Eagle Star Insurance Co Ltd v Games Video Co (GVC) SA

In a claim under a marine insurance policy, a statement of value is a misrepresentation only where it is made in bad faith. The absence of reasonable grounds may evidence bad faith, but does not itself create a higher standard of proof.

An express warranty requiring compliance with survey recommendations may require continuing compliance throughout the period of risk, where that is its commercial purpose. Fraudulent documents used during an insurer’s investigation to improve or embellish a claim constitute fraudulent devices and may defeat the claim. The insurer was therefore entitled to avoid the policy and refuse indemnity.

The assureds claimed indemnity for the loss of the vessel Game Boy, which was damaged by an explosion while moored at a Greek shipyard. The insurer alleged that the vessel’s value had been fraudulently overstated, that supporting documents were false, that policy warranties had been breached, and that fraudulent devices had been used in presenting the claim.

The central issues were whether the policy had been avoided for fraudulent misrepresentation, whether the vessel was covered at the time of the casualty, whether the Salvage Association warranties had been breached, and whether the claim was defeated by fraudulent devices.

1. Misrepresentation. The court found that the assureds knew the vessel was worth approximately US$100,000–150,000 and had no genuine belief in the stated value of US$1,800,000. Under section 20(5) of the Marine Insurance Act 1906, value was a matter of opinion and could amount to misrepresentation only if stated in bad faith. The extreme overvaluation was material and had induced the insurer. The insurer was entitled to avoid the contract.
2. Other representations and coverage. The additional allegations concerning the vessel’s condition and intended repairs did not independently establish material misrepresentation or non-disclosure. The policy covered the vessel at the relevant location. The reference to repairs of a general maintenance nature did not confine cover to periods when actual repairs were taking place, particularly since the insurer knew that conversion work was also contemplated.
3. Warranty. The warranty requiring compliance with Salvage Association recommendations was construed commercially. It required continuing compliance during the period on risk, not merely compliance at attachment. The absence of a telephone and a watchman at the vessel constituted breaches. The insurer was consequently entitled to refuse indemnity.
4. Fraudulent devices. The false Tsapes Report, Memorandum of Agreement and Bareboat Charterparty were supplied during the insurer’s investigation after the claim had been initiated. They were intended to improve or embellish the claim and to induce payment. Applying the established rule on fraudulent devices, the insurer was discharged from liability. The claim was dismissed and the insurer was entitled to the declarations sought.