Kyzuna Investments Ltd. v Ocean Marine Mutual Insurance Association (Europe) [2000] EWHC 206 (Comm) (01 March 2000)

HTML VERSION OF JUDGMENT ____________________ Crown Copyright © Mr Justice Thomas: There is before the Court the trial of a preliminary issue as to whether a policy of marine insurance effected on the yacht Solveig in 1996 and renewed in 1997 is a valued or unvalued policy. Background In March 1996 the Claimants acquired the yacht for £50,000. Some time before June 1996 they approached K. C. Powell and Partners Limited (Powell), insurance agents at Leigh-on-Sea, for insurance on the yacht. They initially sought insurance for £70,000. The request was referred by Powell to Armada Insurance, the Managing Agents of the Defendants. Armada required a survey and valuation prior to cover; the Claimants instructed Geoffrey Minshull, a Lloyd’s approved surveyor in Majorca to conduct the survey. In his survey report dated 1June 1996 he described the yacht as a Motor sailer/Gaff Ketch rig which had been built in Fife in 1923; she was teak planked on oak frames with a laid teak deck and powered by a General Motors diesel engine. He described her as remaining in fine condition and imposing to view, being built on Scottish fishing vessel lines with heavy scantlings and of a type rarely seen. The report concluded: Solveig, considering her age of 73 years is in exceptionally good condition. Her robust construction together with careful maintenance and continuous updating have produced a classic vessel which from an insurance point of view can be rated as acceptable. Valuation, always a speculative business on a vessel of this type which would appeal to a specialist market only. Nevertheless, taking into consideration her style and exceptional condition together with all updated on-board equipment, it would be fair to state a value in the region of £100,000 (One hundred thousand pounds sterling) as a guideline. On 14 June 1996 the Claimants completed a proposal form; the relevant section was as follows: ITEM VALUE TO BE INSURED Hull and Equipment (excluding those items below) £80,000.00 Navigational Equipment £20,000.00 Tender Dinghy (Note: Dinghies must be permanently £ 6,500.00 marked with the name of the yacht) ... ..... Personal Effects (if any)(Maximum value £200 any one item unless otherwise agreed) TOTAL £106,500.00” The copy of Geoffrey Minshull’s survey report was enclosed. The proposal was accepted and a policy was issued by Powell on behalf of the Defendants. The policy comprised a schedule/certificate with attached conditions; it covered the yacht from 19 June 1996 to 18 June 1997; it was renewed from 19 June 1997 to 18 June 1998. It will be necessary to refer to the terms of the policy in more detail in due course. On 13 June 1998, the Claimants contend a fire broke out on the vessel whilst she was on a voyage from Port of Figura Da Foz, Portugal to La Corunna, Spain. Despite the attempts of the crew to put out the fire, it took hold and the vessel sank; the crew were rescued by the Portuguese Navy. A claim was made against the Defendant underwriters who declined to pay. On 4 May 1999 the Claimants issued proceedings claiming £100,000 as the agreed value of the vessel on the basis that the vessel had been lost by the peril of fire. In their defence, underwriters contended: (1) The policy had been procured by misrepresentation: (a) The value of the vessel on 14 June 1996 was no more than £80,000. (b) Contrary to the representation in the policy that spare fuel would be stored on deck in 45 gallon drums with quick release straps, petrol was stored in plastic jerry cans in the aft locker. (2) There was non disclosure of the fact that camping gas cylinders, paint thinners and similar items were stored on the vessel. For those reasons, the Defendant underwriters avoided their liability under the policy. Although they made no admissions as to the circumstances in which the vessel was lost or whether a fire had taken place, they made no positive case as to the circumstances of the loss. They also pleaded that the Claimants were not entitled to recover more in respect of the vessel than its value at the time of the loss. In answer to a question, I was told that their expert evidence is that the value of the vessel at the time of the loss was between £65,000 and £75,000. At a Case Management Conference on the 5 November 1999, the trial of the preliminary issue to which I have referred was ordered. In the circumstances as they appeared before me with the information about the Defendant underwriters' case on the value of the yacht, the only advantage that my determination of the preliminary issue will provide, if the Claimants are otherwise entitled to recover, is the difference of £25 - 35,000 between the agreed value and the Defendant underwriters’ valuation at the time of the loss and the possible saving of the hearing of short expert evidence as to value at the time of the loss. A full trial will remain necessary because of the defences which I have set out. Against that background I turn to the preliminary issue. The policy As I have already stated, the policy comprised a schedule/certificate and policy conditions. The schedule/certificate set out the name of the assured, the period of insurance and the name and type of vessel. It then provided: Sum Insured Hull, machinery, gear, equipment, etc £100,000.00 Dinghy and/or Boat… Flatacraft £ 6,500.00 Outboard motor £................ Personal effects (excluding jewellery and furs) £................ Trailer/Trolley £................ Total Sum Insured £106,500.00 It also contained a warranty that all recommendations made in the survey report of 1 June 1996 had been carried out. The applicable policy conditions were as follows: There was first general insuring wording which provided as follows: The policy schedule conditions and endorsements shall be read together as one contract and any word or expression in which a specific meaning has been attached in any part shall bear the same meaning wherever it appears. The Proposal and Declaration made to the Company named in the schedule by the policy holder in connection with this insurance shall be the basis and form part of this contract. The policy holder having paid to the Company the premium shown in the schedule for the period of the insurance indicated in the schedule and any other period for which it is mutually agreed to continue the policy in force the Company will, subject to the conditions, exclusions, limitations, definitions and warranties contained herein or endorsed hereon, indemnify the insured under those sections of the policy specified as operative against the risks of accidental loss and/or damage to the insured vessel her machinery tackle boats and other fittings and equipment including Legal Liabilities to Third Parties up to the amounts and/or limits contained herein. There then followed general conditions. The material conditions were as follows: DEFINITION OF ACTUAL AND CONSTRUCTIVE TOTAL LOSS (a)... (b) A constructive total loss under this policy arises where the insured property as defined in (a) is reasonably abandoned on account of its actual total loss as defined in (a) appearing to be unavoidable or where it could not be preserved from such actual total loss without an expenditure which, if incurred, would exceed the sum appearing in the schedule hereto as the value of the insured property. In ascertaining whether the vessel is a constructive total loss the insured value shall be taken as the repaired value and nothing in respect of the damaged or break up value of the vessel or wreck shall be taken into account. SPECIAL EQUIPMENT CLAUSE The sum insured hereon includes an amount in the policy schedule in respect of Special Equipment but such Special Equipment shall only be deemed to be insured for loss or damage as defined in the Hull and Materials section of the policy and consequent upon such loss or damage occurring in the vessel itself. Mechanical and Electrical Derangement and rust, oxidisation and discolouration are specifically excluded. The Institute Yacht Clauses 1/11/85 also formed part of the policy. Two of the clauses were relevant: 16. UNREPAIRED DAMAGE 16.1 The measure of indemnity in respect of claims for unrepaired damage shall be the reasonable depreciation in the market value of the vessel at the time this insurance terminates arising from such unrepaired damage, but not exceeding the reasonable cost of repairs. …….. 16.3 The Underwriters shall not be liable in respect of unrepaired damage for more than the insured value at the time this insurance terminates. 17. CONSTRUCTIVE TOTAL LOSS …….. 17.2 No claim for constructive total loss based upon the cost of recovery and/or repair of the vessel shall be recoverable hereunder unless such cost would exceed the insured value. In making this determination, only the cost relating to a single accident or sequence of damages arising from the same accident shall be taken into account.” There were other sections to the policy but they were either not made applicable or contained nothing of relevance. The applicable principles of law The applicable principles of law were not in dispute and can be shortly summarised. (1) Section 27(2) of the Marine Insurance Act 1906 defines a valued policy as: A valued policy is a policy which specifies the agreed value of the subject matter insured. (2) At the time the common law was codified by the Act, the common form of Marine Policy (the S. G. Form set out schedule 1 to the Act) contained the following provision on value: The said ship, etc., goods and merchandises, etc., for so much as concerns the assured, by agreement between the assured and the assurers in this policy, are and shall be valued at ... The editors of the 16th edition of Arnould on Marine Insurance (1981) commented that that clause was also usually contained in every form of Marine Policy in use in the UK. The current form of Marine Policy now in general use (MAR91) and which came into general use with the revision to the policy form and Institute Clauses in the early 1980’s contains a schedule where the name of the insured, vessel and subject matter are to be set