Court Of Appeal Considers Duty Of Fair Presentation Under The Insurance Act

In Delos Shipholding SA & Ors v Allianz Global Corporate and Speciality SE & Ors [2025] EWCA Civ 1019 the Court of Appeal dismissed war risk insurers' appeal and upheld the claimants' claim for an indemnity for constructive total loss. In doing so, the Court of Appeal considered the duty of fair presentation under the Insurance Act 2015 (the Act) and is one of the first cases to consider the requirements for a reasonable search of information held by the insured as part of the duty of fair presentation under the Act.

BACKGROUND

The claim arose out of the 'illegal' anchoring of the 'WIN WIN' bulk carrier just inside Indonesian territorial waters off Singapore in February 2019. Anchoring in that area had previously been understood to be Singaporean anchorage. There had been no known instances of any vessel being detained or reprimanded by the Indonesian authorities simply for anchoring within those territorial waters. However, this changed very suddenly in February 2019, following a change of policy on the part of the Indonesian government. The Indonesian Navy arrested a large number of ships for anchoring in its territorial waters without permission, with a view to asserting its sovereignty over those waters.

On 17 February 2019, the 'WIN WIN' was boarded by armed personnel from the Indonesian Navy and was detained because the ship had entered Indonesian waters illegally. As a result of the change of governmental policy, despite the low level transgression, the vessel was detained by the Indonesian authorities for more than a year. Efforts were made to secure the release of the vessel during that time, but it became apparent that this would not take place without payment of a bribe, which the vessel owners were unwilling to pay.

The detainment clause in the war risks policy (the Policy) provided that the vessel would be a constructive total loss if detained for a continuous period of six months. Once this period expired, notices of abandonment were given to the Insurers, which Insurers declined.

Consequently, a claim was brought under the Policy. The defendant Insurers denied the claim on four bases, all of which were rejected by Mrs Justice Dias in the High Court. Our analysis of the High Court decision can be found here.

Insurers' appealed in relation to two issues.

COURT OF APPEAL DECISION

Construction of Exclusion 1(e)

The first ground for appeal concerned the correct interpretation of Exclusion 1(e) of the American Institute Hull War Risks and Strikes Clauses (1977) (the War Risks Clauses), which were expressly incorporated into the Policy. Exclusion 1(e) excludes loss caused by, resulting from or incurred as a consequence of:

By way of context, the War Risks Clauses effectively write back into the Policy the war risk perils expressly excluded by the American Institute Hull Clauses. As a result, the policy covered 'Capture, seizure, arrest, restraint or detainment, or any attempt thereat'. However, this was subject to certain exclusions which included Exclusion 1(e) set out above.

It was common ground that the vessel had not been arrested or detained under any customs or quarantine regulation. Insurers' case was that Exclusion 1(e) applied on the basis that there had been a detention which was 'similar' to a detention under customs or quarantine regulations and which did not arise from actual or impending hostilities.

The Court of Appeal dismissed the appeal on this ground. The Court determined that the relevant 'similarity' under this exclusion was to be determined by reference to arrests, restraints or detentions under two different kinds of regulation (i.e. customs and quarantine regulations) and extending to other regulations which have a similar purpose to the specified regulations.

The starting point, therefore, was to decide what was meant in Exclusion 1(e) by 'customs or quarantine regulations'. Only then was it possible to approach the question of whether a regulation, pursuant to which the vessel was arrested, restrained or detained, was of a 'similar' type to a customs or quarantine regulation. The Court of Appeal held as follows:

• Customs Regulations - Giving those words a businesslike interpretation, they refer to laws, however classified under domestic law, which regulate the import of goods into the territory of the state concerned, either by prohibiting such imports or by imposing a liability to make payment as a condition of importation.
• Quarantine regulations – should be interpreted as those words would be understood by business people, without regard to the niceties of local law. Applying that approach, the Court of Appeal determined that quarantine regulations are laws concerned with the protection of health, whether of people or animals.

