Presentation of the Marine Insurance seminar - AKD

1. Marine Insurance seminar
28 November 2018
Chris Zavos and Patrick Foss
Norton Rose Fulbright LLP
Pieter den Haan, Robert Hoepel and Haco van der Houven van Oordt
AKD Transport & Energy

2. Norton Rose Fulbright LLP
Chris Zavos
chris.zavos@nortonrosefulbright.com
+44 (0)20 7444 2209
2
Patrick Foss
Patrick.foss@nortonrosefulbright.com
+44 (0)20 7444 2202

3. AKD Transport & Energy
Pieter den Haan
pdenhaan@akd.nl
+31 88 253 5420
Haco van der Houven van Oordt
hvanoordt@akd.nl
+31 88 253 5392
Robert Hoepel
rhoepel@akd.nl
+31 88 253 5311

4. Welcome
• Opening speech by Pieter den Haan
• English marine insurance – the new law
- Chris Zavos and Patrick Foss
• Marine Insurance – Some Dutch lessons
- Robert Hoepel
• Discussion
- Haco van der Houven van Oordt

5. 5

6. 6

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10. Program
• Opening speech by Pieter den Haan
• English marine insurance – the new law
- Chris Zavos and Patrick Foss
• Marine Insurance – Some Dutch lessons
- Robert Hoepel
• Discussion
- Haco van der Houven van Oordt

11. English marine insurance – the new law
Chris Zavos and Patrick Foss
Partners
Norton Rose Fulbright LLP
28 November 2018

12. Outline
12
• The new pre-contractual duty to
make a “fair presentation of the
risk” to insurers.
• The new remedies available to
insurers for a breach of this duty.
• Changes to the law relating to
breach of warranties and other
policy terms.
• The availability of damages for
late payment of claims by
insurers.
• The definition of fraudulent claims
following the Supreme Court
decision in the “DC Merwestone”
(2016).
• Clarification of the remedies
available to Insurers in respect of
a fraudulent claim.

13. Introduction
13
• Insurance Act 2015 replaces
large parts of the Marine
Insurance Act 1906
• Single biggest change to English
insurance law in 300 years
• Far reaching changes
• Applies to new risks or variations
post 12 August 2016
• More changes for new risks post
4 May 2017
• Many parts of the Act are
“optional” but limited contracting
out in the marine market
• As yet, no reported English Court
decisions

14. 1. Fair Presentation
14
The old law
• Duty on assured (and brokers) to
disclose:
– every material circumstance;
– which they knew/ought to know;
– prior to inception.
• Inducement - any material non-
disclosure or misrepresentation
must have induced the actual
underwriter to write the risk on the
terms he/she did
• Single remedy – avoidance
• Win or lose all remedy – “a blot
on English insurance law”.

15. 1. Fair Presentation
15
The new law
• Duty to make a fair presentation of the risk
• Clear and accessible disclosure of every material
circumstance known or which ought to be known
to the Insured; or
• Sufficient information to put Insurers on enquiry to
enable Insurers to ask questions
• Knowledge of the Insured
• Matters expected to be revealed by a
“reasonable search”
• Matters known to a corporate Insured’s senior
management
• Matters known to those responsible for arranging
the insurance (including Brokers)
• Exceptions
• Information known (or which ought to be known)
to the Underwriter
• Things which are common knowledge
• Things reasonably expected to be known to an
Insurer writing the class of business in question

16. 2. Remedies
16
Was Insured’s breach
deliberate or reckless?
Avoidance and no
return of premium
Would the Underwriter in
question not have entered into
the contract on any terms?
Avoidance and
return of premium
Would different terms
(not relating to premium)
have been imposed?
Terms inserted with
retrospective effect
Would a higher premium
have been charged?
Claim reduced
proportionately
Yes
No
Yes
Yes
No
Yes
Yes/
No

17. 2. Remedies – removal of the “blot”
17
Was Insured’s breach
deliberate or reckless?
The Galatea
• Insured for €13 million
• Before cover was placed, valued at about €7
million and on sale at €8 million
• Insurers avoid on the basis that real value was
substantially less than the insured value
Claim failed and no indemnity
payable
Insurance would not have
been avoided
Insurers’ only remedy was
avoidance
but amended to reduce
insured value to €8 million,
with retrospective effect
old
law