out; this also sets out a space for “agreed value (if any)” and “amount insured hereunder”. Thus the standard forms of marine policy allow for agreement as to value by making specific reference to the value as an agreed value in accordance with Section 27(2) of the Marine Insurance Act. (3) It is clear from a number of cases that the words “agreed value” need not be used; for example it appears to have been common to use the term “valued at” on a slip. In Wilson v Nelson (1864) Q. B. N. S. 220 a policy on the S. G. Form contained after the words “are and shall be valued at” the words “as under”. The policy then concluded with the words “£1300 on freight”. The Court held that it was not a valued policy; the sum of £1300 was no more than the sum insured. Blackburn J said: And in all the policies I have ever seen, I think I may say that the invariable practice is, when it is intended that the policy shall be valued, after stating that the sum insured and the thing insured, to add “valued at the same” or at so much adding the same or a greater sum. It is not essential that the words “valued at” are used, provided the intention of the parties is clear that there is a specified agreed value, proposed by the assured and accepted by the underwriter. I agree with the view expressed in a footnote to paragraph 424 of Arnould which states: Yet if the intention of the parties is clear the policy will be regarded as valued notwithstanding that the words “valued at” are not used. The editors cite as authority for that proposition the decision of Wright J in Loders & Nucoline Ltd v the Bank of New Zealand (1929) 33 Lloyd’s Rep 70; but there is nothing, in my view, in that case which supports the proposition. However the proposition must, self evidently, be right. (4) The use of the term “sum insured” will normally indicate the amount for which the subject matter is insured and not as specifying the agreed value. There are a number of authorities that make this clear. The judgments in Wilson v Nelson draw a careful distinction between the sum insured and what is required if there is to be a valued policy. In British Traders Insurance Company v Monson (1964) 111C. L. R. 86 the High Court of Australia had to consider a policy which contained insuring words that stated: The liability of the company shall in no case exceed in respect of each item the sum expressed in the said schedule to be insured thereon or in the whole the total sum insured hereby. The Schedule “THE PROPERTY INSURED SUM INSURED as per schedule attached hereto and incorporated herein £5,318 Total Sum insured £5,318” The High Court stated that a somewhat faint attempt had been made to suggest the policy should be construed as a valued policy; they held it was not. In contrast in Elcock v Thomson [1949] 2KB 755, the policy after setting out the “sum insured”, went on specifically to provide that this sum was accepted by the underwriters and the assured as being the true value of the property insured. The current leading text books, to which I was referred, all refer to the use of the term “sum insured” as being the maximum amount insured under the policy or the ceiling on recovery. For example in Dr Malcolm Clarke’s The Law of Insurance Contracts (1999 edition), he refers at paragraph 28 -7 to the “sum insured” as being a ceiling on recovery which does not make the policy a valued policy. Professor Merkin in the 7th edition of Colinvaux’s Law of Insurance (1997) refers at paragraph 1-15 to the sum insured as the amount at which the insurers’ liability is limited. Professor Rhidian Thomas in his “The Modern Law of Marine Insurance” (1996) draws the distinction between the use of the term the “sum insured” as a ceiling to the liability of underwriters and the agreement to a valued policy. I was also referred to the decisions in Blascheck v Bussell (1916) 33 TLR 74 and Re Freesman and Royal Insurance Co. of Canada (1986) 29 DLR (4th) 621 where the courts took the view that the sum stated in the policy was the sum insured and not an agreed value. (5) It is common for a policy of marine insurance to be a valued policy. There are at least two principal reasons why such policies are used: Agreement on valuation avoids disputes over valuation in the event of loss (see Barker v Janson (1868) LR 3 CP 303 and, in particular, the judgment of Montague Smith J at p.307). Although under s 27(4), an agreed value is not conclusive for the purpose of determining whether there has been a constructive total loss, the Institute Clauses have provided for many years that the insured value is to be taken as the repaired value. In many cases, this has the effect of making it more difficult for there to be a constructive total loss. In General Shipping and Forwarding Co v British General Insurance Co (1923) 15 Lloyd’s Rep 175, Bailhache J set out some considerations why marine underwriters preferred agreed over-valuations of the hull. (6) In policies where (as in this policy) the proposal is made the basis of the policy, any terms in the proposal which conflict with the policy are overridden by the conflicting