ABN Amro Bank NV v Royal & Sun Alliance Insurance Plc & Ors

A bespoke clause in a marine cargo policy may provide cover beyond physical loss or damage where its language clearly does so. A clause covering the transaction premium following a client’s default was freestanding credit-risk cover because it was not linked to any insured physical peril, used self-contained definitions, and expressly applied to default for any reason.

Commercial consequences cannot justify rewriting clear contractual language. A non-avoidance clause covering non-fraudulent non-disclosure and misrepresentation is effective according to its terms. Affirmation may also bar avoidance where insurers plead and pursue the continuing validity of the contract without reserving avoidance.

A broker must obtain cover which clearly and indisputably meets the client’s requirements. In unusual circumstances, that may require explaining the intended scope of cover to underwriters.

The Bank financed commodity transactions through repo arrangements and claimed approximately £33.5 million under marine cargo and storage policies subscribed by the defendants. Its customers defaulted, leaving the Bank with cocoa products that realised less than the pre-agreed repurchase prices.

The central issue was whether the Transaction Premium Clause covered the difference between the pre-agreed price and actual sale price despite the absence of physical loss or damage. The underwriters also relied on rectification, estoppel, collateral contract, non-disclosure, misrepresentation, the due-diligence clause, and the sue-and-labour obligation. The Bank also claimed against its broker, Edge.

1. Construction. The Transaction Premium Clause was an operative insuring provision. Its language provided cover for the transaction premium following a client’s default, without linking cover to physical loss or damage or to another insured peril. The defined terms “Transaction”, “Default” and “Transaction Premium” were self-contained. The words “for whatever reason” were inconsistent with the proposed limitation to defaults following physical loss or damage. The clause was not merely a basis-of-valuation provision and applied to the Bank’s losses.
2. Contract wording and GUA. The later relocation of the clause did not alter its meaning. The following underwriters were bound by the amended policy under the General Underwriters Agreement because the alteration did not increase their monetary exposure as defined by the agreement.
3. Rectification and related arguments. The evidence did not establish any common intention, collateral contract, or shared assumption that the clause was limited to physical loss or damage. The signed documents represented the parties’ agreement.
4. Non-avoidance and affirmation. The Non-Avoidance Clause barred avoidance for non-fraudulent non-disclosure or misrepresentation, including allegations concerning the clause itself. In any event, service of the defence and counterclaim, which relied on the continuing contract and sought rectification, was an unequivocal affirmation. The non-disclosure cases also failed because the relevant wording was known or presumed to be known to the underwriters.
5. Misrepresentation. Representations that the renewal terms were “as expiry” were misleading to Navigators, Ark and Advent. Navigators failed to establish inducement, but Ark and Advent established inducement and an estoppel preventing the Bank from relying on the Transaction Premium Clause against them. The alleged representation to Standard was not proved or causative.
6. Due diligence and sue and labour. The due-diligence clause applied throughout the policy but required recklessness, not ordinary negligence. The Bank was not reckless. The sue-and-labour obligation was contractually reduced to good faith, which the Bank satisfied. The alternative ordinary test was also not met.
7. Broker’s liability. Edge breached its duty to obtain cover clearly and indisputably meeting the Bank’s requirements and to avoid an unnecessary risk of litigation. The unusual credit-risk cover should have been placed in the specialist market or expressly discussed with the cargo underwriters. Edge was liable for the recovery lost against Ark and Advent and in principle for irrecoverable costs.
8. Disposition. The Bank’s claim against the underwriters succeeded except against Ark and Advent. Edge was liable for the losses attributable to those estoppels and for the specified costs consequences.

First-instance judgment in the High Court (Commercial Court). No earlier appellate decision was stated in the judgment.