Steven Wise, Partner, Smyth & Co in association with RPC
As members rush to be considered for "test drives" of latest car models (Law Society Circular 15-696(MS) dated 31 August 2015 – "Car Enthusiasts Wanted for Test Drives") one can dream of what other members' benefits may follow. Might members be invited to "test sail" a superyacht? If so, insurance cover comes to mind.
In Involnert Management Inc. v Aprilgrange Ltd & Ors  EWHC 2225 (Comm), the English Commercial Court held that the underwriter was entitled to avoid an insurance policy for a superyacht on the basis of the insured's material non-disclosure. The superyacht had been insured with a new underwriter for a sum based on her purchase price some four years earlier.
The insured owner had inadvertently failed to disclose to the underwriter that: (i) prior to taking out insurance, the insured's representatives had obtained a valuation certificate that valued the superyacht at a figure nearer half of the insured value; (ii) the superyacht had been marketed for sale by the insured's representatives for a figure nearer half of the insured value.
Both facts were held to be material and their non-disclosure entitled the underwriter to avoid the policy (pursuant to s. 18 of the Marine Insurance Act 1906). They were material facts because of the significant difference between, on the one hand, the market value (and the owner's asking price for sale) of the superyacht and, on the other hand, her insured value.
Had the case been decided in Hong Kong according to Hong Kong law the outcome would have been much the same given that s. 18 of the Marine Insurance Ordinance (Cap. 329) is based on s. 18 of the UK Act; the related case law in both jurisdictions is also much the same.
Interestingly, as the court observed, once the UK Insurance Act 2015 comes into effect in August 2016, in the absence of a fraudulent or reckless non-disclosure by an insured, an English court will be able to consider what an insurer would have done in the circumstances if a "fair presentation" of the risk had been given by an insured. If an English court considers that an insurer would have issued the insurance policy on different terms then, under the Insurance Act 2015, the court will be able to rewrite the policy on the basis of those terms (and allow for "proportionate remedies"). In this case, the court considered that had the insured's representatives disclosed the valuation certificate and the asking price for sale the underwriter would have agreed an insurance policy with cover in line with the market value. However, the Insurance Act 2015 is not yet in force in the UK; therefore, the underwriter had a complete avoidance defence.
Once the Insurance Act 2015 comes into force in the UK in August 2016, other jurisdictions such as Hong Kong with laws still based on the 1906 Act will no doubt watch with interest to see how the new laws and remedies work in practice.