As we wrote in the December 2012 edition of this column, the appeal in Hua Tyan Development Ltd v Zurich Insurance Co Ltd  HKEC 1278 was going to raise important issues regarding the construction of warranties in marine insurance policies. The Court of Appeal's (“CA”) judgment supports the principle that warranties in marine insurance policies should be strictly complied with; a breach should entitle the insurer to deny cover.
This suggests a stricter construction, compared to the more contextual construction evidenced by the lower court, and will be welcomed in the marine insurance market. The outcome reinforces a duty of disclosure by those insured.
In short, the insured took out marine cargo insurance issued by the insurer through a broker. The vessel's dead weight tonnage was less than that provided for in a warranty in the policy, although the identity of the vessel was not in doubt. The vessel sank and its cargo lost. The insurer denied cover.
At first instance the judge held that inter alia: (i) as a matter of contextual construction, cover should not be denied solely because the named vessel did not fulfill the warranty; and (ii) there had been no material non-disclosure by the insured, because the information concerning the vessel's weight should have been known to the insurer. The insurer appealed.
On both points the insurer succeeded.
First, unlike the judge's finding, the CA found that there was no inconsistency between cover and the warranty. Coverage was subject to the warranty. The CA did not consider that effect should be given to the parties' intention with respect to cover without reference to the warranty.
Second, there was no actual knowledge on the insurer's part. As for presumed knowledge, there had to be some basis to find that the insurer should have known about the vessel's dead weight; this was a fact sensitive matter in respect of which the judge had been wrong.
The judgments of the CA and the lower court ( 4 HKLRD 827, at paragraphs 75-107) are also interesting for the ultimate finding that the broker was liable to the insured for inter alia failing to effect a policy that met the requirements of the insured. At the time of writing, no application for permission to appeal appears to have been made.
- Gary Yin, Partner, Smyth & Co in association with RPC