18. 3. Warranties and Conditions
18
• The old law
• Breach of warranty
automatically terminates
insurer’s liability from date of
breach
• No possibility that a corrected
breach would save the insured
• Non-causative breach a
defence for an insurer
• As a result:
• judicial efforts to lessen the
injustice for insureds
• suspensive effect
• construed very narrowly against
Insurers

19. 3. Warranties and Conditions
19
• The new law under sect 10
• suspensive effect to warranties
i.e. breach can be remedied
prior to loss and the loss
recovered
• special provisions on late
compliance with time-sensitive
warranties:
remedied once "the risk to
which the warranty relates
later becomes essentially the
same as that originally
contemplated by the parties“
• Insurers may still rely on non-
causative breach, subject sect
11

20. 3. Warranties and conditions
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• The new law: section 11
 considers relevance of a breach and may operate
to save a claim, which would fail on the old law
 applies to warranties and other terms/conditions
(possibly exclusions)
 but not terms which “define the risk as a whole”
• If a term is breached regarding
prevention of loss
 of a particular kind
 at a particular location
 at a particular time
• then the insured may still recover if the
insured can demonstrate that
compliance with the term would not
have reduced the risk of loss of the type
which actually occurred
• Simple … relevance and not causation?

21. 3. Warranties and Conditions
21
Terms which “define the risk
as a whole”
• Terms defining the nature of the
business or geographical limits
• class?
• navigation limits?
• towage?
• sanctions clauses?
• condition surveys?

22. 4. Damages for Late Payment of Claims
22
The Old Law
• “Hold harmless” principle
• No “damages on damages”
• Sprung v Royal Insurance (UK)
Ltd [1999] 1 Lloyd’s Rep IR 111
The New Law
• Applies to all contracts of
(re)insurance written on or after 4
May 2017
• Implied term of every insurance
contract that Insurers
must pay any sums due in
respect of the claim within a
“reasonable time”

23. 4. Damages for Late Payment of Claims
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What is a “reasonable time”?
• Reasonable time to “investigate and
assess” the claim
• Depends on all relevant
circumstances:
– Type of insurance
– Size and complexity of the claim
– Compliance with any relevant statutory or
regulatory rules or guidance
– Factors outside Insurers’ control

24. 4. Damages for Late Payment of Claims
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Consequences of a Breach
• Insured may have a claim
for damages
• Insured would need to establish:
– Actual loss suffered
– Causation
– Loss was foreseeable (Hadley v
Baxendale [1854] 9 Ex 341)
– Reasonable steps taken to mitigate
the loss
Disputed Claims
• Reasonable grounds?
• Insurers’ conduct

25. 4. Damages for Late Payment of Claims
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Claims Handling for insurers
• Assume handling of a claim will be subject to forensic examination later
• Update Insured/Broker regularly
• Act on new information promptly
• Maintain clear records of progress of claim and decisions taken
• Regular reviews/peer reviews of claims
• Manage adjusters and lawyers proactively
• Consider interim payments on account where coverage is confirmed but
quantum remains in issue
• Ensure settlement agreements/releases are sufficiently broad

26. 4. Damages for Late Payment of Claims
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Issues/Uncertainties
• Exercise of claims control by
Reinsurers?
• Damages for late payment
recoverable under reinsurance?
• Layered programmes –
unreasonable delay by
primary layer?
• Subscription market –
conduct of leaders?

27. 5. Fraudulent Claims – what are they?
27
Definition
False representation made:
• in the knowledge that it is false; or
• without belief in its truth; or
• recklessly, careless as to whether
it is true or false
• Derry v Peek [1889]
Types of Fraudulent Claim
• Fabrication of entire claim
• Exaggeration of genuine claim
• “Fraudulent device”?
– Claim is genuine but the insured supplies
false information in support.

28. 5. Fraudulent Claims – what are they?
28
Versloot Dredging BV v HDI Gerling
Industrie Versicherung AG [2016]
UKSC 45
• Engine room flooding.
• Vessel managers alleged that the
bilge alarm had sounded.
• At first instance, this lie resulted in
forfeiture of entire claim.
• Decision upheld by Court of
Appeal.
• Supreme Court (4:1) held that the
use of a fraudulent device or
“collateral lie” to support a valid
claim did not render the claim
fraudulent.
• “The lie is dishonest, but the claim
is not”.

