Involnert Management Inc v Aprilgrange Ltd & Ors, Court of Appeal - Commercial Court, October 08, 2015, [2015] EWHC 2225 (Comm)

Resolution Date:October 08, 2015
Issuing Organization:Commercial Court
Actores:Involnert Management Inc v Aprilgrange Ltd & Ors

Neutral Citation Number: [2015] EWHC 2225 (Comm)

Case No: 2012 FOLIO 1569




Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 10 August 2015

Before :


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Between :

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Akhil Shah QC and Paul Sinclair (instructed by Jones Day) for the Claimant

Alistair Schaff QC and David Walsh (instructed by Ince & Co) for the Defendants

Daniel Shapiro (instructed by CMS Cameron McKenna) for the First Third Party

James Brocklebank and Sushma Ananda (instructed by Clyde & Co) for the Second Third Party

Hearing dates: 4-5, 8-11, 15-17, 23-24 June 2015

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Mr Justice Leggatt:

A. Introduction

  1. In the early morning of 3 December 2011 the claimant's yacht ``Galatea'' (``the Yacht'') caught fire at her mooring in the Athens Marina. As a result of the fire, the Yacht was damaged beyond economic repair. The defendants (``Insurers'') had agreed to insure the Yacht against all risks for an agreed value of €13 million. In this action the claimant is seeking to recover that sum from Insurers. Insurers accept that the loss was an accident of a kind which the policy was intended to cover. They deny liability to pay the claim, however, on a number of grounds.

  2. The Insurers' principal complaint is that the Yacht was over-valued. They contend that, although insured for €13m, the market value of the Yacht was and was believed by the claimant to be no greater than €7-8m. In particular, the claimant had obtained a professional valuation in November 2009 which had valued the Yacht at about €7m (net of VAT); on 2 March 2011 the claimant had been advised by the Yacht's manager that, if put on the market for sale, the Yacht should be listed for a maximum asking price of €8.5m and that the claimant should be happy to get €7m; and by the time the contract of insurance was concluded on 17 May 2011 the Yacht was actually being advertised for sale at an asking price of €8m. These facts were not disclosed to Insurers. It is the Insurers' case that these facts were material and should have been disclosed to them, and that this non-disclosure induced them to insure the Yacht on the terms agreed. They say that in these circumstances they were entitled to avoid, and have validly avoided, the policy. In addition and as an alternative to this defence, Insurers contend that they were discharged from liability as result of a misrepresentation in the proposal form that the market value of the Yacht was believed by its manager to be €13m. Further defences on which Insurers, if necessary, rely are that the claimant is not entitled to maintain this action because of failure to comply with requirements of the policy regarding the provision of a sworn proof of loss and the production of documents reasonably requested by Insurers after the fire, and that the claimant cannot in any event recover for a total loss because it did not give a valid notice of abandonment.

  3. The claimant maintains that all these defences are without merit. Without prejudice to that position, the claimant has joined as additional parties to the proceedings the two firms of insurance brokers which were responsible for arranging the insurance. The first third party, AIS Insurance Services Limited (``AIS''), is a Greek company which acted as a producing broker. The second third party, OAMPS Special Risks Limited (``OAMPS''), is an English broker which placed the insurance in the London market. In the event that the claimant fails to recover the amount claimed from Insurers under the policy, it claims damages from AIS and/or OAMPS on the ground that their negligence has led to this result. The brokers each deny that they were negligent or that, even if they were, this has caused the claimant's loss. OAMPS further denies that it owed any duty directly to the claimant in circumstances where it was acting as the agent of AIS and had no direct dealings with the claimant or its manager.

  4. I will address in turn the claims made by the claimant against Insurers and against its brokers. Before doing so, however, I will first describe the factual background in more detail and make findings on certain disputed questions of fact.

    B. Factual background

    The lineslip

  5. The contract of insurance under which the claim is made was effected by way of a declaration to a lineslip operated by the placing broker, OAMPS. A lineslip is a facility whereby a number of insurers authorise one or more leading underwriters to accept on their behalf risks presented by a particular broker, provided the risks fall within a pre-defined scope. As described in MacGillivray on Insurance Law (12th Edn, 2012) at para 2-034, a facility of this kind is not a contract of insurance but ``is in the nature of a standing offer by subscribers to be bound to particular risks by their designated underwriter.'' Such a facility assists the broker in placing insurance as it avoids the demands of having to broke each risk individually to each insurer. It is also convenient for insurers as it provides them with simple access to business.

