was asked questions. But as Stephenson L.J. said in C.T.I v Oceanus ibid. at page 529 –
“…it is for the insured to give the underwriter the material; it is not for the underwriter to ask for it.”
In my judgment a presentation cannot be fair if there is silence as to material losses, as there was here. Since Mr Gibson kept his broker in ignorance, he ensured that the resulting presentation was wholly unfair.
At page 444 the judge said –
“…I am bound by C.T.I. v Oceanus to enquire, before any question of waiver arises, whether there was a fair presentation. I cannot conclude that there was in this case. I cannot, moreover, be oblivious to the criticism in that case of the trial judge who had frequently proceeded on the basis that the underwriter ‘only had to ask’ and had, by not doing so, waived the necessity for accurate placing information. This approach, in many ways similar to that of Mr Kealey in the present case, was emphatically rejected, see Kerr L.J. at page 498. I conclude, therefore, that there was no waiver of the requirement to disclose fairly Marc Rich’s experience of demurrage losses.”
That conclusion is unassailable, and it concludes waiver as a ground of appeal.
For good measure Mr Saloman Q.C. for underwriters also submitted in writing (for we did not hear him orally) –
(a) That nothing was disclosed to put the underwriter on inquiry;
(b) That demurrage is not to be equated with delay;
(c) That there was no finding that Marc Rich’s losses were not unusual;
(d) That an insured’s loss experience is always special to the insured;
(e) That the underwriter was put off enquiry by Marc Rich’s proposal of a premium of $2,500 and an excess of 3 days;
(f) That nothing which the underwriter did or omitted to do indicated unequivocally a readiness to dispense with any particular information.
I regard these submissions too as affording well-founded reasons for upholding the judge’s conclusion.
Mr Kealey submitted that the judge was right not to apply any presumption of actual inducement, because Mr Overton was imprudent as well as negligent. There is no challenge to the judge’s findings about what he did and thought, about his incompetence as an underwriter, or about his general lack of credibility. The challenge is to the effect on his mind of the undisclosed material. The judge’s conclusion about that is a matter of inference with which this Court should be more inclined to interfere than if it were a finding of primary fact. Mr Overton knew that he was insuring delay and that he knew nothing about the charterparty, though he accepted that it was vital. He also knew that before writing extensions to the existing cover it was essential to get Marc Rich’s claims experience, and that he should have asked for it. Mr Overton asserted that if he had been shown the loss record he would either have asked if the losses were covered or he would have consulted Mr Portman. Mr Kealey submitted that Mr Overton was a reckless underwriter because he knew that he should ask for the loss record and yet did not do so, even though he knew that Marc Rich were likely to have a claims experience at the relevant ports. Since he ignored all the fundamentals of the risk, it would be dangerous to attribute common sense to Mr Overton as an underwriter.
I have set out above his relevant evidence and the relevant part of what the judge said about him. Mr Kealey submitted that there was no indication that Mr Overton did anything about understanding the risk which he was writing or about learning how he should rate it. He was unreliable, unsatisfactory and evasive. Neither could his first statement be relied on, nor could his understanding of the risk be accepted. In those circumstances, Mr Kealey contended, no inference could fairly be drawn that if Marc Rich’s claims experience had been disclosed to him, Mr Overton would have read it, understood it or reacted to it. The burden of proof which lay upon the underwriters was therefore not satisfied.
When approaching the question of inducement, the judge had the evidence of Mr Portman as well as that of Mr Overton himself; and the evidence of the expert underwriters was that the losses were not only serious but were on such a scale as would have rendered the risk uninsurable. The judge reached the unchallenged finding that “neither Mr Hunter-Blair nor Mr Overton thought that the endorsement contemplated any major extension of the risk.” It is obvious that Marc Rich’s massive loss experience would have completely abrogated that assumption. The judge’s conclusion at page 441 was therefore wholly supported that if Mr Overton –
“….had been shown or told that Marc Rich had a substantial record or experience of previously incurred demurrage, he would either have sought to confirm that that was no part of the cover or, at least, would have decided to discuss the matter with Mr Portman who would himself have checked it was nothing to do with the risk. In either event the risk would not have been written on the terms it was.”
I see no warrant for interfering with that conclusion. No doubt there are good grounds for supposing that Mr Overton would have been unlikely to pay any attention to information about the causes of delay. But it is in my judgment probable, if not certain, that he would have reacted in the manner that the judge suggested to information which showed that, if the business was written on the terms proposed, substantial losses would inevitably be incurred not merely by Marc Rich but also by underwriters.
It follows that Marc Rich’s grounds all fail, and I would dismiss the appeal.
LORD JUSTICE HUTCHISON:
For the reasons given by Leggatt L.J. I agree that the appeal should be dismissed.
LORD JUSTICE WALLER: I agree.
ORDER: Appeal dismissed with costs.