term in the policy. The law was summarised by Lord Wright is Izzard v Universal Cargo Insurance [1937] AC 773 at 780: No doubt the proposal conditions and the express conditions of the policy must be read together and, as far as may be, reconciled, so that every part of the contract may receive effect. But if there is a final and direct inconsistency, the positive and express terms of the policy must prevail. (7) As the wording was put forward by the defendant underwriters, any ambiguity should be resolved against them. The application of the principles to the policy The argument advanced by the Defendant underwriters was simple; they contended that the schedule to the policy was clear in that it used the term “sum insured” and when that was read with the general insuring wording, it was clear that this was not an agreed valued policy. The wording used was indistinguishable from that considered by the High Court of Australia in British Traders Insurance Company v Monson. Although the Claimants were prepared to concede that the term “sum insured” in the policy schedule would, in accordance with the authorities, normally point to the policy being an unvalued policy, they contended that reading the policy as a whole together with the proposal, this was a valued policy. They relied on the fact that the Defendant underwriters had asked for a valuation, the fact that the proposal form had specified sums to be given as “the value to be insured” and the fact that the specific provisions of the policy dealing with unrepaired damage and constructive total loss referred to the insured value. The most cogent part of the Claimants’ submission rested upon the reference in the definition of constructive total loss to “the sum appearing in the schedule hereto as the value of the insured property”. This was the part of the policy specifically drafted by the Defendant underwriters and thus it was to be expected that the reference in that clause must have been intended to be to a reference to an agreed value in the schedule. The same point was made (but with less force as the clause is part of a standard provision) by the similar reference to insured value in clauses 16.3 and 17.2 of the Institute Yacht Clauses. However the draftsman of the part of the policy specifically drafted by the Defendant underwriters referred in the definition of special equipment to “the sum insured” and not an insured value, despite the fact that this is also dealt with in the same part of the schedule. Moreover, the main insuring clause expressed the agreement of the underwriters to indemnify “up to the amounts and/or limits contained herein”. The words actually used in the schedule were “the sum insured”; far from meaning the value has been agreed, this ordinarily means that the sum is the ceiling on recovery. In my view the references in the Institute Clauses to an insured value are references in standard clauses applicable only if there is an agreed value. If no value is specified as agreed, the references in these clauses cannot assist. Nor in my view does the reference in the clause defining a constructive total loss. I do not consider that the reference in that clause to the insured value of the vessel, can, in the face of the terms of the general insuring clause and the special equipment clause, mean that the policy as a whole is to be read as a valued policy and the words in the schedule read as if they expressed an agreed value. In the face of those other provisions, I do not consider that the parties have made their intention clear that the sum in the schedule was an agreed value. Nor do I consider that the request of underwriters for a valuation assists the Claimants. It is common for underwriters to insist on a valuation; for example it is very common in the case of insurance on works of art or valuables such as jewellery. This was an unusual vessel and underwriters wanted some independent valuation before considering insuring her. They were not thereby indicating they were prepared to agree to a valued policy. Although the proposal contained the words “value to be insured”, this was not an indication that the value so stated would be agreed as the insured value by underwriters. It is again common in proposal forms to ask for the value to be insured so that the total sum insured can be calculated. In my view the proposal form did no more than this. Thus, if the whole of the clauses are read together and the proposal form considered, there is, in my view, nothing that points to the intention of the parties that the sums stated in the schedule were to be the agreed value of the yacht and her equipment. The words “sum insured” ordinarily indicate a ceiling on recovery in an unvalued policy; there is, in my view, nothing which displaces this ordinary meaning and the policy does not specify, in accordance with s.27(2) of the Marine Insurance Act 1906, the agreed value of the yacht. Conclusion I therefore answer the question posed in the preliminary issue by holding that the policy was an unvalued policy. BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII