Glencore International AG v Alpina Insurance Company Ltd. & Ors

In a worldwide open cover written for a commodity trader, the insured’s duty of disclosure is limited by the broad range of circumstances which a prudent underwriter familiar with the trade should contemplate. Disclosure is required for unusual matters outside that range, including an unusual combination of otherwise ordinary features.

Where storage cover is written for an “in full” premium based on estimated throughput, historic throughput is not necessarily material because commodity trading is inherently variable. A materially false representation must also induce the insurer to contract. Under a facultative storage extension, retrospective declarations may be effective before a known loss, but cannot ordinarily attach a risk after the insured knows of the loss.

The claimant sought indemnity under marine open covers issued by Alpina and co-insurers for oil and refined products allegedly misappropriated by companies in the Metro Group at Fujairah. The insurers alleged fraud, misrepresentation, non-disclosure and lack of cover.

The fraud allegations were abandoned. The court determined whether the policies could be avoided for non-disclosure of throughput, the claimant’s relationship with MTI, and blending operations; and decided several construction and coverage issues, leaving the quantification of individual losses to a later phase.

1. Avoidance. The insurers failed to establish any ground for avoiding the open cover. In an open cover for a commodity trader, the prudent underwriter is presumed to know the ordinary and commercially innovative possibilities of the trade. Disclosure is required only for matters unusual in the sense that they fall outside that broad range. A combination of individually ordinary features may nevertheless require disclosure if, viewed cumulatively, it is extraordinary.
2. Throughput. Historic throughput was not material to an underwriter who had agreed to an “in full” premium based on estimated throughput. The unpredictability of commodity trading meant that the accuracy or inaccuracy of an earlier estimate did not reliably inform the next year’s risk. The 1996 omission of an estimate was material and the same premium implied a representation that the previous estimate remained substantially applicable, but the representation did not induce renewal. In 1997 the estimated throughput of approximately US$840 million was fairly put before Alpina, although accompanied by an explanation that most cargoes were declared for transit and remained in store for less than 30 days.
3. Relationship and blending. The arrangements with MTI, including commingled storage, sales to an end-user, limited inspection and record-keeping procedures, and MTI’s control of storage vessels, were uncommon but within the range contemplated by an underwriter of this class of open cover. The statement that there were no blending risks was a misrepresentation and potentially material, but it did not induce Alpina’s decision to extend cover because Alpina was willing to provide cover under condition 1.18 in any event.
4. Coverage. “Final supplying vessels” meant vessels carrying oil for discharge into the named floating storage vessels. “Incidental storage” was not limited to one week. Oil moved onto the Metrotank for blending remained within condition 1.29. A diverted cargo remained in transit until delivered to its final destination; operational control by MTI did not itself constitute delivery or consent. Loss occurred whenever oil was physically lost through unauthorised blending or delivery, subject to any subsequent consent or restoration of the insured interest.
5. Subsequent transactions and declarations. An insured loss caused by misappropriation was not converted into an uninsured credit loss merely because the claimant later contracted to sell the oil and obtained an unsatisfied judgment for the price. Storage declarations could operate retrospectively where the loss was unknown, but not after a known loss. The provisional declaration of 29 April 1998 was insufficiently precise, and the errors and omissions clause did not create substantive cover after loss.
6. Other issues. The post-collapse shipments made with the claimant’s knowledge and approval caused no insured loss. The Cheleken cargoes remained the claimant’s property because title was conditional on stock transfer certificates. Repeated unauthorised takings from different oil bulks constituted separate losses. The insurers’ indefinite suspension of claims handling amounted to renunciation, but the claimant terminated by agreement and therefore could not recover damages for loss of the bargain.
7. Order. Alpina and the co-insurers were not entitled to avoid the open covers and were liable to indemnify the claimant for losses proved in the later phase, subject to the court’s rulings on coverage, valuation and limits.

First-instance decision in Phase 5 of the managed Metro litigation. Earlier findings from Phase 1 and Phase 2 were treated as binding within the managed proceedings, but the individual losses and quantum were left for a later phase.