Marine insurance—credit risks—duty of disclosure—effect of non-avoidance clause—misrepresentation—affirmation—estoppel by convention

The assured was a bank (ABN Amro Bank) that was insured under a marine policy placed with 14 subscribing underwriters led by Royal & Sun Alliance Insurance Plc for the period 1 February 2016 to 21 January 2017. Two of the customers of the assured defaulted a series of “repo” financing deals over cacao and cacao products. Senior executives of both of these companies were convicted and imprisoned in the US for fraud. These companies ultimately became insolvent and the goods held by way of security by the assured proved to be substandard and of little resale value. The assured sought to recover its losses under the marine insurance contract, which contained a bespoke clause (the Transaction Premium Clause (TPC)) stipulating that cover was available for amounts “that the Insured would otherwise have received and/or earned in the absence of a default by a customer”. The policy also included a non-avoidance clause (NAC), under which the policy could be avoided and claims could be refused only for fraud. The underwriters denied liability under the policy.

It was held at first instance that most of the underwriters were liable under the policy on true construction of the TPC; and various defences raised by most underwriters were rejected. However, the claim of the assured against two underwriters (Ark and Advent) failed and on that basis it was held that the broker (Edge) was liable to the assured in respect of the indemnity the assured would have received from Ark and Advent under the policy. The insurers appealed against the finding that the TPC provided cover for credit risks and/or financial defaults regardless of there being any physical loss or damage to the insured cargo. The broker also appealed against the Court’s finding that the assured was estopped by convention from relying on the TPC against Ark and Advent due to a misrepresentation by Edge to those two insurers on renewal that the renewal Policy was “as expiry”.

Decision: The Court would have dismissed the insurers’ appeal on construction of the policy, had the appeal not been settled before the judgment was handed down. However,