Fair presentation under the Insurance Act 2015: Cometsambre

Summary

A business insured is required to make a fair presentation of the risk to insurers before the contract of insurance is entered into (s.3 of the Insurance Act 2015 (IA2015)).

In Cometsambre SA v Lloyd’s Insurance Company SA HIG 5321 the court decided that the insured scrap metal dealer had breached its duty of fair presentation by failing to disclose fires in its cargoes before renewal of a Charterers' Liability policy. Insurers were therefore entitled to avoid the policy subject to tendering a return of the premium. A prudent underwriter would have wanted to know about the fires.

Background

The dispute related to cover for Cometsambre under a Charterers' Liability policy (the Policy) in respect of its liability and associated legal costs following a 2022 cargo fire. This fire gave rise to a substantial charterparty claim brought against Cometsambre.

Under the Policy, Insurers (Syndicate 1221, formerly known as 'Navigators') underwrote - through a local coverholder (AMICA) - Cometsambre’s potential liability as charterers of vessels to carry cargoes of scrap metal.

When Cometsambre had first sought cover via AMICA (albeit with different underwriters) in 2008, the initial risk presentation had indicated that Cometsambre's cargoes would be non-oily, non-dangerous, and would exclude oily scrap, borings and turnings. Cometsambre referenced applicable industry standards – the ISRI specifications and the IMSBC Code - when identifying the types of cargoes. From 2010 until 2022 the Policy was underwritten by Insurers and renewed annually on almost identical terms, with little documentation being exchanged or requested.

In 2020 and 2021 there were five fires involving Cometsambre's scrap metal shipments, either on the quayside or when loaded onto vessels. These were not disclosed to AMICA.

Fair presentation

A business insured must make a fair presentation of the risk to insurers before the contract of insurance is entered into (s.3 of IA2015)). This means disclosing all material circumstances which the insured knows, or ought to know.

Here, the court found that Insurers had been entitled to avoid the Policy as a result of Cometambre’s failure to disclose the 2020-21 fires before the 2022 renewal.

As we observed in our analysis of the relevant principles and recent case law relating to fair presentation in “An insured’s duty of fair presentation”, materiality is key to the duty of fair presentation. Under s.7(3) of IA2015, materiality is judged by whether it would “influence the judgement of a prudent insurer”. Cometsambre had admitted non-disclosure, but sought to argue that the fires were not material. This was rejected; based on expert evidence as to how the original presentation would have influenced a prudent underwriter, the court found that Insurers would have been expecting a low risk of fire, and a change to that should have been disclosed. The cargo description in the original 2008 presentation was of “non-oily /non-radioactive /non-dangerous”. References to the applicable industry standards indicated (i) that Cometsambre was transporting category C scrap under the IMSBC code, meaning “non-combustible” with a “low fire risk”, and (ii) that by reference to the relevant ISRI specifications, both at the time of initial presentation of the risk and the 2022 renewal, all grades would be clean, meaning “free of dirt, nonferrous metals, or foreign material of any kind, and excessive rust and corrosion” (other than the accidental inclusion of negligible amounts). It was found to be “both credible and reasonable that the judgment of a prudent underwriter would be affected by knowledge of the fact and pattern of the fires experienced by Cometsambre”.

The court also rejected arguments that that Insurers should have known that here was some inherent fire risk in scrap cargoes and that this alleged general industry knowledge constituted “sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances.” (s. 3(4) IA2015).

Similarly, the argument that insurers should have made further enquiries if they wished to know of past fires was rejected. The court deemed this to be an attempt improperly to reverse the burden of ensuring a fair presentation of the risk. The fact that insurers only asked the insured to provide its claims history at inception, and did not issue a renewal questionnaire in subsequent years, was found not to amount to waiver of disclosure of material circumstances for the purposes of s.3(5)(e) IA2015. The court accepted factual evidence that the absence of any enquiries beyond the claims ratio on renewal did not meant that Insurers were “uninterested” in any instances of fire which had not given rise to a claim, and accepted expert evidence that AMICA was entitled to assume that Cometsambre's charterparties would remain materially the same as originally presented, and that it would be for Cometsambre to tell AMICA if the terms had materially changed.
The court preferred the evidence of Insurers’ underwriting expert, who had far greater experience of writing charterparty cover and gave his evidence “with conviction and confidence”. Noting the need for caution in relation to factual evidence, citing previous judicial warnings about the risk that “insurers may engage in post-claim underwriting”, the court also accepted the relevant underwriter’s evidence that disclosure of the fires would have caused him to decline to renew. His evidence was that five fires in 18 months was “an accident waiting to happen” and would have clearly indicated a change in the risk profile, such that had they been disclosed he would not have been prepared to write the Policy at all.

Under s.8 IA2015, as the parties agreed that the breach was neither deliberate nor reckless, Insurers were entitled to avoid the contract and refuse all claims, but required to return the premiums paid.

Commentary

Questions of fair presentation, in particular the key questions of materiality and inducement, turn on the facts. In Cometsambre, the court was heavily influenced by expert and factual evidence as to what a prudent underwriter, and the actual underwriter, would have expected of the risk profile based on the information supplied at the initial presentation.

Although here the lack of a renewal questionnaire did not undermine Insurers’ position, underwriters should always consider carefully the extent, type and scope of information requested on renewal. It is a balancing act – too narrow a set of express questions might be taken as waiver of information outside their scope, but insurers who have not asked for any information at all over multiple renewals might equally be found, in different circumstances, to have waived their right to more information under s. 3 IA 2015. In a less stark instance of non-disclosure by an insured, where perhaps some limited information has been provided, there is also the risk that insurers could be found to have been on notice, so that they could/should have made further enquiries. Insurers should be alert to this, and always follow up on information that suggests a change to the risk profile.