Sealion Shipping Ltd & Anor v Valiant Insurance Company

For marine insurance purposes, a circumstance is material only if it would influence the thought processes of a prudent insurer in assessing the risk. The test excludes facts which merely relate to the risk and includes adverse, or “minus”, factors rather than circumstances which diminish the risk. An assured’s want of due diligence under a marine policy ordinarily means negligence by the assured itself, not merely negligence by its employees, contractors or repairers. In assessing loss of hire caused by successive incidents, the court should adopt a practical approach to causation. Where reasonable attempts to mitigate the consequences of an initial breakdown lead to further incidents, the resulting period may be treated as attributable to the initial occurrence. Concurrent owners’ work does not necessarily reduce recoverable loss of use, save to the extent that it increases the reasonable repair period.

The claimants, the operator and registered owner of the vessel TOISA PISCES, sought US$2.1 million under a loss of hire policy issued by the defendant. The claim followed a propulsion motor breakdown on 25 February 2009, which led to a prolonged period off hire and further motor and hydraulic incidents during attempted repairs.

The defendant sought to avoid the policy for material non-disclosure and misrepresentation. Alternatively, it relied on policy exclusions for want of due diligence and wear and tear, and argued that the policy excess applied separately to three occurrences. The central issues were materiality and inducement, the meaning and application of the due diligence proviso, causation, and the aggregation of successive incidents.

1. Claim allowed. The defendant failed to establish material non-disclosure, misrepresentation, want of due diligence, wear and tear, or that the recoverable period had to be reduced by applying separate excesses to each incident.
2. Under sections 18 and 20 of the Marine Insurance Act 1906, materiality concerns facts which would influence the thought processes of a prudent insurer in assessing the risk. It is not enough that a fact relates to the risk in a broad sense. Section 18(3)(a) excludes circumstances which diminish the risk from disclosure in the absence of inquiry. The undisclosed 2004 off-hire period was not material in the circumstances. The reference to one hull claim did not make the other claim material, and the brokers’ statements concerning the hull record were opinions made in good faith.
3. The court rejected the contention that the due diligence proviso required recklessness. In the marine insurance context, “want of due diligence” means a failure by the assured itself to take reasonable care. The relevant acts or omissions were those of the claimants’ technical manager. Although negligence was the applicable standard, the defendant failed to prove either negligence or causation. It was reasonable for the claimants to rely on competent specialists and the classification society after the 2004 and 2006 investigations.
4. The court accepted that the February 2009 failure resulted from the progressive loosening of the stator and eventual contact with the rotor, rather than wear and tear. Although the three 2009 incidents lacked technical cause and effect, a practical approach to causation was required. The claimants’ reasonable attempts to restore service by substituting motors were frustrated by the later incidents. In principle, the whole period counted towards the loss caused by the initial breakdown.
5. Applying The “Ferdinand Retzlaff” [1972] 2 Lloyd’s Rep. 120, concurrent scheduled dry-docking and owners’ work did not eliminate recoverable loss of hire. At most, the insurer could claim credit for additional time caused by the owners’ work. On the facts, that would not reduce the claim below the 21-day machinery excess.

First-instance judgment in the Commercial Court. The judgment does not state any prior appellate history.