Argo Systems FZE v Liberty Insurance (PTE) & Anor

A marine insurer may waive a breach of warranty by estoppel where its conduct clearly represents that it will not rely on the breach, the assured relies on that representation, and it would be unfair to resile from it. Failure to plead a known defence for many years, while the assured conducts related litigation on the reasonable assumption that the defence will not be raised, may satisfy that test.

Affirmation of an insurance contract is judged objectively. Prolonged refusal to pay under the policy, without avoiding the policy or returning a substantial premium, may amount to an election to affirm. A claim for damages for misrepresentation may be available in principle under the Misrepresentation Act 1967, but it is unavailable on the facts where the insurer has lost its right to avoid.

The claimant insured a vessel for a towage voyage. After the vessel sank, the insurer declined the claim and relied on various grounds, but did not initially rely on an alleged breach of a warranty against releases, waivers or hold-harmless provisions. The assured had provided the towing contract, which contained standard knock-for-knock provisions, and the parties pursued related proceedings in the United States.

At trial, the court determined preliminary issues concerning construction of the warranty, waiver and estoppel, affirmation of the policy in relation to misrepresentation and non-disclosure, and whether damages could be claimed if avoidance was no longer available.

1. The towing contract’s standard knock-for-knock provisions constituted releases and waivers within the express warranty that none had been given to the tug or towers. The warranty was clear and could not be qualified by commercial assumptions or by the later 1995 form of the Institute Voyage Clauses. There was therefore a breach of warranty.

2. Under section 34(3) of the Marine Insurance Act 1906, waiver of a breach of warranty operates by estoppel. The assured had to establish a representation by words or conduct that the insurer would not rely on the breach, reliance, and circumstances making it unfair or unconscionable for the insurer to resile. The principles in Vitol v Esso Australia [1989] 2 Lloyd’s Rep 451, The Post Chaser [1981] 2 Lloyd’s Rep 695 and HIH Casualty v AXA Corporate Solutions [2003] 1 Lloyd’s Rep were fact-sensitive but consistent.

3. The insurer possessed the material needed to plead the warranty defence, had repeated opportunities to do so, and remained silent while the assured pursued related proceedings. The insurer’s conduct represented that it was not relying on the defence. The assured relied on that representation, and it would be unfair to permit reliance on the defence after almost seven years. The insurer was therefore estopped.

4. Election to affirm depends on an objective and unequivocal manifestation of choice, informed by knowledge of the relevant facts and rights. The insurer’s prolonged refusal to pay, its failure to avoid the policy or tender back the premium, and the terms of its original rejection letter showed that it had elected to affirm.

5. The court followed its earlier approach in HIH Casualty & General Insurance v Chase Manhattan Bank [2001] 1 Lloyd’s Rep 30 that a claim for damages under section 2(1) of the Misrepresentation Act 1967 could be made in the context of insurance. However, where the right to avoid had been lost by affirmation, damages equivalent to the benefit of avoidance were unavailable on these facts. The warranty breach was established, but the insurer was estopped from relying on it, had affirmed the policy, and could not pursue the proposed damages claim.