29. 6. Remedies for fraudulent claims
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• Old law position was uncertain
– Breach of duty of good faith?
– Common law rule of forfeiture?
• Remedies under the Insurance Act 2015
– No liability to pay the claim
– Recovery of sums previously paid in respect of the claim
– Insurers may treat the contract as terminated from the time of the fraudulent
act (no requirement to return premium)

30. 7. Brexit
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• Background
– Referendum 23 June 2016
– Article 50 invoked on 29 March 2017
– Transition period from 29 March 2019 – currently 21 months
– EU withdrawal agreement/political declaration.
• UK options
– Parliament approves deal
– Parliament rejects deal
– Revoke Article 50 – ECJ ruling
– Extend Article 50
– Further negotiations
– No deal
– Second referendum
• Impact on commercial and insurance contracts

32. Disclaimer
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and all of them are members of Norton Rose Fulbright Verein, a Swiss verein. Norton Rose Fulbright Verein helps coordinate the activities of the members but does not itself provide legal services to
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Fulbright entity/entities’). No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any Norton Rose Fulbright entity (whether or not such individual is
described as a ‘partner’) accepts or assumes responsibility, or has any liability, to any person in respect of this communication. Any reference to a partner or director is to a member, employee or
consultant with equivalent standing and qualifications of the relevant Norton Rose Fulbright entity.
The purpose of this communication is to provide general information of a legal nature. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose Fulbright
entity on the points of law discussed. You must take specific legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your usual
contact at Norton Rose Fulbright.
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33. Marine insurance – some Dutch lessons
Robert Hoepel
AKD Transport & Energy

34. Topics for today
1. Duty of disclosure (mededelingsplicht)
2. Late payment consequences
3. ‘Warranties’ (vervalbedingen, preventieve garanties)

35. Duty of disclosure (I)
Article 7:928 (1) CC:
“Prior to concluding the contract the policyholder must disclose to the insurer all facts
of which he is or ought to be aware and on which, as he knows or ought to
understand, the decision of the insurer whether, and if so, on what terms, the latter is
willing to conclude the insurance will or may depend.”
Article 7:928 (4) CC:
“The disclosure obligation does not extend to facts of which the insurer is already or
ought to be aware, or to facts which would not have resulted in a less favourable
decision for the policyholder. (…)”
35

36. Duty of disclosure (II)
Article 7:930 (2) CC:
“The agreed payment must be made in full, if any facts not or incorrectly disclosed
are immaterial for assessment of the risk as this materialized.”
Proportional reduction of payment by non-disclosure if the insurer would have
stipulated a higher premium or a reduced insured sum. If the insurer would have
stipulated other terms had he been aware of the true state of affair, then payment
will only be due as if such terms were included in the contract (article 7:930 (3) CC).
No payment will be due if the insurer would not have concluded an insurance had he
been aware of the true state of affairs (article 7:930 (4) CC).
36

37. Duty of disclosure (III)
No payment will be due if the insurer would not have concluded an insurance had he
been aware of the true state of affairs (article 7:930 (4) CC)
Supreme Court 5 October 2018, ECLI:NL:HR:2018:1841, (X/Delta Lloyd
Schadeverzekeringen NV)
37

38. Late payment consequences
 Legal interest
 Additional damages, losses and/or costs?
Amsterdam Court 4 July 2018, ECLI:NL:RBAMS:2018:4218 (Y c.s. / Delta
Lloyd)
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39. Warranties (I)
 Description of cover – ‘This insurance covers (…)’
 Exclusions – ‘This insurance does not cover (…)’ or ‘Excluded is any damage (…)’
 Warranties – ‘Breach of the obligations of the policy terminates insurers’ liability’
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40. Warranties (II)
Article 6:248 CC – principle of reasonableness and fairness
Supreme Court in Bicak / Aegon (NJ 2001/210)
Supreme Court in Winterthur / Jansen (Valschermzweeftoestel) (NJ 2006/326)
Court of Appeal in CHARLOTTE (S&S 2012/117) (see also S&S 2013/120 for the
Supreme Court ruling)
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41. Warranties (III)
Passage Gulf of Aden
“This insurance does only cover a Gulf of Aden passage if the vessel is sailing in
convoy.”
Or:
“Warranted that the vessel will only pass the Gulf of Aden in convoy.”
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42. Discussion

43. Thank you for attending