While it is now settled that an insured has a duty to disclose material information to insurers, questions occasionally arise as to the extent and duration of that obligation. The judgment of the English Commercial Court in Cometsambre SA v Lloyd's Insurance Company SA HIG 5321 recently considered this issue under the United Kingdom's Insurance Act 2015, which provides that an insured has a duty to make a fair presentation of the risk to the insurer before the inception of the policy. This duty is similar to an insured's duty to disclose material information under South African law.
In the above case, Cometsambre had enjoyed charterers' liability cover since 2008, which was renewed on almost identical terms for over a decade. In June 2022, a cargo loaded onto the chartered vessel Lowlands Mimosa caught fire, giving rise to a substantial claim against Cometsambre, which then sought an indemnity from its insurer, Lloyd's. Lloyd's declined cover and avoided the policy on the basis that Cometsambre had breached its duty of fair presentation by failing to disclose five fires in its scrap metal operations that had occurred between May 2020 and 14 October 2021, prior to the 2022 renewal period.
Cometsambre resisted avoidance on several grounds, including that the fires were immaterial; that it had put the insurer on notice to make further enquiries; that the insurer was presumed to know of such risks; that the duty of disclosure had been waived; and that disclosure would have made no difference in any event.
On the evidence, the court was not persuaded by Cometsambre's arguments. It held that each policy renewal constitutes a new insurance contract, with the consequence that the duty of fair presentation requires disclosure of material circumstances even if they ought to have been, but were not, disclosed earlier, provided that they remain relevant and unknown to the insurer for the purposes of the latest renewal. Information pertaining to the five fires over an 18-month period, when Cometsambre had experienced virtually no fires in the preceding years, was material and ought to have been disclosed, as the incidents suggested a significant change in the risk profile. The fact that no claims had been made in respect of those fires was irrelevant.
The court acknowledged that evidence considered in determining whether an insurer was induced by an insured's breach of its duty of disclosure has a tendency to favour the insurer and, although honestly given, may be unreliable because of the risk of post-claim underwriting. However, as the insurer's evidence that the policy would not have been renewed had there been a fair presentation was supported by expert evidence, the court was prepared to find in favour of the insurer in this instance. Accordingly, the court found that the insurer was entitled to avoid the policy and tender a return of the premium. Cometsambre's claim was dismissed.
The judgment offers guidance that extends well beyond its specific facts. For insureds and insurers alike who transact on the basis of annual renewal, the following principles emerge.
First, renewal is not a formality. Because each renewal is a new contract, there is a duty to disclose material information afresh.
Second, materiality is not confined to matters that have resulted in a claim or that fall within the specific policy being renewed. Incidents that caused no loss, or that might fall under a different policy, must still be disclosed if they are material.
Third, waiver will not be readily inferred. An insured may argue that by focusing on certain aspects in underwriting questions directed to it, while not addressing other aspects, the insurer has waived its right to information not covered by those questions. However, such a waiver will not be readily assumed and the insured bears the burden of proving a waiver defence. The peculiar facts of each case will, of course, be determinative.
