The intermediate position between innocence and fraud

The assured were traders in crude oil, and to perform their sale and purchase contracts they charted vessels to collect oil from several loading ports. They insured their oil cargoes against loss or damage, and they also insured against incurring liabilities as charterers. The insurance also provided demurrage cover. When demurrage claims arose, the insurers paid some, but declined payment in respect of some other substantial claims on the grounds of non-disclosure. This non-disclosure included the lack of any information regarding demurrage claims(the loss experience), which the assured(as charterers) had previously paid to the ship owners. Furthermore, the assured had failed to disclose adverse port characteristics(such as bad weather or difficult tides) which are likely to give rise to demurrage claims.

The court ruled in favour of the assured in respect of the non-disclosure of the characteristics of the port, in that it was held not to be a material fact. However, the insurer was entitled to avoid liability in respect of the non-disclosure of the loss experience. Longmore J applied “actual inducement” test, and ruled that underwriter has to show that he was induced before he was induced before he was entitled to avoid the contract.