Swiss Reinsurance Company & Ors v United India Insurance Company Ltd

A contractors’ all-risks policy may provide for cover during a temporary stoppage, but the court must construe the words actually used. Where work has wholly stopped, the contractors have left, and no further extension is agreed, a clause providing cover for a maximum period of six months does not preserve the policy for the balance of its original term. A premium is refundable only where the contract or general insurance law permits apportionment. Whether risks are apportionable is primarily a question of construction. A single minimum premium covering interconnected construction and maintenance risks normally indicates one indivisible risk, particularly where maintenance exposure has already attached.

Swiss Re sought declarations concerning a reinsurance policy covering the construction of Phase II of the Dabhol Power Project. The contractors abandoned the site on 18 June 2001. The parties agreed an endorsement continuing material-damage cover for six months, while suspending delay-in-start-up cover. No further extension was agreed after 17 December 2001.

United India contended that the policy continued for the balance of its original term and that it was entitled to a substantial premium refund. It also relied on an implied contractual term and estoppel. The issues were the effect of the stoppage clause, the apportionability of the premium, and the alleged estoppel.

1. Construction and termination of cover. Condition 12 was intended to prevent automatic termination during a temporary stoppage caused by a material alteration in risk. It continued cover without additional premium for a maximum of six months. It did not extend the policy for the balance of the stated construction period. In the absence of agreement to a further extension, the cover ended on 17 December 2001.
2. The cessation of construction materially changed the insured risk. The active construction project became a passive, mothballed site with different hazards. Condition 12 prescribed the circumstances in which cover could continue despite that change. The same reasoning could apply to a substantial part of the project, depending on the facts.
3. Premium refund. The question whether consideration and premium are apportionable is principally one of policy construction. The Marine Insurance Act 1906 states general insurance principles capable of applying beyond marine insurance, but it does not itself establish apportionability in this case.
4. The policy charged one minimum premium for the construction, testing, commissioning and maintenance cover. Although the underwriter analysed risks separately before negotiating a discounted global rate, the resulting premium could not realistically be unpicked. The policy therefore did not provide for apportionment.
5. In any event, the maintenance risk had attached. Subcontractors were insured beneficiaries, and parts of the works had been handed over to main contractors. Those subcontractors could potentially claim under the maintenance cover, even though the evidence did not establish that the Block A upgrade had been taken over. A refund was therefore unavailable.
6. No term requiring a refund for risks not run was necessary or obvious. The estoppel claim also failed because there was no credible evidence of reliance, detriment, misleading conduct or unconscionability.

The declarations sought by Swiss Re were granted. The counterclaim for a premium refund and the claim for damages were dismissed. The parties were to address the form of order.