10 years after the English Insurance Act 2015 was passed into law one of its key provisions, s11, has received its first judicial consideration in OCBC v Argoglobal. As a decision of the Singapore High Court, which ruled on the issue under an English law Hull policy, this is not a legal precedent; nevertheless, it offers a useful insight, writes Gareth Williams, Director, CJC.

Background

S11 is one of a group of provisions designed to soften the effects of breaches of insurance warranties and similar terms. The old law (in the Marine Insurance Act 1906) relieved the underwriter altogether for any breach of warranty, whether or not the breach caused the loss and even if the breach was remedied before loss. Under S10 of the new Act such breaches merely suspend cover. S11 goes further and provides (in effect) that cover will not even be suspended if the term breached was not relevant to the loss. That however is subject to a qualification: cover will remain suspended if the term breached is one which “defines the risk as a whole”.

But how does one identify the terms which fall within that phrase? That was one of the issues in the OCBC case.

Singapore High Court Judgment

The Court was aided by the evidence of two very experienced English lawyers, acting as expert witnesses.

The Underwriters’ expert took an expansive view, to the effect that any terms which went to underwriters’ assessment of the risk, including for settling premium, were terms going to the risk as a whole. Thus, only blatantly irrelevant terms would fall outside the definition. On that view s11 would only save assureds in very limited circumstances.

The assured’s expert gave the phrase a more limited scope. In his opinion the focus of the test is whether the term delimits the nature and scope of the insurance contract generally. He referred to geographical and usage restrictions as terms which were so fundamental and extensive as to delimit the very risk that the insurer is underwriting.

The Judge preferred the view of the assured’s expert. That view is also closer to the thinking of academic commentators who express the distinction as involving one between terms which are “risk defining” (outside which the underwriter has not agreed to bear any risk at all) and those which mitigate risks falling within the area of risk which the underwriter has agreed to accept. Thus if you are trading outside the geographical, usage or temporal limits in the policy you are in an area in which the underwriters have never agreed to cover you and s11 will not save you. If, on the other hand, you are in the area in which the underwriters have agreed to cover you provided you comply with the agreed risk-mitigating terms, then s11 may save you to the extent that even compliance with those terms would not have avoided the loss in fact sustained.

Conclusion

As noted above, this is a decision of the High Court of Singapore. It therefore does not set a binding precedent on the English Court. That said, the Singapore Court’s judgment conceptually aligns with the approach in other areas of law where straying outside the four corners of the contract shifts the risk onto one party and away from the other. Thus a carrier who deviates from the agreed route effectively takes on the risks of an insurer, without the benefit of exclusion. Likewise a warehouseman who stores goods other than at the agreed location. And a tug which abandons its tow after it grounds loses the benefit of exceptions – they apply to acts or omissions during performance, but not when no performance within the scope of the contract is being provided. Thus there is a cogent body of law which supports the outcome suggested by the OCBC case. It will be interesting to see if in a future case the High Court in London agrees.