KIRIACOULIS LINES S.A. v. COMPAGNIE D’ASSURANCES MARITIME AERIENNES ET TERRESTRES (CAMAT) AND ANOTHER (THE “DEMETRA K”) [2002] EWCA Civ 1070

Rectification requires convincing evidence that the parties had a common intention about their mutual rights and obligations which the written contract failed to record. That intention must have been outwardly expressed and is assessed objectively. A shared but unexpressed assumption about the legal effect of agreed wording is insufficient.

Where two or more causes concurrently produce an insured loss, cover under one cause is effective unless another concurrent cause falls within an express exclusion. An express exclusion prevails even though a concurrent cause falls within the policy’s insuring provisions.

A passenger vessel was extensively damaged by fire while laid up awaiting sale. For the preliminary issues, the fire was assumed to have been started deliberately by someone other than the owners. The insurers accepted that the policy, as written, covered the loss, but sought rectification to introduce an exclusion for loss caused by vandalism, sabotage or malicious mischief.

Aikens J decided the relevant preliminary issue for the owners and subsequently entered summary judgment for US$700,000 plus interest. The insurers appealed, contending that the underwriter and placing broker had orally agreed to exclude the relevant risks and that their written policy failed to record that agreement. The central issue was whether convincing evidence established an antecedent common accord inconsistent with the policy.

Lord Phillips MR delivered the judgment of the Court. The appeal was dismissed.

1. A policy may cover a loss produced by one of several concurrent causes. The claim remains covered unless another concurrent cause falls within an express exclusion. Where an express exclusion applies, the insurer is not liable merely because another concurrent cause is within the policy’s cover. The Court applied Wayne Tank Co v Employers Liability Ltd [1974] 1 QB 57.

2. The deliberate starting of the fire was a concurrent malicious cause. Under the unamended Institute Time Clauses Hulls, fire was an insured peril. The malicious-acts exclusion applied only where the loss arose from the detonation of an explosive or a weapon of war. Deleting the earlier addendum extending war and malicious-risk cover therefore did not exclude a deliberately started fire already covered as fire.

3. Rectification required the insurers to establish two matters. First, both negotiators must have intended the policy to exclude loss caused by vandalism, sabotage or malicious mischief when they prepared it. Secondly, they must have outwardly expressed that common intention in a way which, objectively assessed, made the intended result plain. The antecedent accord need not itself have been a binding contract, but it must define the parties’ intended mutual rights and obligations.

4. Because the alleged common intention contradicted the written policy, convincing evidence was required, although the applicable standard remained the civil standard. A shared belief that deleting the addendum would produce a wider exclusion would not itself justify rectification. The parties must actually have agreed that the cover would exclude all loss flowing from the identified perils.

5. The contemporary material supported the conclusion that the negotiators agreed only to delete the addendum and place its additional cover elsewhere. The later witness evidence did not convincingly establish a broader antecedent agreement. The insurers therefore failed to prove a common accord conflicting with the slip policy. Aikens J had reached the correct result, and the insurers were ordered to pay the owners’ costs of the appeal.

1. Court of Appeal (Civil Division): By a joint judgment, dismissed the insurers’ appeal and affirmed Aikens J’s decision on the relevant preliminary issue: [2002] EWCA Civ 1070.
2. Commercial Court: Aikens J determined three preliminary issues in favour of the owners. He held that the case for rectification had not been established and subsequently entered summary judgment for US$700,000 plus interest. No citation for that judgment is stated.