  6. At the relevant time OAMPS had two lineslips which were led by Travelers Syndicate 5000 (``Travelers''), which is represented in this action by the first defendant. One was for yachts with a value below US$/€10m; the other lineslip, under which the insurance of the Galatea was placed, was for ``mega yachts'' with a value in excess of US$/€10m up to US$/€50m.

  7. Under the terms of the relevant lineslip, Travelers was designated as the ``slip leader''. To bind or alter an insurance contract written under the lineslip required the agreement of both the slip leader and the second defendant, Royal & Sun Alliance Insurance PLC (``RSA'').

  8. The way in which the lineslip operated in practice was as follows. To obtain a quote for insurance, OAMPS would draw up a quotation slip and take it to Travelers to review and rate. If Travelers agreed to quote for the risk and the quotation was accepted by the prospective assured, OAMPS would then prepare a formal declaration to bind the risk. After the declaration was signed by Travelers, it would be taken to RSA to sign. Provided that RSA accepted the declaration, the following market would be bound.

  9. Unlike insurance on commercial vessels, yacht insurance business is typically written on the basis of proposal forms. The brokers who placed business with Travelers tended to have their own proposal forms. That was true of OAMPS. When broking a risk under one of the lineslips led by Travelers, OAMPS would either present a completed proposal form with the quotation slip or would ask Travelers to quote subject to receiving a satisfactory proposal form before inception (or if time was short, within a short period after inception).

  10. At the relevant time the senior yacht underwriter at Travelers was Mr John Higham. His deputy was Mr Jason Stephenson. The senior yacht underwriter at RSA was Mr Wesley Absolom. The broker at OAMPS who placed the policy in this case was Mr Lee Ranson. The broker at AIS who instructed OAMPS was Mr Colin Birch. All these individuals were witnesses at the trial.

    The policy

  11. As described in more detail below, the contract of insurance in this case (``the policy'') is contained in a declaration made under the lineslip which was signed by Travelers on 13 April 2011 and by RSA on 14 April 2011. The insurance was bound subject to a satisfactory proposal form. A proposal form was presented to Travelers and scratched by Mr Stephenson on 17 May 2011. The period of cover, as finally agreed, was from 13 May 2011 to 12 May 2012.

  12. Under the policy the Yacht was insured against all risks for an agreed value of €13m. This cover was split between two separate sections of the policy: Section A, which provided Hull and Machinery cover in an amount of €9.75m; and Section B, which provided cover for the ``Increased Value of Hull and Machinery'' in an amount of €3.25m. I will consider the inter-relationship of these sections in more detail later. Essentially, however, the rationale for the split was that the Increased Value section provided cover only for a total loss (measured by reference to the limit of cover under Section A) and thus carried a significantly lower rate of premium than Section B.

  13. The policy incorporated the American Yacht Form R12 (the ``R12 Clauses''). In addition, the Increased Value cover under Section B was subject to the American Institute Increased Value and Excess Liabilities Clauses (the ``IV Clauses'').

    The Yacht

  14. The claimant purchased the Yacht in May 2007 for €13m. The Yacht, which was new when purchased, was manufactured in Italy by Riva, which is part of the Ferretti Group. The model was known as the ``Athena 115'' reflecting the fact that the boat was 115 feet, or about 35 metres, in length. Only nine Athena 115 yachts were built, of which ``Galatea'' was the second. She was customised for the claimant so that she had four cabins and a sky lounge, whereas the other Athena 115s had five cabins.

    The claimant

  15. The claimant is a company incorporated in the British Virgin Islands whose ultimate beneficial owner is a wealthy businessman, Mr Filaret Galchev, and the Yacht was acquired as a pleasure vessel for the use of Mr Galchev and his family. From June 2007 until January 2009 the sole director of the claimant was Mr Andreas Nianias, a former banker who works for Mr Galchev and assists in managing his private assets. In January 2009 Mr Nianias was replaced as the sole director of the claimant by Mr Ilias Kaltsidis. Mr Kaltsidis is a nephew of Mr Galchev and describes himself as Mr Galchev's ``first assistant''. Both Mr Nianias and Mr Kaltsidis gave evidence at the trial, although Mr Galchev did not.

    The manager

  16. From November 2008 the...

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