The detention of the vessel in the present case occurred because, contrary to its previous practice, the Indonesian government decided to assert its sovereignty over its territorial waters by arresting and detaining vessels which had anchored without permission. This was considered to be entirely unconnected with the import of goods (customs) and with health (quarantine), and as a result was not a "similar" arrest, restraint or detention for the purposes of the exclusion.

Duty of Fair Presentation

The second ground for appeal was whether the Judge erred in finding that the claimants had not breached the duty of fair presentation under the Act.

This question arose out of the fact that criminal charges had been brought in Greece against Delos's sole nominee director, Mr Bairactaris, which were not disclosed to Insurers when the policy was renewed in June 2018. Mr Bairactaris was the only relevant person with knowledge of the charges at that time.

This was a one ship company, with a sole nominee director, who exercised his powers as a director in accordance with instructions received from the company's beneficial owners. He exercised no independent judgement and made no decisions. The Court of Appeal considered him to be a vehicle, as a matter of administrative convenience, for carrying out decisions made by the beneficial owners, by signing documents in accordance with their instructions.

The first question for the Court of Appeal was whether the director was part of the "senior management" for the purposes of section 4(3) of the Act such that his actual knowledge had to be disclosed. The Court of Appeal agreed with the Judge at first instance and held that he was not, noting that this conclusion was based on the "plain wording" of the Act. He was not an individual who played any role in the making of decisions about how the insured's activities are to be managed or organised, let alone a significant role, which is the test set out in Section 4(8)(c) of the Act.

The Act also requires an insured to disclose every material circumstance which it ought to know by reference to what "should reasonably have been revealed by a reasonable search of information available to the insured". The Judge in the High Court found that the making of reasonable enquiries did not require the nominee director to be asked if he knew of any circumstances which might affect the risk. The Court of Appeal agreed that this was a conclusion which the Judge was entitled to reach. The Court again gave weight to the fact that the director had no operational role or function in relation to trading of the vessel and the vessel's insurance. As a result, the director would not have known anything about the risk to be insured, and that this would reasonably have been considered a pointless question. As to whether the director should have been asked whether there were any circumstances affecting his own fitness to be a director, the Judge found that this question did not need to be asked in view of Mr Bairactaris' position as a respected professional adviser with a long-standing relationship with the commercial manager of the vessel and Insurers did not pursue this point. The Court of Appeal noted that what was required by a reasonable search must be answered objectively but observed that it was relevant in this case that there was no evidence that either (i) a direct question about a nominee director's own position or (ii) a more general question concerning knowledge of circumstances which might affect the risk, was asked routinely or at all by other Greek shipping groups using nominee directors, despite the fact that such a corporate structure is common.

The Court of Appeal held that the Insured did not have actual or constructive knowledge of the criminal charges and dismissed this ground of appeal.

COMMENT

Whilst a director of a company will often form part of the "senior management" of the company for the purposes of the duty of fair presentation under the Act, this case shows that that is not always the case and it will ultimately depend on the factual circumstances to determine if the statutory test under Section 4(8)(c) of the Act has been met. The Court of Appeal was clear in this case that an individual's mere involvement in company activities will not be sufficient.

From a risk management perspective, it is important for policyholders to consider the question of who forms part of their "senior management" in advance of each placement/renewal, to clearly identify the relevant pool of individuals and, where possible, agree a list (by reference to role) upfront with insurers to avoid costly and time-consuming disputes at a later stage.

An interesting point arose in argument in this case which ultimately did not need to be decided and so we will have to wait for another decision for clarity on this point. Section 4(6) of the Act provides that an insured ought to know "what should reasonably have been revealed by a reasonable search". The Court of Appeal in obiter dicta noted that this language might suggest that this is an objective question and that it does not in fact matter what such enquiries would have revealed. This could mean that an insured who had done everything required by the Act to discover material circumstances could still be in breach of the duty of fair presentation because its enquiries would not in fact have revealed the circumstances in question, even though they should have done so. This issue did not need to be determined in this case but the Court of Appeal did note that "such a result might be thought to be unfair, and contrary to the purpose of the 2015 Act".

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