Non-disclosure of valuation – Case: Involnert v Aprilgrange

source:  

The Claimant in Involnert v Aprilgrange was the owner of the motor yacht Galatea. In May 2011, insurers insured the yacht for 12 months with an aggregate agreed value of €13 million.

In the early hours of 3 December 2011, the yacht suffered significant damage as a result of a fire on board whilst at her home marina in Athens. The Claimant claimed for a Constructive Total Loss.

The insurers disputed liability under the policy and litigation was commenced against them. During the course of the litigation it emerged that (unknown to the insurers at placement) the Claimant had (a) received a formal valuation in late 2009 that the yacht was worth €7m (net of VAT), (b) been advised in March 2011 that, in the context of a decision to market the yacht for sale, the yacht should not be marketed for more than €8.5m and told to be content to receive €7m net on a sale, and (c) been marketing the yacht for sale for €8m when the policy was concluded.

The insurers considered that these were material facts which should have been disclosed at placement and purported to avoid the policy on that basis. The Claimant admitted the non-disclosures but disputed the validity of the purported avoidance on the basis that, it was said, the facts were not material and did not induce the actual underwriter to agree the policy.

The decision

The Judge held that the 2009 valuation, the March 2011 email and the fact that the yacht was being marketed with an asking price of €8m were all material facts, in the sense of being facts or circumstances which a prudent yacht underwriter would wish to take into account when deciding whether to offer cover for a yacht on the basis of an agreed value of €13m, and should have been disclosed to the insurers.

The Judge also found that the underwriter had been induced by the non-disclosures as he would not have agreed to insure the yacht for €13m if full disclosure had been given. He accordingly upheld insurers’ avoidance of the policy and dismissed the claim.

How the case might have been decided under the Insurance Act 2015

As the Judge himself noted, the outcome of this case on the non-disclosure issue (other defences were raised) would have been different under the new Act. The new Act will introduce a system of proportionate remedies in respect of non-disclosure. Under the new system, given that the non-disclosures in this case were neither deliberate nor reckless, the court would be required to consider what the actual underwriter would have done if a fair presentation had been given. If the underwriter would have agreed a policy on different terms, the law will re-write the contract to reflect those terms and impose that contract on the parties.

The Judge held that if the relevant material information had been disclosed in this case, the insurers would have agreed a policy with an aggregate agreed value of €8m. Although the clauses on which the policy was written contain a provision by which the policy will be void in the event of pre-contract “concealment” (which the Judge held would include an innocent or negligent non-disclosure), that clause would probably be viewed as a “disadvantageous term” under the Act and so would be of no effect in the absence of effective contracting out.

Article authors: Joe O’KeeffeRichard Hugg

Recent Posts
superyacht conferenceentrepreneur of the year