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A reinsured
has a fundamental duty to make a fair presentation to reinsurers; waiver
of any non-disclosure requires clear facts. Waiver could not be established
in this case by proving that a prudent underwriter would, by enquiry,
have elicited a fact said to be material to the reinsurance dispute.
This was
an appeal by a Mexican insurance company against a London reinsurer
and concerned cover for the reinsurance of a cargo of luxury retail
goods in transit from Miami to Cancun. There was, however, a long list
of exclusions. The slip presentation prepared in Spanish referred to
Rolex watches, but the English translation referred by mistake to "clocks".
A container of goods was stolen from outside the original insured's
premises in Cancun.
The essence
of the dispute was the reinsurer's complaint that they were not told
that the retailer imported Rolex and other high-value branded watches.
The reinsurers avoided the contract on that basis. At the trial, there
were issues of misrepresentation, materiality, waiver, inducement and
affirmation. The appeal, however, concentrated simply on waiver and
affirmation.
It had
been argued that the reinsurer must have been put on enquiry by information
in the slip that in fact watches were being shipped and must be taken
to have waived the disclosure of such information under the Marine Insurance
Act 1906 Section 18(3) which provides, amongst other things, that in
the absence of inquiry any circumstance which is known or presumed to
be known to the insurer need not be disclosed. Cancun was well known
to be a high-class tourist resort within a duty free zone and the reinsurers
ought to have known the nature of the retail trade there. It was unlikely
that such high numbers of expensive clocks would be sold to tourists
so frequently. The reference to "clocks" therefore begged
further enquiries.
The Court
of Appeal held that waiver required a clear case and would not be established
by proving that a prudent underwriter would by enquiry have elicited
the fact now said to be material. The test was (a) whether there was
a fair presentation of the risk and (b) whether the reinsurer in the
course of that presentation was put on enquiry by the disclosure of
facts which would raise in the mind of the reasonable reinsurer at least
the suspicion that there were other circumstances which would or might
vitiate the presentation. CTI v Oceanus Mutual Underwriting Association
((1984) 1 Lloyd's Rep 476) was applied.
On the
facts, the intention to ship high-value brand name watches was material
and should have been disclosed. There was therefore a potentially unfair
presentation. The fact that an insurer or reinsurer was entitled to
assume that the presentation of the risk to him was a fair presentation
meant that he must be entitled to take at face value what was said on
the slip. Here, the underwriter was entitled to assume that he was being
told what the particularly valuable items to be carried were. If anything,
that method of presentation would put an insurer off rather than on
enquiry.
The Judge
at first instance had held that the use of the word "clocks"
in the slip should not have raised suspicion in the mind of the reasonable
insurer that there were other circumstances which would or might vitiate
the presentation. The Court of Appeal did not interfere with this finding.
There was thus no clear case of waiver.
The Court
of Appeal saw no reason to interfere with the Judges' finding of fact
that if the reinsurer had been informed that high-value brand named
watches were going to be shipped from Miami to Cancun, he would not
have agreed to the insurance.
The Judge
was wrong to hold that the reinsurer had not given notice of cancellation.
The evidence was that notice of cancellation had been given, thereby
affirming the contract. The insurer's appeal was therefore allowed on
this issue.
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