Frans Maas (UK) Ltd v Sun Alliance And London Insurance Plc

A cargo-liability policy covering warehousing liabilities ordinarily responds to liabilities owed to contractual customers under the insured trading conditions. It does not extend merely because a non-customer incurs a common-law claim arising from goods held or misdelivered during the warehousing operation. Contract conditions are inapplicable, rather than unenforceable, where the claimant has no contractual relationship with the insured. Separately, releasing third-party goods without bills of lading may breach reasonable-precautions and wilful-act conditions where the insured knowingly and recklessly accepts the obvious risk of claims.

Frans Maas (UK) Ltd, a freight forwarder and warehouseman, sought an indemnity from its insurer for liabilities incurred in settling and satisfying third-party claims arising from the misdelivery of goods belonging to shippers connected with Palmier plc.

The policy covered warehousing liabilities under specified contractual conditions, or at common law if those conditions could not be enforced. The insurer disputed coverage and also relied on alleged breaches concerning the warehouse termination arrangements, release of goods without bills of lading, and non-disclosure. The central issues were whether the third-party liabilities fell within the policy and, alternatively, whether the insured had breached policy conditions.

1. Coverage. The claim failed on construction of the policy. The warehousing cover was confined to liability to customers who had contractually engaged the insured’s warehousing facilities. The relevant liabilities were those incurred under the insured NAWK or UKWA conditions. The common-law wording operated where those conditions could not be enforced against a customer, for example because they had not been properly notified. It did not extend to claims by third parties who were not customers. Their claims were therefore outside the scope of cover because the conditions were inapplicable, not unenforceable.
2. Nature of the activity. The Warehouse Termination Agreement replaced the earlier arrangement with a purpose-made run-off contract, but its substance remained warehousing activity. The fact that deliveries were made without bills of lading to assist repayment of Palmier’s debt did not alter that character.
3. Policy conditions. General Condition 1 did not require the insured to trade exclusively under the standard conditions. Supplementary contractual terms were permissible, provided the warehousing activity remained conducted on the basis of the standard conditions. The agreement therefore did not breach the condition merely because it also dealt with repayment of the debt.
4. Reasonable precautions and wilful act. The relevant factual question under General Condition 3 and Claims Condition 5 was whether the releases were reckless: whether the danger was actually recognised and the insured did not care whether it was averted. The initial releases within the arrangements authorised by KSD and Atlantic were not reckless. The later voluntary extension, failure to police the value of releases, and continued releases despite warnings showed reckless indifference to the obvious risk of third-party claims. The conditions were breached.
5. The court also considered non-disclosure and affirmation. It was not persuaded that the relevant practice existed at renewal, and found no affirmation on the evidence. Assuming non-disclosure, the underwriters would have been induced to exclude the exposure or cancel the programme. Those conclusions were unnecessary because the claim already failed on coverage.

The claim was dismissed.