Moore Large & Company Ltd. v Hermes Credit and Guarantee Plc

Under a specific-account credit insurance policy, a credit limit applied to the aggregate qualifying debt outstanding when the insured peril occurred, rather than separately to each invoice when issued, unless the policy clearly provided otherwise. A temporary increase therefore operated on the same basis as the original limit. A trade custom cannot contradict the express policy terms. Material non-disclosure may entitle an insurer to avoid a variation, but the insurer may lose that right by unequivocally affirming the variation with knowledge of the relevant facts and legal right to avoid.

The claimant supplied cycles and accessories to Motorworld Ltd under a specific-account credit insurance policy issued by the defendant. The policy contained a £600,000 credit limit, later temporarily increased by endorsement to £2 million and then £2.5 million. Motorworld entered administrative receivership while substantial debts remained unpaid.

The insurers paid part of the claim and disputed liability for the balance. The principal issues were whether the credit limit applied when invoices were issued or at insolvency, whether the endorsement had retrospective effect, whether a trade custom qualified the policy, and whether the endorsement was avoidable for material non-disclosure. The insurers also relied on the claimant’s alleged affirmation of the variation.

1. Construction of the policy. The insuring clause and definitions treated insured loss as an aggregate of qualifying debts arising from the customer’s insolvency. The words limiting loss to the credit limit therefore applied to the aggregate debt outstanding at insolvency. The policy did not require each invoice to have been within the limit when issued. The absence of express wording addressing invoice dates, and the impractical accounting exercise required by the insurers’ construction, reinforced that conclusion.
2. Endorsement No. 9. The endorsement temporarily substituted higher credit limits for the existing £600,000 limit. It did not otherwise vary the policy. The credit limit remained relevant only to the aggregate qualifying debt at insolvency. The correspondence between the broker and insurer did not alter that result.
3. Trade custom. The alleged custom concerning temporary limits was founded on the insurers’ rejected construction of the policy. It could not assist the insurers and, in any event, could not contradict the express terms incorporated into the endorsement.
4. Non-disclosure. The claimant’s actual and anticipated turnover substantially exceeding the existing limit was material. It would have influenced a prudent insurer and, more probably than not, caused the underwriter to investigate the customer’s financial position before agreeing the increase. The insurers established materiality and inducement. The quarterly turnover declarations did not waive disclosure because their purpose was premium calculation, not risk assessment.
5. Affirmation. The insurers’ original defence unequivocally treated the endorsement as binding. Applying the principles in China National Foreign Trade Corporation v Evlogia Shipping Co SA [1979] 1 WLR 1018, The Kanchenjunga [1990] 1 Lloyd’s Rep 391, Evans v Bartlam [1937] AC 473 and Peyman v Lanjani [1985] 1 Ch 457, the insurers had knowledge sufficient to make their election effective. They had affirmed the endorsement and could not avoid it. Judgment was therefore entered for the claimants in an amount to be agreed.