The assured had made two previous claims under its marine hull insurance policy in respect of "Toisa Pisces": for its starboard engine failure in 2004, resulting in an off-hire period of 10 days; and for vibrations in its port engine in 2005.
When the assured obtained loss of hire insurance in 2008, the broker acting on its behalf informed the insurer that the vessel had an excellent hull record and no major business interruption. One hull claim was notified, although no details of any significant off-hire period were given.
The vessel suffered a major breakdown in 2009 and insurers argued that they were able to avoid the loss of hire policy under the Marine Insurance Act 1906 due to the assured’s failure to disclose material circumstances in relation to the earlier claims that would have influenced insurers’ assessment of the risk and because the assured’s failure to thoroughly inspect the vessel following the earlier breakdowns meant a lack of reasonable care by the assured.
The court found for the assured on the basis that the failure to disclose the earlier claims, whilst not good broking practice, was immaterial.
In deciding whether the claims were material, the court considered:
- The extent to which they resulted in the loss of hire.
- The length of the loss of hire period, i.e. there was a 21-day excess period in the 2008 policy.
Further, the court held that "want of due diligence" by the assured meant a lack of reasonable care. The assured had carried out a proper investigation and a series of repairs following the earlier incidents and, accordingly, indemnity for the whole loss of hire period following the breakdown in 2009 could be claimed.
The decision illustrates the court’s commercial approach when considering the materiality of earlier damage claims in circumstances where there was a 21-day excess. In this case, the earlier breakdowns had been nearly four years before the inception of the loss of hire policy, there had been no claim, and the 10-day off-hire period was not material as it fell within the 21-day excess.
The failure of the assured to inform an insurer of its earlier claims will not necessarily entitle an insurer to avoid a policy of insurance and an attempt to avoid may fall at the first hurdle if the undisclosed circumstances are held to be not material when viewed in their proper context.