High Court: Mr Justice Blair

Mr Peter MacDonald Eggers QC and Ms Nichola Warrender (instructed by Hill Dickinson LLP) for the Claimant

Mr Ravi Aswani and Mr Andrew Leung (instructed by Clyde & Co LLP) for the Defendant

Facts

The Owners of the NANCY sought an indemnity from their hull underwriters after a fire rendered their vessel a constructive total loss. The underwriters declined the claim and sought to avoid liability under the marine insurance policy arguing that:

  1. There was a misrepresentation or non-disclosure as to the true manager of the vessel.
  2. There was a non-disclosure in respect of port state control detentions.
  3. There was a non-disclosure in relation to a conflict of interest.
  4. There was a breach of an ISM warranty.
  5. That the claim was tainted by an illegality under US Iranian sanctions law arising from the issuance of US dollar freight invoices for a shipment of sulphur from Iran to China.

Judgment

Of the five defences put forward by the underwriters the following two are of the most interest:

Breach of ISM warranty

This was the first time that the ISM warranty, “vessels ISM compliant”, had been considered by the courts. The Owners argued that such a warranty only required documentary compliance and that compliance would be achieved if the vessel owning company held a valid Document of Compliance and the vessel itself held a valid Safety Management Certificate. The hull underwriters argued that the warranty required actual compliance with the ISM Code at the inception of the policy and throughout the period of the policy.

Mr Justice Blair agreed with Owners and held that the ISM warranty should be interpreted in the same manner as a class warranty and that documentary compliance was sufficient. Blair J found that the underwriters’ interpretation of the ISM warranty “would be difficult to apply, difficult to evaluate and would give rise to commercial uncertainty”.

Misrepresentation of PSC detentions

Also of interest was the underwriters’ argument that the Owners had failed to disclose the full PSC detention of the vessel over many years and that this amounted to material non-disclosure. The Owners argued that a vessel’s PSC detention history is available online from various sources and was therefore common knowledge or a matter which an underwriter ought to know in the ordinary course of his business and did not therefore need to be disclosed.

Blair J held that the underwriter had not been induced to agree the policy by reason of any non-disclosure by the Owners concerning the vessel’s PSC detention history. Blair J added, however, that the fact that information is available online to an underwriter may not necessarily give rise to a presumption of knowledge. It is also worth noting that Blair J also accepted the evidence of the Owners’ underwriting expert that a prudent insurer would only be concerned with recent PSC detentions, namely around 12-18 months before the inception of the policy and that any prior detentions would not be material and would therefore not need to be disclosed.

Blair J rejected the remaining arguments put forward by the underwriters and held that the Owners were entitled to succeed in their claim for an indemnity under the policy.

Whilst the decision does not establish the precise information an underwriter will be deemed to have known at the inception of a policy, it is a helpful demonstration to both underwriters and assureds as to the importance of obtaining quality expert evidence and brings the application of ISM warranties in line with those for class.