Duty of fair presentation: Lessons from Cometsambre v Lloyd's

The High Court's decision in Cometsambre SA v Lloyd's Insurance Company SA provides important guidance on the duty of fair presentation under the Insurance Act 2015. The Court reiterated that the duty to make a fair presentation of the risk and disclose all material circumstances sits squarely with the insured, and that a series or pattern of incidents may amount to a material circumstance, even if they have not resulted in a formal claim.

In this article, we examine the decision and highlight the key lessons on non-disclosure, materiality and inducement for insurers, insureds and brokers.

Background

The claimant, Cometsambre SA, was a Belgian scrap metal trader insured under a Charterers’ Liability and Freight, Demurrage and Defence policy underwritten by Lloyd’s Insurance Company SA (Lloyd’s). The policy covered Cometsambre’s potential liabilities as charterer of vessels carrying scrap metal cargoes.

Cover was first placed in 2008 with the coverholder, Antwerp Insurance Claims Associates NV (AMICA), through Cometsambre’s broker, Concordia NV (Concordia). In the initial presentation of the risk, Concordia represented that the cargo was shredded heavy melting steel which was non-oily and non-dangerous. The policy was renewed on substantially the same terms between 2010 and 2022.

In June 2022, a significant fire occurred aboard the vessel LOWLANDS MIMOSA during loading operations in Ghent. The resulting damage led to substantial claims against Cometsambre by the vessel interests. Cometsambre sought an indemnity under its charterers’ liability cover, but Lloyd’s declined the claim and avoided the 2022 renewal on the basis that Cometsambre had breached its duty of fair presentation.

The Court heard factual and expert evidence. Witness evidence was given by Mr Hoek, the underwriter responsible for the 2022 renewal, and Mr Rendardy, Cometsambre’s head of risk. Expert underwriting evidence was given by Alan Jervis for Cometsambre and John Howe for Lloyd’s.

Key issues

The Court was asked to determine four key issues:

1. Whether Cometsambre knew, or ought to have known, about the earlier fires.
2. Whether the undisclosed fire incidents were material circumstances requiring disclosure.
3. Whether Lloyd’s should be taken to have known about, or waived disclosure of, those incidents.
4. Whether, but for the non-disclosure, Lloyd’s would have entered into the contract of insurance.

The Court’s findings

Knowledge

Cometsambre argued that there was no proper basis for concluding that its senior management, or the employee responsible for insurance, knew or ought to have known about each fire. The Court rejected that argument. Given the attendance of the fire brigade, the Court held that the fires were information the insured ought to have known, as they would have been revealed by a reasonable search of information available to it.

Materiality

Cometsambre argued that the fires were not material because they had not resulted in a claim under the policy and because quayside fires were not relevant to a charterers’ liability policy.

The Court rejected both arguments and, preferring Lloyd’s witness and expert underwriting evidence, held that the underdeclared fires were material circumstances because:

A fire on board a vessel is a “paradigm example” of an incident capable of giving rise to liability and was therefore something a prudent underwriter would want to know about, regardless of whether it had resulted in a loss or claim.

The fact that Cometsambre had experienced no fires for approximately 12 years, followed by five fires within an 18-month period suggested a changed in risk profile and was relevant both to an underwriter’s assessment of fire risk and to any wider concerns about Cometsambre’s cargoes or procedures.

Notice/knowledge 

Cometsambre argued that insurers should have appreciated the general risks associated with shipping scrap metal. It submitted that Lloyd’s had been put on notice of the risk and, by not asking further questions, had failed to make further enquiries.

The Court rejected that submission, finding that it wrongly sought to shift the burden of making a fair presentation of the risk from the insured to the insurer.

The Court found that, because there had been no onboard fires for 12 years before May 2021, insurers were not aware of the increased frequency of fires. They were therefore not put on notice so as to require further enquiries.

For the same reasons, the Court held that insurers could not be presumed to have knowledge of the fires.

No waiver

Cometsambre argued that Concordia had requested claims history information at inception, but not on renewal. It submitted that this indicated to a reasonable insured that underwriters were concerned only with Cometsambre’s claims history and were not interested in fires that had not given rise to a claim. On that basis, Cometsambre argued that Lloyd’s had waived disclosure of those matters.

The Court rejected Cometsambre’s position, finding that:

• The questionnaire provided by Concordia asked only about claims history, but this could not reasonably be understood as showing that underwriters were not interested in fires which had not resulted in claims. The questionnaire had been prepared by Concordia and had not been specifically requested by AMICA.
• The fact that Cometsambre was not asked to complete an updated questionnaire on renewal was not unusual and could not reasonably be understood as a waiver of the duty to disclose material circumstances.
• Viewed overall, nothing in AMICA’s conduct could reasonably be understood as indicating that it was not interested in the fires which occurred in 2020 and 2021, particularly after a significant period without fires.

Inducement

The Court found that, had the fires been disclosed, underwriters would not have written the risk on any terms. Lloyd’s was therefore entitled to avoid the policy.

The Court held that Cometsambre had not established the correct counterfactual in cross-examination. The relevant question was what the underwriter would have done if all fires had been disclosed on renewal in 2022, not what would have happened if each fire had been disclosed as it occurred.

The Court also noted that the failure to disclose each fire meant that appointing a surveyor was no longer a realistic possibility. In any event, Cometsambre had failed to prove that a surveyor would not have made adverse findings about the quality of the scrap metal.

The Court accepted the evidence of the underwriter responsible for the 2022 renewal, who said that underwriters would not have been interested in the business because:

• The premium charged for charterers’ liability cover was low, making it commercially unattractive to write the policy where there was a real risk of fire leading to a substantial claim.
• The increased incidence of fires, which was likely attributable to the poor quality of scrap being loaded and transported, indicated a change in risk profile that underwriters would not have been willing to accept.
• Although underwriters had insured another similar risk where two fires had been disclosed, that case was distinguishable. The policy was renewed because the fires had been disclosed, the survey identified no issues with the cargo, the likely cause of the fire was hot works, and the insured paid six times the premium.

Key takeaways

In light of the limited case law on the Insurance Act 2015, the judgment provides useful guidance for both insurers and insureds on an insured’s obligations under the duty of fair presentation.

Where a material circumstance exists, the burden remains on the insured to disclose it unless the insurer is genuinely on notice that further investigation is required. An insurer’s failure to ask specific questions on renewal does not relieve the insured of its duty to disclose all material information, and insurers are not required to anticipate undisclosed events or carry out extensive enquiries to uncover them.

The decision confirms that material circumstances may include matters which have not resulted in a claim, particularly where a pattern of incidents indicates a change in the insured’s risk profile.

Finally, the judgment also illustrates the importance of credible underwriting evidence on inducement. Lloyd’s succeeded because it was able to demonstrate, through witness evidence, that disclosure of the fires would have changed the underwriting decision.

For more information, please get in touch with a member of our insurance disputes team.

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