It is a well known principle of English insurance law that a policyholder is under a duty to disclose to its insurers all facts material to the insurer's assessment of a risk. Breach of the duty allows insurers to avoid the policy (so long as the insurer can prove that it was induced by the non-disclosure to enter into the insurance). In Garnat Trading & Shipping (Singapore) Pte Ltd v Baominh Insurance Corporation  EWCA 2578, the defendant marine insurers were unsuccessful in their attempts to defend an insurance claim for the total loss or constructive total loss of a floating dock on the basis of non-disclosure. A separate defence based on the alleged unseaworthiness of the floating dock also failed. Whilst the case turned on the particular factual and expert evidence, Mr Justice Clarke's judgment provides a useful reminder of principles of non-disclosure and illustrates how and why problems can arise.
Garnat Trading & Shipping (Singapore) Pte Ltd ("Garnat") owned a floating dock that was to be towed from Vladivostok to Cai Mep Port in Vietnam. Garnat was insured for the tow by a hull policy (apparently governed by English law) with Baominh Insurance Corporation ("Baominh"), a company based in Vietnam and specialising in marine insurance risks.
In April 2006, a repair and preparation programme commenced to ready the floating dock for the tow. The programme took place under the supervision of two class surveyors, the Russian Maritime Register of Shipping and the Global Marine Bureau ("GMB"). During the course of the programme a Towage Plan was prepared that included limitations as to the force of wind and height of wave that the floating dock was certified to withstand. Following the completion of the work, the floating dock sailed on 23 June 2006.
On 9 July 2006, the floating dock had a close encounter with a typhoon and experienced wind and waves well in excess of the limitations specified in the Towage Plan. However, the floating dock escaped without significant damage. Subsequently, on 13 July 2006, the floating dock was caught by a near direct hit from a tropical storm. Again, the wind and waves were well in excess of the limitations specified in the Towage Plan, and on this occasion the floating dock sank.
It was Baominh's case that Garnat had failed to disclose the section of the Towage Plan detailing the maximum permissible wind speed and wave height for the tow, and that these were material facts relied upon by Baominh in entering into the marine insurance contract. It was accepted by all parties and the Court that, pursuant to section 18(1) of the Marine Insurance Act 1906 ("MIA") non-disclosure is the failure to communicate a material fact (that is a fact relevant to a hypothetical prudent insurer when assessing the risk) within the knowledge of the insured which the insurer has not the means of knowing or is not presumed to know. Compliance with that duty requires a fair and accurate presentation of the risk, such that a prudent insurer is able to form proper judgment, and does not require minute disclosure of every material circumstance.
Following a detailed review of the evidence, Clarke J accepted Garnat's argument that the Towage Plan and the technical information contained therein had, in fact, been disclosed to Baominh and that there had been a fair presentation of the risk. Whether Baominh had paid any attention to the information, as was incumbent on them, was a different question.
As a result of that finding of fact, it was unnecessary for Clarke J to provide a detailed analysis of other arguments put forward by Garnat. However, his brief observations and findings on several of these points serve as a useful reminder of other non-disclosure issues:
- Pursuant to MIA section 18(3)(c), an insured is not required to disclose information waived by the insurer. Insurers that receive information that would prompt a reasonably careful insurer to make further inquiries and fail to do so waive disclosure of the material facts and matters that the further inquiry would have revealed. Baominh was put on inquiry as to the contents of the Towage Plan and failed to make any inquiry, thereby waiving the provision of material information, including wave height limitations, which it contained.
- Pursuant to MIA section 18(3)(d), absent inquiry, there is no duty to disclose facts that are superfluous by reason of an express or implied warranty covering the same ground. Here, there had been a warranty that the towage was subject to GMB's approval of the Towage Plan. That warranty was, in fact, deleted at a late stage as, Clarke J found, Baominh was satisfied that GMB's approval had been provided, thereby demonstrating that the disclosure of the information was superfluous.
- Even if there is non-disclosure of a material fact, an insurer must demonstrate that if disclosure had taken place, it would not have entered into the contract of insurance at all or at least not on the terms upon which it did enter into the contract (the requirement for an insurer to prove inducement). Clarke J found that the key issue was GMB's approval of the Towage Plan and, if that approval was provided (as it was), Baominh would have insured on the terms upon which it in fact insured. Disclosure of the wave height limitation would have made no difference.
Pursuant to MIA section 39(1) there was an implied warranty that the floating dock would be seaworthy for the purpose of the contemplated voyage and by section 39(4) a ship is deemed seaworthy if she is reasonably fit in all respects to encounter the ordinary perils of the voyage at the time of sailing on it. Baominh contended that the dock was unseaworthy at the time it sailed. There was no dispute as to the relevant legal principles and Clarke J set out several different considerations relevant to the question of seaworthiness in this context. Clarke J analysed the factual evidence in detail and was assisted by expert evidence, before concluding that the floating dock was, in all respects, seaworthy at the commencement of the voyage. Therefore, Baominh failed in its second defence.
Clarke J's judgment serves as a useful reminder of the importance of reviewing documents provided by policyholders as part of the proposal process, and of making relevant inquiries. A failure to make further inquiries once the insurer is on notice of matters raised in the placing information may result in an insurer being adjudged to have waived further disclosure of material information. The apparent lack of expertise of the underwriters at Baominh who had kept no written records of key meetings or discussions that took place (and were criticised by Clarke J) plainly did not aid Baominh's cause on this occasion.