Zeus Tradition Marine Limited v Bell

A marine insurance clause providing that cover was subject to survey including valuation by independent qualified surveyor created a condition precedent to the commencement or continuation of in-commission cover. It required a condition survey, as well as valuation, which was satisfactory regarding seaworthiness and passenger safety. The clause did not necessarily require an out-of-water survey, machinery opening-up, sea trials or stability testing. The question was what was reasonably necessary in all the circumstances to satisfy a reasonable underwriter. The wording could permit reliance on plural surveys or on an independent governmental survey, provided that the evidence taken together satisfied that standard. The court allowed the appeal because the judge had wrongly treated the survey as requiring one surveyor or company to conduct and record every aspect.

The appellant insured a yacht under a Lloyd's marine policy containing a condition that cover was subject to survey, including valuation, by an independent qualified surveyor. The yacht had undergone a substantial refit and was later destroyed by fire. The underwriters accepted that the loss resulted from an insured peril but denied liability, principally on the ground that the survey condition had not been satisfied.

Colman J held that the clause was a condition precedent to in-commission cover. He considered that a satisfactory condition and valuation survey had to be conducted and recorded by the same independent surveyor or surveying company, and that the reports relied upon were insufficient. The appeal concerned the construction of the clause, including whether it required a condition survey, the level of detail required, and whether reliance could be placed on more than one survey, including a governmental survey.

1. Appeal allowed on construction. Potter LJ delivered the leading judgment. Sir Murray Stuart Smith agreed, and Pill LJ agreed subject to a qualification concerning reliance on official surveys.
2. The words subject to, in the commercial and factual context, created a condition precedent to the commencement or continuation of in-commission cover. The clause was not merely an innominate term. Its position under a printed heading of conditions was not determinative, but the wording, expert evidence and circumstances supported that construction.
3. The phrase survey including valuation required both a condition survey and valuation. The condition survey had to be satisfactory in the sense that it disclosed no defects or recommendations concerning seaworthiness or passenger safety. Delivery of the report and its approval by the underwriters were not preconditions to cover, although the assured had to provide the report as evidence of compliance.
4. The clause did not prescribe particular investigations in every case. Whether an out-of-water survey, opening-up of machinery, sea trials or stability tests were required depended on what was reasonably necessary, in all the circumstances, to satisfy a reasonable underwriter as to seaworthiness and safety.
5. There was no principled basis for excluding plural surveys addressing different aspects of the vessel, provided that together they met that standard. Nor was a governmental survey incapable in principle of being relied upon. The SVL report had adopted and incorporated the MMM survey by referring to it, exhibiting its certificate and recording that there were no outstanding recommendations.
6. The judge’s conclusion that the clause required one surveyor or company to conduct and record the whole survey was therefore flawed. The matter required further argument as to the appropriate order because the judge had not decided whether the survey was inadequate on the correct construction.
7. Pill LJ added that the decision did not establish any general rule that reliance on an official or public-body report would normally satisfy such a clause. Access to the surveyor and the availability of recourse for errors could be relevant factors.

• Court of Appeal (Civil Division): allowed the appeal on the construction issue, subject to further argument on the appropriate consequential order.
• High Court, Queen's Bench Division, Commercial Court: Colman J dismissed the indemnity claim on 30 October 1998. Leave to appeal was subsequently granted, confined to construction of the survey condition.